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FATCA: Take 2Are You Ready to Certify FATCA Compliance? By
Ellen Zimiles Managing Director and Head of Global Investigations and Compliance
Richard Kando Director and FATCA Task Force Leader
Jeffrey Locke Director and FATCA Task Force Leader
TABLE OF CONTENTS
I. Introduction....................................................................................................................................................................1
A. We’re not just in Switzerland anymore...............................................................................................1
B. Practical steps FFIs can take based on Notice 2011-34............................................................1
II. Brief background of FATCA..................................................................................................................................2
III. Summary of Notice 2011-34...............................................................................................................................3
A. New procedures relating to the analysis of pre-existing individual accounts................3
B. Passthru payments..........................................................................................................................................4
C. Other areas addressed in Notice 2011-34..............................................................................................5
IV. Practical steps FFIs can take based on Notice 2011-34........................................................................7
A. The analysis of pre-existing individual accounts..............................................................................7
B. Passthru payments........................................................................................................................................10
C. Other steps......................................................................................................................................................10
D. Comments........................................................................................................................................................11
V. Conclusion....................................................................................................................................................................11
Appendices.............................................................................................................................................................................12
FATCA: Take 2Are You Ready to Certify FATCA Compliance?
1 | D ISPUTES & INVESTIGATIONS MAY 2011
I . INTRODUCTIONA. We’re not just in Switzerland anymore
It has become clear that the focus of the Internal Revenue Service (“IRS”) and Depart-
ment of Justice (“DOJ”), in their efforts to combat offshore tax evasion, has moved
beyond Switzerland. Specifically, individuals with accounts maintained at HSBC in India
have pleaded guilty to tax fraud and there has been a request by the DOJ to serve a
“John Doe” summons to allow the IRS to obtain information relating to accounts at
HSBC in India. Above and beyond HSBC, the IRS announced in February 2011 a sec-
ond voluntary disclosure program, which allows individuals to disclose their offshore
bank accounts while paying certain civil penalties. Enforcement actions relating to tax
evasion are here to stay.
One of the most powerful tools the U.S. Government will have in their arsenal to com-
bat offshore tax evasion is the Foreign Account Tax Compliance Act (“FATCA”), which
was signed into law on March 18, 2010 and generally goes into effect on January 1,
2013. Among other things, FATCA generally mandates that for a participating foreign
financial institution (“FFI”) to continue to remit and receive the full value of all of its
transfers and conduct its worldwide operations with limited impact by FATCA, it must
identify to the IRS its U.S. accounts. The penalty for non-compliance is steep: a 30%
withholding tax on certain withholdable and passthru payments.1
On April 8, 2011, in an effort to provide further guidance regarding the implementation
of FATCA, the Department of the Treasury (“Treasury”) and the IRS published Notice
2011-34,2 which is meant to augment, and in certain parts supplement, the previous
guidance provided in Notice 2010-60. The new Notice, although clarifying and simpli-
fying select aspects of FATCA, leaves many still unanswered questions..
B. Practical steps FFIs can take based on Notice 2011-34
With the deadline for FATCA fast approaching, FFIs must start to determine what
practical steps they can take now to build their FATCA compliance program and enter
into an information reporting and withholding agreement with the IRS. Based on No-
tice 2011-34, FFIs can start developing a plan to handle the analysis of pre-existing in-
dividual accounts and passthru payments. Additionally, Notice 2011-34 may also allow
CONTACTS »
Ellen Zimiles
Navigant
212.554.2602
Richard Kando
Navigant
212.554.2698
Jeffrey Locke
Navigant
212.554.2694
www.navigant.com
1 A withholdable payment is any payment of interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income, if such payment is from sources within the U.S. and any gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the United States. Internal Rev-enue Code (“IRC”) § 1473(1)(A). A passthru payment is defined as any withholdable payment or other payment to the extent attributable to a withholdable payment. IRC § 1471(d)(7).
2 Notice 2011-34 is entitled, “Supplemental Notice to Notice 2010-60 Providing Further Guidance and Requesting Comments on Certain Priority Issues Under Chapter 4 of Subtitle A of the Code” and “… provides guidance in response to certain priority concerns identified by commentators following the publication of Notice 2010-60 and requests further comments with respect to specific issues.” p. 2.
2 | D ISPUTES & INVESTIGATIONS MAY 2011
FFIs to make some determinations concerning their affiliated
group and whether certain of their affiliates could meet pa-
rameters to obtain deemed compliant status.
This paper is divided into three sections: (1) a brief background of
FATCA; (2) a discussion of Notice 2011-34 and (3) practical steps
an FFI can start to take based on Notice 2011-34.
I I . BRIEF BACKGROUND OF FATCAOn March 18, 2010, FATCA was signed into law as part of the
Hiring Incentives to Restore Employment Act. FATCA gener-
ally goes into effect on January 1, 2013 and provides the Treasury
and the IRS with oversight responsibility. The goal of FATCA is
to combat tax evasion by mandating that FFIs report select infor-
mation on their U.S accounts to the IRS. To achieve this goal, in
general, FATCA requires FFIs3 to put processes in place to identify
and report their U.S. accounts to the IRS or suffer a penal with-
holding tax. Participating FFIs will be required to enter into an
agreement with the IRS (the “FFI Agreement”) to report certain
information regarding their account holders and withhold on cer-
tain payments, if necessary.
To help put FATCA into a working framework, the Government
has issued two Notices: (1) on August 27, 2010, the Govern-
ment issued its first guidance for FATCA, Notice 2010-60 and
(2) on April 8, 2011 the Government issued Notice 2011-34.
The two Notices provide much needed detail to allow FFIs to
start to create their FATCA compliance systems, although to
have a fully operational system more guidance or proposed
regulations are needed.
