Secrecy, a thing of the past

The secretive world of offshore banking hasn’t been the same since 2009, when Washington succeeded in knocking Switzerland’s biggest bank, UBS, to its knees and forcing it to reveal confidential information about thousands of American clients who were evading taxes. “We’re moving toward greater financial transparency and more information exchanges,” Victor Perez, a lawyer who specializes in financial issues with the Miami-based firm Holland & Knight, told Latin Trade.


Starting next year, the campaign for transparency will arrive at one of the most popular destinations for Latin Americans looking for a safe haven for their money: Miami, and the rest of the United States. As of January 2013, Uncle Sam will demand that banks operating on American soil report on the accounts of the citizens of 77 countries where Washington has tax agreements.

In Latin America this new regulation will affect Costa Rica, the Dominican Republic, Honduras, Mexico, Panama, Peru and Venezuela, all countries that have tax accords with the United States. Chile is in negotiations to finalize a similar treaty.

The new trend toward more transparency is driven in part by security issues, but there’s also an economic motive. Because of its serious budget deficit, the U.S. government is looking for ways to collect more taxes, and one relatively fast way to do it is to search for money its citizens have outside the country. “The United States is seeking a better bargaining position for the moment when it asks other countries for financial information about American citizens with offshore accounts,” explained Daniel Martínez, another financial lawyer with Holland and Knight.

The decision has caused a great kerfuffle in Miami’s banking sector where, according to the Florida regulatory authorities, foreign deposits represent more than 40 percent of the assets of local banks and 90 percent of the assets of foreign banks.

The International Association of Banks (FIA) has launched a major lobbying effort in Washington against the measure.

“Now that the regulation has been approved, as banks we have to comply. We are going to report the clients of the countries that are on the list,” FIA president Maria Grisel Vega told Latin Trade.

The clients who are most worried are the Mexicans and the Venezuelans, according to an investment banker who asked that his name not be used because his bank has not authorized him to speak on the issue.

Under the new regulation, foreign banks must report to the IRS on all interest paid in excess of 10 dollars that is generated by the bank accounts of citizens of the relevant countries. “However, there’s one exception,” said the unnamed banker. “The banks must report the accounts that are in the name of a person, but not those in the name of an entity. Most people with a lot of money already have it in the name of a corporation, and those who don’t are opening trust accounts or setting up corporations.”

The IRS says its intention isn’t to tax the interest reported but to compile the information so it’s available when a country asks for it. “The request from a foreign country cannot be general,” said Martinez of Holland & Knight. “It must be specific. The country cannot ask for the whole list. It has to ask for information about one particular person and explain the reasons why it is required to safeguard the confidentia-lity of the information.”

All of the shared information based on this regulation is tied to tax issues. Requests for information for investigating illicit funds or money laundering are covered by other laws. But Vega, the FIA president, says there are many reasons why Latin Americans might be suspicious of news that their information will be shared with someone else, and not all of them are related to tax evasion.

“It’s not true that all of the money in Miami is dirty. There are many legitimate reasons why Latin Americans invest their money in Miami. Some of the main ones are the lack of security, and the political and economic instability, in their (home) countries,” Vega said.

The security factor is first and foremost for clients from Mexico, a country that drug cartels have converted into the new kidnapping capital of Latin America. Venezuelans fear that the socialist government of Hugo Chavez will confiscate their assets.

In the special case of Venezuela, the tax accord with the United States dates back to 1999 and has never been used. According to a report last April from a US financial news agency, the U.S. Treasury has issued a notice saying there will be no exchange of information with Venezuela because it doesn’t think the country can guarantee the confidentiality of the information it receives.

The FIA fears that the measure will diminish the attractiveness of the United States as a safe haven for Latin American money. The association says that the Caribbean and Panama could become alternatives for many clients who are looking for more discreet places to park their assets.

Not everyone is so pessimistic. “The truth is that nowadays transparency is greater all over the world, and besides, it’s the trend,” said the anonymous banker. “Before it used to be cool to say, ‘I have money in the Bahamas.’ Now if someone has money in a tax haven it’s automatically assumed that the person is involved in something dirty.”

“That’s why I don’t think this will have much impact,” he added. “Where can a client find absolute confidentiality? Not in Switzerland. Maybe in Monaco or Andorra, but those are small places and besides, who wants to say, “I have money in Andorra’?”


—Alejandra Labanca reporting from Miami


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