We are in danger of a
Our nation and its financial institutions benefit greatly from the deposits of foreigners, which help finance jobs and generate economic growth benefiting local communities. Economic and academic sources indicate that a substantial portion of this capital would be withdrawn and moved to non-U.S. jurisdictions, or to nonbank institutions that are not affected by the regulation, if REG-146097-09 is adopted. Conservative estimates show that Florida alone would experience a loss of tens of billions of dollars — funds that are reinvested by banks in the state’s economy through loans to businesses and individuals.
The IRS has failed to do a feasibility study on what impact this proposal would have. Nor has it studied how foreign governments would handle the privacy issues raised by such a reporting requirement.
It is precisely because of the confidentiality and security our country offers that so many nonresident aliens — especially those from countries with unstable governments or political environments where personal or financial security is a major concern — deposit their monies in U.S. financial institutions. In countries where corruption is commonplace, it is easy to envision the unauthorized sharing of account information with kidnappers and the like.
A Treasury Department tax counsel informed me that sensitive customer information would be shared with a nonresident alien's home country only if we have a tax information exchange treaty with that country. Most of Florida's nonresident alien deposits come from Central and South America. We have tax treaties with only two countries in that part of the world: Mexico, by most accounts the No. 1 kidnapping country in the world, and Venezuela, a country under the dictatorship of Hugo Chavez. We are going to supply those governments with information about our customers? In exchange for information about ex-pat Americans who are more likely to keep their monies in the safety of an FDIC bank account here at home than in Central or South America?
Treasury Secretary Timothy Geithner has said that we will not share information with countries that don't have "adequate safeguards in place to protect the confidentiality of those exchanges." I would like to ask how that confidentiality will be assessed. Despite whatever assurances come from the Venezuelan government, for example, how can the U.S. trust Hugo Chavez who has recently threatened to seize banks and businesses he believes are involved with his political opposition? Why would we believe that a president who would demand the names from confidential voter rolls not utilize the names of those who have money in U.S. bank accounts?
It has been hard to gather from administration officials a timeline for the adoption of the proposed rule, but members of Congress from across the country and from both sides of the aisle have written to the President and Treasury Secretary asking that this proposal be withdrawn.
Since 1922, this has welcomed foreign capital to its shores. According to the Commerce Department, foreigners have $10.6 trillion passively invested in the American economy, including nearly $3.6 trillion reported by U.S. banks and securities brokers. We estimate that Florida has $60 billion to $80 billion in nonresident alien deposits in FDIC accounts, plus tens of billions more in investments and managed accounts, in some cases through customer relationships that go back for several generations.
The proposal is in direct conflict with a longstanding objective of the Treasury Department and of Congress, to encourage nonresident aliens to deposit their money in U.S. banks so that their funds can, in turn, be used to foster growth and development in our country.
A decade ago, similar regulations were proposed by the Clinton Administration but never adopted. A 2004 study from the Mercatus Center at George Mason University estimated that the earlier proposal would have driven $88 billion from U.S. financial institutions.
The latest version of the proposed rule, with its wider scope and particularly unfortunate timing for the economy, would be all the more damaging.
Alex Sanchez is president and CEO of the Florida Bankers Association.
Editor's Note: The IRS finalized the rule as this piece was being posted, read our reported coverage "