Notice 2010-60, among other things, outlined the procedures to
be followed to identify U.S. accounts for pre-existing and new,
individual and entity accounts. Notice 2011-34 outlines new pro-
cedures to be followed for pre-existing individual accounts and
replaces the procedures outlined in Notice 2010-60. In attempt-
ing to identify U.S. accounts among the FFI’s individual account
population, there are three classifications for individual accounts
that will trigger different actions by the FFI. The account can be
classified as: (1) a U.S. account, which triggers a reporting require-
ment; (2) a non-U.S. account, which does not trigger any further
reporting or withholding obligation or (3) a recalcitrant account
holder,4 which triggers a withholding and reporting requirement.
The analysis of entity accounts is more cumbersome, but has
the same main goals: identifying U.S. accounts and determining
if there should be reporting and/or withholding for entity
account holders.5
Prior to Notice 2011-34, one of the biggest open issues was how
to determine the amount of withholding from recalcitrant ac-
count holders and non-participating FFIs on passthru payments.
Notice 2011-34 describes the mathematical formula to determine
the withholding.
All participating FFIs will have to sign an FFI Agreement with the
U.S. Government.6 The signing of the FFI Agreement starts the
clock ticking on numerous obligations of the FFIs, including trying
to identify pre-existing and new U.S. accounts, compliance with
due diligence and certification procedures, dealing with requests
for more information and reporting requirements, which are dis-
cussed in detail in section III.C.2.
3 According to FATCA, an FFI is a foreign entity that: (1) accepts deposits in the ordinary course of a banking or similar business, (2) as a substantial portion of its business, holds financial assets for the account of others, or (3) is engaged (or 6 FATCA allows the Government to accept select FFIs as deemed compliant FFIs, such as certain local banks, local FFI members of participating FFI groups and certain investment vehicles that meet identified parameters, which greatly reduces the burdens of compliance for these FFIs. Deemed compliant FFIs are discussed in more detail in section III.C.1.
4 A recalcitrant account holder is an account holder who does not comply with a request for information or a waiver from the FFI within a set period of time, usually one year. IRC § 1471(d)(6).5 Under FATCA, an entity can be classified as one of the following: (1) Participating FFI; (2) Deemed compliant FFI, as described in section III.C.1; (3) Non-participating FFI; (4) Non-financial foreign entity (“NFFE”); (5) Excepted NFFE (i.e. an NFFE that operates an active trade or business); (6) Excepted entity under FACTA § 1471(f) (an excepted entity according to the statute); (7) Recalcitrant accountholder; or (8) U.S. account. A U.S. Account is defined, generally, as a financial account held by a specified U.S person or by an entity that, directly or indirectly, had one or more “substantial” U.S. owners. FATCA defines a “substantial” U.S. owner as a direct or indirect
owner of: (1) more than 10% of the stock of a corporation; (2) more than 10% of the profit or capital interest in a partnership; or (3) more than 10% of the beneficial interest of a trust. Investment vehicles owned by a U.S. person must also be reported to the IRS. IRC § 1473(2) and 1473(3).
6 FATCA allows the Government to accept select FFIs as deemed compliant FFIs, such as certain local banks, local FFI members of participating FFI groups and certain investment vehicles that meet identified parameters, which greatly reduces the burdens of compliance for these FFIs. Deemed compliant FFIs are discussed in more detail in section III.C.1.
3 | D ISPUTES & INVESTIGATIONS MAY 2011
I I I . SUMMARY OF NOTICE 2011-34Notice 2011-34 demonstrated that the Government is listening
to industry comments in some areas as select procedures have
been changed based on those comments.
A. New procedures relating to the analysis of pre-existing individual accounts
Notice 2011-34 published revised procedures for the iden-
tification of U.S. accounts among the FFI’s population of pre-
existing individual accounts.7 The revised procedures, which
make the analysis of pre-existing private banking accounts
more onerous, gives FFIs relief with regard to non-private
banking accounts, such as retail banking accounts.
1. Steps to complete
In general, the first two steps that an FFI must complete are:
a. Identify accountholders already documented as
U.S. Persons for other U.S. tax purposes8 and
b. From the accounts not identified as U.S. accounts
in Step 1, an FFI can elect to treat any account
with a calendar year-end balance or value of less
than $50,000 as a non-U.S. account.
2. Private banking accounts
Pre-existing individual accounts that meet the definition
of a private banking account provided by Notice 2011-
34 are to be analyzed using a newly described method-
ology.9 FFIs must request information from the private
banking relationship manager10 regarding his or her
knowledge of the account holder’s U.S. status and then, if
the account holder’s status is still unknown, review all in-
formation associated with the account, not just electron-
ic information, for indicia of U.S. status.11 If the private
banking relationship manager identifies the account as a
U.S. account or if there are indicia of U.S. status present,
the FFI must retrieve additional documentation from the
client to determine if the account is a U.S. account. A
failure to provide certain information, including a waiver
of local law if required, could relegate the accountholder
to be identified as recalcitrant, which triggers a reporting
and withholding obligation by the FFI.
3. Other accounts including retail accounts
In a huge relief to the industry, the Government, dem-
onstrating its willingness to take into account industry
concerns, has limited the amount of work necessary
to analyze pre-existing individual accounts that are not
private banking accounts, such as retail accounts. For
these accounts, the FFI must search its electronically
searchable information for indicia of U.S. status12 and
then follow-up with the account holder to request ad-
ditional information if indicia of U.S. status is identified.
Notice 2011-34 limited the term electronically search-
able information to information the FFI maintains in its
7 In our earlier white paper, entitled FATCA: The Long Arm of the IRS, How Foreign Financial Institutions Should Prepare for the United States Government’s Effort to Combat Offshore Tax Evasion (December 2010), Navigant set forth a preliminary workflow for pre-existing individual accounts. Due to guidance included in Notice 2011-34, we have revised that workflow which is annexed hereto as Appendix A. The other three workflows for pre-existing entity accounts, new individual accounts and new entity accounts are annexed hereto as Appendix B, C and D respectively.
