To clearly illustrate the risk you take by capitulating, consider the tremendous liability you will visit on your own employees should FATCA implementation go through via an IGA. Each financial institution is required to designate a Responsible Officer whose job is to ensure full compliance with FATCA. Under U.S. law (read the fine print in the FATCA regulations) those Responsible Officers could be subject to imprisonment of up to 3 years, or fined up to $250,000 (and your institution also fined up to $500,000), or both, together with cost of prosecution (not to mention having to pay the cost of legal defence). How likely are any of your employees to apply for the RO job, once they are aware of this aspect of the job description? How will your banking customers view this vulnerability?
2. An IGA is inevitable:
It is not!
The U.S. Treasury Department admits that it cannot compel FATCA enforcement on an extraterritorial basis without IGAs. As stated in the Fiscal Year 2014 Budget request sent up to Capitol Hill in April (Analytical Perspectives to the Fiscal Year 2014 Budget, page 202):
"In many cases, foreign law would prevent foreign financial institutions from complying with the FATCA provisions of the Hiring Incentives to Restore Employment Act of 2010 by reporting to the IRS information about U.S. accounts. Such legal impediments can be addressed through intergovernmental agreements under which the foreign government agrees to provide the information required by FATCA to the IRS."
Among other statutes, this refers to the Charter and other protections in Canadian law. Without an IGA and modification of Canadian laws and Charter, Canadian banks cannot legally comply with FATCA, which would leave the U.S. Treasury Department with the choice of declaring economic war on America's biggest trading partner (the 30% withholding threat about which the CBA rightly complains) or backing down.
By advocating an IGA, the CBA relieves Treasury of this dilemma -- and saves an otherwise doomed FATCA. The IGA's supposed "inevitability" becomes a self-fulfilling prophecy. Indeed, it is worse than that. The CBA would have us believe that the IGA is in the pipeline all by itself, that the CBA is just a passive bystander:
"We have no control over the negotiations or the content of the IGA and neither do the banks or other financial institutions. The financial services industry has not capitulated. and we are not enthusiastic about an IGA. Our concerns about FATCA have not changed but the reality is that an IGA is coming."
There would be no prospect of an IGA at all without the efforts of the CBA and other elements of the Canadian financial industry, notably the Investment Industry Association of Canada (IIAC). (To its credit, Credit Union Central of Canada is opposed to an IGA, though they are aware an IGA may be forced upon them through the efforts of the CBA, the "Big Five" banks, IIAC, and others.)
In short, it is unbecoming and disingenuous for the CBA to make the assertion that "the reality is that an IGA is coming" as though it were the result of some natural phenomenon, and unrelated to the CBA's own energetic efforts.
If there is an IGA imposed on Canadians, it will be in large part because your organization and your member banks pushed a reluctant Government to give you one. Let's not sugar coat it. An IGA is a FATCA bailout for you and your member banks, pure and simple. You may have "no control over the negotiations" but you certainly have influence, which you are using to your customers' detriment.
3. An IGA is acceptable to Canadians:
It is not!
The CBA is accurate in asserting that it has "no control over the content of the IGA and neither do the banks or other financial institutions." Neither does the Canadian Government. It is well known that the standard IGA text (model 1), including the Treasury Department's vague promises of reciprocity, is essentially set in stone, with only marginal changes permitted, notably with listing of FATCA-exempt entities on Annex II. This is not a negotiation with "give and take" allowing input from Canada.
In our view an IGA is a one way cram down, plain and simple, dressed up under the faà §ade of politically acceptable language of "bilateralism" or "negotiations", and then sold by you as inevitable and acceptable to Canadians. It is neither.
A December 2012, five page letter from noted constitutional scholar Peter Hogg, former Dean of Osgoode Hall Law School, provided detailed analysis of FATCA's violations of Canadians' rights (as described and excerpted below):
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