8 If the FFI chooses, even if an account is already identified as a U.S. account for other, non-FATCA U.S. tax purposes, depository accounts where each holder is a natural person and the account balance or value is less than $50,000 as of the end of the calendar year preceding the effective date of the FFI’s FFI Agreement can be classified as a non-U.S. account. Notice 2011-34, pp. 8 - 9.
9 Notice 2011-34 defines a private banking account as any account maintained or serviced by an FFI’s private banking department or any account maintained or serviced as part of a private banking relationship, including any account held by an entity, nominee, or other person to the extent the account is associated with the private banking relationship with an individual client. Notice 2011-34, pp. 4 – 5. There is no account minimum to qualify as a private banking account as there is according to the USA PATRIOT Act. Section 312 of the USA PATRIOT Act defines a private banking account as an account (or accounts) that: (1) require a minimum aggregate deposit of funds or assets of not less than $1,000,000; (2) is established on behalf of 1 or more individuals who have a direct or indirect beneficial ownership interest in the account; and (3) is assigned to, or administered by, an officer, employee, or agent of a financial institution. 31 U.S.C. § 5318(i)(4)(B).
10 Notice 2011-34 defines a private banking relationship manager as an officer or other employee of the FFI who: (1) is assigned responsibility for specific account holders on an ongoing basis; (2) advises account holders regarding their banking, investment, trust and fiduciary, estate planning or philanthropic needs; and (3) recommends, makes referrals to, or arranges for the provision of financial products, services, or other assistance by internal or external providers to meet those needs. Notice 2011-34, p. 6.
11 Indicia of U.S. status include: (1) a U.S. citizenship or a green card holder; (2) a U.S. place of birth; (3) a U.S. residence or U.S. correspondence address; (4) standing instructions to transfer funds to an account maintained in the U.S. or directions regularly received from a U.S. address; (5) an “in care of” or a “hold mail” address that is the sole address with respect to the file; or (6) a power of attorney or signatory authority granted to a person with a U.S. address. Addition-ally, to address some of the concerns raised by the financial services industry, the Treasury and IRS removed a non-U.S. P.O. Box address as indication of U.S. status. Notice 2011-34, p. 10.
12 The indicia of U.S. status when analyzing pre-existing individual accounts that are not private banking accounts is similar, but not exactly the same, as the indicia when analyzing the FFI’s private banking accounts. Specifically, the indicia are: (1) identification of an account holder as a U.S. resident or U.S. citizen; (2) a U.S. place of birth for an account holder; (3) a U.S. residence address or a U.S. correspondence address (including a U.S. P.O. Box); (4) standing instruc-tions to transfer funds to an account maintained in the United States; (5) an “in care of” or a “hold mail” address that is the sole address shown in the FFI’s electronically searchable information for the account holder; and (6) a power of attorney or signatory authority granted to a person with a U.S. address. Notice 2011-34, p. 14.
4 | D ISPUTES & INVESTIGATIONS MAY 2011
tax reporting files or customer master files or similar
files that are stored in an electronic database that is
able to be queried using programming languages. The
definition specifically excludes electronic information,
such as .pdf files or scanned documents, which is not in
a database that could be queried.13
4. High value accounts
FFIs will no longer have to re-apply the new account
procedures to all pre-existing individual accounts with
a balance or value of $50,000 or greater, as dictated
in the previously published FATCA guidance, Notice
2010-60; instead, the new threshold for analysis is
$500,000.
For accounts with year-end values or balances of
$500,000 or greater that were not previously identified
as U.S. accounts or accounts with U.S. indicia, FFIs will
have to conduct a diligent review of the account files
for indicia of U.S. status. When there are indicia of U.S.
status present, the FFI must retrieve additional docu-
mentation from the client to determine if the account
is a U.S. account or a non-U.S. account. A failure to pro-
vide certain information could relegate the account-
holder to be identified as recalcitrant, which triggers a
reporting and withholding obligation by the FFI.
Beginning in the third year following the effective date
of the FFI Agreement, the IRS will require this analysis
to be completed annually for any accounts that had a
year-end account balance or value of $500,000 or more
and that were not previously analyzed or identified as
U.S. Accounts.
Although there is an annual retesting requirement for
high value accounts, the new steps outlined in Notice
2011-34, in effect, indicate that if an account has a year-
end balance or value that is less than $500,000 and there
is no electronically searchable information, the FFI will not
have to examine the account for FATCA purposes. This
will benefit FFIs with a large retail base as a large percent-
age of retail accounts may not have to be analyzed.
5. Certification by the Chief Compliance Officer
or equivalent level officer
The chief compliance officer or another equivalent-
level officer of the FFI will have to certify to the IRS
the analysis of its pre-existing individual accounts was
completed in accordance with Notice 2011-34. The
certification will also include a representation that FFI
management personnel did not engage in any activity, or
have any formal or informal policies and procedures in
place, directing, encouraging, or assisting account hold-
ers avoid identification of the U.S. accounts as of the
publication date of Notice 2011-34. The certification
will further require that the FFI has written policies and
procedures in place prohibiting its employees from per-
forming such actions.
The signor of the certification required under Notice
2011-34 will likely want to be involved in setting up the
FATCA compliance policies and procedures and should
also necessitate vigorous testing of those procedures
prior to signing the certification and submitting it to the
IRS. The signor of the certification may also request
others responsible for FATCA compliance sign a similar
certification that the ultimate signor can rely on, at least
in part. The FATCA certification requirement is similar
in nature to the certification requirement regarding
internal controls required by Sarbanes-Oxley. Among
other things, Sarbanes-Oxley requires company man-
agement to evaluate whether internal controls over fi-
nancial reporting are effective and to conclude on their
effectiveness.14
Perhaps most notably, Notice 2011-34 did not ask for a
member of the FFI’s tax or information reporting team
to certify compliance.
B. Passthru payments
Notice 2011-34 provides some much needed additional in-
formation regarding passthru payments, one of the thorniest
issues raised by FATCA. The passthru payment rule is meant
to encourage FFIs to enter into FFI Agreements even if the
13 Id., pp. 14 - 15.14 15 U.S.C. § 7241(a)(4).
5 | D ISPUTES & INVESTIGATIONS MAY 2011
FFI does not directly hold assets that produce withhold-
able payments. FFIs, as feared prior to Notice 2011-34, will
not have to trace passthru payments to recalcitrant account
holders or non-participating FFIs. Instead, the amount of the
passthru payment will be largely based on the FFI’s passthru
payment percentage, which is the percentage of U.S. assets
to total assets. Although the mathematical methodology ap-
pears to be settled, application of the formula to passthru
payments will still raise many issues for FFIs.
1. Passthru payment percentage
The passthru payment percentage is generally calculat-
ed by dividing the sum of the FFI’s U.S. assets15 held on
each of the last four quarterly testing dates by the sum
of the FFI’s total assets held on those same dates. The
quarterly testing date will be either the last redemption
date of the quarter (for entities that conduct redemp-
tions at least quarterly) or the last business day of the
quarter (based upon the FFI’s fiscal year). Generally, in
regards to the passthru payment percentage, total as-
sets include assets on the balance sheet of the FFI and
also any off-balance sheet transactions or positions to
the extent provided in future guidance.16
The mathematical formula to calculate the passthru
payment percentage is below:
For example, if the sum of U.S. assets was $40 million
for the four testing dates, and the sum of total assets
for those same four testing dates was $100 million,
the passthru payment percentage would be 40%, or
$40,000,000/$100,000,000.
To provide incentive for FFIs to calculate their passth-
ru payment percentage, an FFI that does not calculate
or publish their passthru payment percentage will be
deemed to have a passthru payment percentage of
100%.17
2. Passthru payment calculation
According to Notice 2011-34, for non-custodial pay-
ments, the calculation of a passthru payment made by
an FFI (payor FFI) is:18
3. A passthru payment example
FATCA requires a participating FFI to deduct and with-
hold a tax equal to 30% of any passthru payment made
to a recalcitrant account holder or non-participating
FFI.19 For illustrative purposes, we will make the follow-
ing assumptions:
a. An FFI is scheduled to make a $4,000,000
payment to a non-participating FFI;
b. The payor’s FFI’s passthru payment percentage is 50%;
c. The total withholdable payment is $1,000,000; and
d. The amount of the payment that is not a
withholdable payment is $3,000,000.
The amount of withholding on this $4,000,000 payment to
a non-participating FFI is $750,000. First, multiply $3,000,000
by 50%, which equals $1,500,000. Next, add $1,500,000
to $1,000,000 for a sum of $2,500,000. Finally, multiply
$2,500,000 by 30% for a product of $750,000.
Presented another way, ($1,000,000 + ($3,000,000 x 50%))
x 30% = $750,000.
15 According to Notice 2011-34, Treasury and the IRS intend to publish regulations defining a U.S. asset to include any asset to the extent that it is of a type that could give rise to a passthru payment. Also, an FFI’s debt or equity interest in a domestic corporation will be treated solely as a U.S. asset. Furthermore, certain interests in or other financial accounts that are not custodial accounts held with another FFI (or “Lower Tier FFI”) constitute a U.S. asset equal to the value of the interest in, or account with, the Lower Tier FFI multiplied by the Lower Tier FFI’s passthru payment percentage. Notice 2011-34, pp. 24 - 25.
16 Id., p. 23.17 Id., p. 25.18 Id., pp. 21 - 22.19 IRC § 1471(b)(1)(D).
Sum of U.S. assets
Sum of total assets
the amount of the payment that is a withholdable payment
+(the amount of the payment that is not a withholdable payment multiplied by the passthru payment percentage
)
6 | D ISPUTES & INVESTIGATIONS MAY 2011
C. Other areas addressed in Notice 2011-34
1. Deemed-compliant FFIs
Generally, Notice 2011-34 states that (1) certain local
banks; (2) local FFI members of participating FFI groups
and (3) certain investment vehicles could potentially
receive deemed-compliant FFI status if certain criteria
are met. The definitions of these categories identified
in Notice 2011-34 appear to be very restrictive. For
example, under the description of “certain local banks,”
two of the characteristics necessary to be deemed
compliant include that all of the FFIs in the expanded
affiliate group must be organized in the same country
and, among other restrictions, no FFI in the expanded
affiliate group maintains operations outside the country
of organization.20
Moreover, a deemed-compliant FFI will be required to:
(1) apply for deemed-compliant status; (2) obtain an FFI
identification number (FFI EIN); and (3) certify every
three years to the IRS that it meets the requirements
for deemed-compliant FFI status.21 At this time, it is un-
clear how the IRS will review and evaluate whether an
FFI applying for deemed compliant status actually meets
all of the criteria.
2. Reporting on U.S. accounts
Notice 2011-34 changes certain reporting require-
ments from Notice 2010-60. For example, according
to Notice 2011-34, Treasury and the IRS intend to issue
regulations limiting the FFI’s reporting requirement for
account balance to year-end account balance or value
instead of the highest value over the course of the
year.22 Also, instead of gross receipts and withdrawals,
in general, Notice 2011-34 states that Treasury and IRS
intend to issue regulations requiring the following be
reported annually:
a. The gross amount of dividends paid or credited to
the account;
b. The gross amount of interest paid or credited to
the account;
c. Other income paid or credited to the account; and
d. Gross proceeds from the sale or redemption of
property paid or credited to the account with
respect to which the FFI acted as a custodian,
broker, nominee, or otherwise as an agent for the
account holder.23
Additionally, according to Notice 2011-34, an FFI can
elect to have each branch report information regarding
its U.S. accounts.24
3. Requirements for qualified intermediaries (“QIs”)
Prior to the enactment of FATCA, QIs had already
taken on certain withholding and/or reporting respon-
sibilities with respect to some of their account holders.
FFIs that currently participate in the QI program will
be expected to become participating FFIs or deemed
compliant FFIs.
Notice 2011-34 states that the Treasury and IRS also
intend to coordinate FATCA mandated reporting and
withholding requirements with the requirements that
presently apply to QIs.25
4. Expanded affiliated groups
According to Notice 2011-34, Treasury and the IRS
intend to issue regulations requiring that each FFI affili-
ate in an FFI Group26 must be a participating FFI or a
20 Notice 2011-34, pp.29 - 30.21 Id., p. 29.22 Id., p. 35.23 Id., p. 36.24 Id., p. 38 - 39.25 Id., p. 40.26 For FATCA, an expanded affiliate group generally means financial institutions associated with one another through ownership of 50% or more or connected through a common parent entity. IRC § 1471(e)(2). According to Notice 2011-34,
each member of the same expanded affiliated group is an “FFI affiliate” and the group is identified as the “FFI Group”. Notice 2011-34, p. 40.
7 | D ISPUTES & INVESTIGATIONS MAY 2011
deemed-compliant FFI and each FFI affiliate will be re-
sponsible for its own due diligence, withholding and re-
porting obligations and return filing requirements under
its FFI Agreement. Each FFI affiliate will also be issued
its own FFI-EIN, but there will be a coordinated applica-
tion process.27 Additionally, each FFI Group will have a
Lead FFI, which will be responsible for certain coordina-
tion functions with the IRS, especially as it relates to the
FFI Agreement application process.28
Notice 2011-34 also allows for the designation of a
Point of Contact FFI (“POC FFI”), which will be respon-
sible for addressing issues with the IRS concerning the
certifications provided by their associated FFI affiliates
to maintain deemed-compliant status or concerning on-
going issues pertaining to any NFFEs in the FFI Group,
among other things.29
Moreover, FFIs will most likely have the option to des-
ignate a compliance FFI (“Compliance FFI”), which will
have an oversight role with respect to compliance with
FATCA.30
5. Effective date of FFI Agreements
Finally, according to Notice 2011-34, FFI Agreements
will become effective on the later of: (1) the date the
FFI Agreement is executed; or (2) January 1, 2013.31
IV. PRACTICAL STEPS FFIs CAN TAKE BASED ON NOTICE 2011-34
FFIs, based on the guidance provided in Notice 2011-34, can start
to implement more practical steps to comply with FATCA. Prior
to Notice 2011-34, there were only a few practical steps that FFI
could take geared toward implementation. For example, some FFIs
started analyzing the impact FATCA will have on their worldwide
affiliates and business lines and educating their business line person-
nel of FATCA.32 There are now additional steps that can be taken
over the next three to six months, prior to proposed regulations
being issued, to effectively and efficiently move toward FATCA
compliance. Notice 2011-34 provides FFIs with specific guidance in
certain areas to further develop their compliance programs; specifi-
cally concerning the identification of U.S. accounts among the FFI’s
pre-existing individual account population and passthru payments.
FFIs can also start to organize their affiliated group and identify po-
tential deemed compliant FFIs. Furthermore, FFIs can send more
comments to the IRS, based on the requests for certain information
in Notice 2011-34 and other open items under FACTA. Outlined
below are concrete steps, based on Notice 2011-34 that FFIs can
take to move toward FATCA compliance.
A. The analysis of pre-existing individual accounts
Notice 2011-34 provides new guidance regarding the identi-
fication of U.S. accounts among the pre-existing individual ac-
count population that enables FFIs to start to develop their
compliance methodology. FFIs will need a two pronged pro-
cess: one for FATCA-defined private banking accounts and
the second for non-private banking accounts. FFIs should
consider implementing certain steps below on a sample ba-
sis, possibly for a single, smaller FFI affiliate or a small group
of FFI affiliates, to determine the budget and resources nec-
essary to build a comprehensive FATCA compliance system
across the world.33
1. Determine if account values can be aggregated
Prior to analyzing any account, it is important to note
that Treasury and the IRS limited the extent to which
FFIs must aggregate accounts by requiring FFIs only to
aggregate accounts maintained by the FFI or its affiliates
that are associated due to partial or complete owner-
ship under the FFI’s existing computerized informa-
tion management, accounting, tax reporting or other
recordkeeping systems. This was an important change
27 Id., p. 41.28 Id., pp. 41 - 42.29 Id., p. 43.30 Id., pp. 43 - 44.31 Id., p. 45.32 Navigant’s sample FATCA project plan is attached hereto as Appendix E.33 The number of FFI affiliates chosen for the sample will likely be driven by numerous factors including the number of disparate computer systems utilized across the world by the FFI. For example, an FFI that has grown through acquisitions
may want to select a larger sample of FFI affiliates as many of the computer systems and information available for review may be maintained differently from location to location or across business lines. A larger sample under this scenario would most likely provide the FFI with a greater ability to predict the resources needed to build and implement a worldwide FATCA compliance program.
8 | D ISPUTES & INVESTIGATIONS MAY 2011
because the prior requirement to aggregate accounts
across the world was unworkable for most, if not all,
FFIs. As a first step, FFIs should determine where aggre-
gation would apply including if aggregation could apply
across certain FFI affiliates.
2. Private banking accounts
Notice 2011-34 placed a greater emphasis on the FFI’s
private banking relationships and put much of the re-
sponsibility regarding the identification of private bank-
ing clients on the private banking relationship managers.
Moreover, private banking relationship managers will be
required to search all information, not only electronical-
ly searchable information, to determine account status.34
a. Inventory private banking accounts
Because the definition of a private banking account
is broad, an FFI should first inventory the num-
ber of private banking accounts it maintains. This
should be a two step process: (1) determine which
FFI affiliates maintain private banking accounts and
(2) identify how many private banking accounts
are maintained at each FFI affiliate. This is impor-
tant as it will help the FFI budget time and resourc-
es for each entity to complete its analysis. More-
over, the inventorying of private banking accounts
will help the FFI choose which FFI affiliate(s) to use
in its sample to gauge the potential costs of the
overall process.
b. Identify knowledge of private banking relationship
managers
i. Number of accounts
At each FFI affiliate, a matrix could be devel-
oped to identify the private banking relation-
ship manager and each of the private banking
accounts associated with the private banking
relationship manager. This could help estab-
lish “ownership” of the process by each pri-
vate banking relationship manager.
ii. Knowledge of a U.S. account
Notice 2011-34 provides that the FFI has
to identify all accounts for which the pri-
vate banking relationship manager has ac-
tual knowledge of an account being a U.S.
account. For each of the private banking
accounts, an electronic questionnaire (the
“private banking relationship manager ques-
tionnaire”) could be filled out by the private
banking relationship manager to determine if
any private banking accounts are known U.S.
accounts to the private banking relationship
manager. Working with the FFI’s information
technology team could be extremely useful
as the private banking relationship manager
questionnaire may be able to populate auto-
matically a prototype database (the “private
banking database,” discussed more below)35
of accounts which require analysis for poten-
tial U.S. status.
c. The diligent review of account files
Notice 2011-34 requires a “diligent review” of pa-
per and electronic account files and other records
for each private banking account.36 The private
banking relationship manager should sample a
number of accounts to determine the amount of
time it will take to identify indicia of a U.S. account.
Choosing a number of FFI affiliates for the sample
could be useful since each FFI affiliate may keep its
account records in a different format. If electronic
files are maintained and easily searchable, it is logi-
cal to start with a search of electronic files before
beginning a review of paper documents and other
files, which could be extremely time consuming.
34 Based upon the steps outlined in Notice 2011-34, along with the information available relating to both criminal offshore banking matters and the voluntary disclosure initiative of 2009, the IRS views private banking as an area of high risk for offshore tax evasion. This could make the analysis of private banking accounts an area of high priority in any FATCA related audit.
35 The reference to the building of a new, single database is for illustrative purposes only. An FFI may be able to augment a pre-existing database of information to meet its needs, or an FFI may need to develop more than one database of information.
36 It will be important for FFIs to define the term “diligent review” when updating their policies and procedures.
9 | D ISPUTES & INVESTIGATIONS MAY 2011
d. Private banking database
The results of the private banking relationship
manager questionnaire and the diligent review of
account files could be warehoused in the private
banking database. Based upon the above sample,
private banking accounts will be identified as U.S.
accounts, accounts with U.S. indicia or accounts
without U.S. indicia.
It is extremely important to not only properly
categorize the status of accounts, but for accounts
that have indicia of U.S. status, it is also important
to identify which indicia was identified as that will
dictate the type of documentation required to
prove the account is a non-U.S. account,37 if, in fact,
it is a non-U.S. account.
In addition to the above, any database developed
or enhanced for FATCA compliance should, at a
minimum, be built with enough flexibility to catalog
document requests sent to clients and any client
responses. The database should also be able to
identify when and if a document or information
request comes due as a lack of response could
change the status of an account. Additionally, be-
cause there are no proposed or final regulations
relating to FATCA, the private banking database
may need to change based upon the Govern-
ment’s future interpretation of FATCA.
3. Non-private banking accounts
FFIs should begin by taking an inventory of their non-
private banking accounts and electronically searchable
information to determine the resources and budget
necessary to complete the analysis of pre-existing non-
private banking accounts.
a. Inventory non-private banking accounts
The first step is to determine how many FFI affili-
ates maintain non-private banking accounts. It is
again important to determine: (1) which FFI affili-
ates maintain non-private banking accounts and
(2) how many non-private banking accounts are
maintained at each of the FFI affiliates. Again, this
information should help the FFI budget time and
resources for the analysis of non-private banking
accounts and could also help determine which FFI
affiliate(s) should be chosen to work through the
analysis to further refine the resources necessary
to comply with this portion of FATCA.
b. Identification of the FFI’s electronically searchable
information
The term electronically searchable information is
narrowly drawn to include only information that
the FFI maintains in its tax reporting files or cus-
tomer master files or similar files that are stored
in an electronic database that is able to be que-
ried using programming languages. Each FFI that
maintains non-private banking accounts should
determine what information, if any, is electronically
searchable information under FATCA.
c. Search for indicia of U.S. accounts
FATCA subject matter experts should work with
members of the information technology team to
query the electronically searchable information for
U.S. indicia.
Depending on the volume of accounts that trig-
ger indicia of U.S. status, and the current system(s)
of electronically searchable information, a new
database may be needed to store information
relating to the analysis for U.S. account status, or
the current database(s) of electronically searchable
information could be augmented to capture and
warehouse the necessary information.38
d. Identify accounts with year-end values or balances
of $500,000 or more
After analyzing your non-private banking accounts,
a diligent review of the account files associated
37 Notice 2011-34, pp 10 - 12.38 See section IV.A.2.d for certain minimum recommendations relating to the building of a warehouse of information regarding the analysis of pre-existing individual accounts.
10 | D ISPUTES & INVESTIGATIONS MAY 2011
with the account needs to be completed on all
pre-existing individual accounts with a balance or
value of $500,000 or more that were not previ-
ously analyzed. Each current system that tracks
account balances or values could be enhanced to
include a “red flag” if the account balance or value
at year end is $500,000 or more. The “red flag”
could serve as a reminder that the account will
have to be analyzed or re-analyzed for FATCA
purposes.
B. Passthru payments
Notice 2011-34 identifies the methodology FFIs will use
to determine the value of passthru payments. FFIs can
now take steps to determine how feasible this process is
and whether changes to the payment or other systems
may be necessary.
1. Adding members to the FATCA task force
One of the main challenges of passthru payments is
the calculation of the passthru payment percentage,
which is the percentage of U.S. assets to total assets.
The passthru payment percentage will likely dictate ad-
ditional parties from the FFI’s Controller, Finance and/or
Treasury functions become involved with FATCA to as-
sist with the passthru payment percentage calculation.
2. Steps to determine the passthru payment
percentage
FFIs need to conduct a review of all of their FFI affili-
ates to determine if they can identify their U.S. assets
and non-U.S. assets in a format that can be shared with
the other members of the FFI Group. It is still unclear
whether there will be one passthru payment percent-
age for the whole FFI Group or if the passthru payment
percentage will be driven by the assets of each FFI af-
filiate.
3. Technological enhancements
Significant technological advances will have to be made
to apply the passthru payment percentage to certain
payments. One such enhancement would have to re-
late to trying to ensure the passthru payment percent-
age, and requisite withholding, applies to payments only
made to non-participating FFIs and recalcitrant account
holders. This could involve list matching to determine if
the passthru payment percentage and withholding apply,
which would be similar to the list matching completed
by banks to comply with requirements dictated by the
Office of Foreign Assets Control (“OFAC”).
Additionally, custodians will have to make sure that their
technology can match payments to the passthru pay-
ment percentage of the original issuer FFI. This could
lead to custodians using numerous different passthru
payment percentages based upon the identification of
the original issuer FFI.
C. Other steps
1. Deemed-compliant FFIs
Although the criteria outlined for deemed compliant
status appear to be narrow in scope, as part of the FFI’s
inventory of affected entities, an analysis should be com-
pleted to determine if any entities within the FFI Group
meet the characteristics outlined in Notice 2011-34 for
deemed compliant status.
2. FFI affiliate group
The application process to become a participating FFI
will require coordination by the entire FFI Group. FFIs
should start considering which FFI affiliate will serve as
the Lead FFI in the application process. Notice 2011-
34 does not identify any parameters for identifying the
FFI’s Lead FFI, which appears to mean that it can be
any entity within the FFI Group. The FFI Group may
want to consider making the Lead FFI the parent FFI or
another FFI depending on the organization of the FFI
Group and where subject matter experts on FATCA
reside. Another consideration for determining the
Lead FFI may be determining who the FATCA certify-
ing officer will be. Anyone certifying FATCA compli-
ance will likely want to have significant control over the
compliance process.
FFIs will most likely have the option to designate a
Compliance FFI, which will have an oversight role with
respect to compliance with FATCA. The Compliance
FFI can represent all or select FFI affiliates. A Compli-
11 | D ISPUTES & INVESTIGATIONS MAY 2011
ance FFI can establish policies and procedures, ensure
that the policies and procedures are properly imple-
mented and report to the IRS with respect to each FFI
affiliate’s compliance with the policies and procedures.
Deputy FATCA compliance officers may reside in each
of these Compliance FFIs and may likely be asked to
certify compliance for their group prior to the chief
compliance officer or another equivalent level officer
certifying compliance to the IRS. Additionally, as other
FFIs can serve as the POC FFI and the Compliance FFI,
all of the main responsibilities for compliance with FAT-
CA do not have to sit within the same FFI Affiliate.
D. Comments
The Treasury and IRS have asked for more comments on
specific issues raised in Notice 2011-34. Based upon the
newest Notice, the Treasury and IRS seem to be responsive
to certain industry comments and the financial services in-
dustry is having a real impact on molding aspects of FATCA.
Select key areas that the Treasury and IRS asked for com-
ments relate to:
1. The application of account identification
procedures to other types of FFIs including
insurance companies;39
2. Potential exceptions to passthru payments
that would be reasonable in light of the
potential burden on participating FFIs40 and
3. Other categories of entities that should be
treated as deemed-compliant FFIs.41
Besides the specific requests for comments in Notice 2011-
34, there are still outstanding issues that FFIs should consider
commenting on. For example:
1. One of the three prongs for determining whether an
entity meets the definition of an FFI requires an analysis
as to whether the entity is “engaged (or holds itself
out as being engaged) primarily in the business of
investing, reinvesting, or trading securities, partnership
interests, commodities, or any interest in these
mentioned items.”42 The Treasury and IRS have not
yet issued guidance to further define “primarily engaged
in” or what type of activity constitutes investing,
reinvesting or trading and
2. The refund process for a recalcitrant account holder or
non-participating FFI.
FFIs that will be affected by the above issues or others
should consider sending comments to the Government, as
the changes from Notice 2010-60 to Notice 2011-34 show
that the Government is strongly considering industry com-
ments.
V. CONCLUSIONNon-compliance is not a realistic option for an FFI that wants to
do keep doing business with the United States; therefore, an early
start to building the FFI’s FATCA compliance system, along with
strong policies and procedures and detailed testing of those pro-
cedures are some of the best ways to comply with FATCA and
to help alleviate the concerns of the chief compliance officer or
equivalent level officer certifying that accounts were analyzed in a
specific manner dictated by FATCA. Although all of the informa-
tion needed for FATCA compliance is not included in Notice
2011-34, there are likely many steps an FFI can take now to confi-
dently move in the right direction.
39 Id., p.19.40 Id., p. 29.41 Id., p. 34.42 IRC § 1471(d)(5)(C).
12 | D ISPUTES & INVESTIGATIONS MAY 2011
App
endi
x A
FATC
A: T
he F
FI�s
Rev
ised
Pre
limin
ary
Wor
kflo
w C
once
rnin
g Pr
e-Ex
istin
g In
divi
dual
Acc
ount
s
1. W
hen
an a
ccou
nt h
as a
lrea
dy b
een
iden
tifie
d as
a U
.S. A
ccou
nt a
nd it
s ye
ar e
nd v
alue
is le
ss th
an $
50,0
00, i
t can
be
clas
sifie
d as
a n
on U
.S. A
ccou
nt if
it is
a d
epos
itory
acc
ount
and
the
acco
unth
olde
rs a
re n
atur
al
pers
ons.
2. N
otic
e 20
11-3
4 id
entif
ies
indi
cia
of U
.S. a
ccou
nts
unde
r ste
p 3
as th
e fo
llow
ing:
(a) U
.S. c
itize
nshi
p or
law
ful p
erm
anen
t res
iden
t (gr
een
card
) sta
tus;
(b) a
U.S
. bir
thpl
ace;
(c) a
U.S
. res
iden
ce a
ddre
ss o
r a U
.S.
corr
espo
nden
ce a
ddre
ss (i
nclu
ding
a U
.S. P
.O. b
ox);
(d) s
tand
ing
inst
ruct
ions
to tr
ansf
er fu
nds
to a
n ac
coun
t mai
ntai
ned
in th
e U
nite
d St
ates
, or d
irec
tions
regu
larl
y re
ceiv
ed fr
om a
U.S
. add
ress
; (e)
an
“in
care
of”
ad
dres
s or
a “
hold
mai
l” a
ddre
ss th
at is
the
sole
add
ress
with
resp
ect t
o th
e cl
ient
or (
f) a
pow
er o
f atto
rney
or s
igna
tory
aut
hori
ty g
rant
ed to
a p
erso
n w
ith a
U.S
. add
ress
(p. 1
0 of
Not
ice
2011
-34)
. 3.
Not
ice
2011
-34
iden
tifie
s in
dici
a of
U.S
. acc
ount
s un
der s
tep
4 as
the
follo
win
g: (a
) ide
ntifi
catio
n of
an
acco
unt h
olde
r as
a U
.S. r
esid
ent o
r U.S
. citi
zen;
(b) a
U.S
. pla
ce o
f bir
th fo
r an
acco
unt h
olde
r; (c
) a U
.S.
resi
denc
e ad
dres
s or
a U
.S. c
orre
spon
denc
e ad
dres
s (in
clud
ing
a U
.S. P
.O. b
ox);
(d) s
tand
ing
inst
ruct
ions
to tr
ansf
er fu
nds
to a
n ac
coun
t mai
ntai
ned
in th
e U
nite
d St
ates
; (e)
an
“in
care
of”
add
ress
or a
“ho
ld m
ail”
ad
dres
s th
at is
the
sole
add
ress
sho
wn
in th
e FF
I’s e
lect
roni
cally
sea
rcha
ble
info
rmat
ion
for t
he a
ccou
nt h
olde
r; or
(f) a
pow
er o
f atto
rney
or s
igna
tory
aut
hori
ty g
rant
ed to
a p
erso
n w
ith a
U.S
. add
ress
(p. 1
4of
Not
ice
2011
-34)
.
Yes
No
Yes
This
sum
mar
y do
cum
ent i
s ba
sed
on N
avig
ant’s
pr
elim
inar
y in
terp
reta
tion
of F
ATC
A a
nd N
otic
e 20
11-3
4 is
sued
on
Apr
il 8,
201
1.
STEP
3Pr
ivat
e Ba
nkin
g A
ccou
nts
as d
efin
ed in
N
otic
e 20
11-3
4
STEP
4O
ther
acc
ount
s to
be
anal
yzed
END
U.S
. Acc
ount
Tr
igge
rs
repo
rtin
g re
quir
emen
t
FFI p
riva
te b
anki
ng
rela
tions
hip
man
ager
has
ac
tual
kno
wle
dge
that
th
e cl
ient
is a
U.S
. per
son
If W
-9 a
nd
wai
ver
(as
appl
icab
le)
rece
ived
from
cl
ient
Con
duct
a d
ilige
nt re
view
of
the
pape
r and
ele
ctro
nic
acco
unt f
iles
and
othe
r rec
ords
to
det
erm
ine
if th
e ac
coun
t has
in
dici
a of
pot
entia
l U.S
. sta
tus2
FFI s
earc
hes
thro
ugh
elec
tron
ical
ly s
earc
habl
e in
form
atio
n to
det
erm
ine
if th
e ac
coun
t has
indi
cia
of p
oten
tial U
.S. s
tatu
s3
Yes
END
U.S
. Acc
ount
Tr
igge
rs
repo
rtin
g re
quir
emen
t
If W
-8BE
N a
nd/o
r ot
her i
nfor
mat
ion/
docu
men
tatio
n re
ceiv
ed fr
om c
lient
END
Reca
lcitr
ant A
ccou
nt H
olde
r Tr
igge
rs w
ithho
ldin
g an
d re
port
ing
requ
irem
ent
END
Non
U.S
. Acc
ount
N
o re
port
ing
requ
irem
ent
If W
-9 a
nd w
aive
r (a
s ap
plic
able
) re
ceiv
ed fr
om c
lient
END
Non
U.S
. A
ccou
nt
No
repo
rtin
g re
quir
emen
t
No
No
STEP
2A
ccou
nt b
alan
ce a
t the
en
d of
the
cale
ndar
yea
r is
less
than
$50
,000
(o
ptio
nal)
Yes
No
END
Reca
lcitr
ant A
ccou
nt H
olde
r Tr
igge
rs w
ithho
ldin
g an
d re
port
ing
requ
irem
ent
END
Non
U.S
. Acc
ount
N
o re
port
ing
requ
irem
ent
No
Acc
ount
bal
ance
is
$500
,000
or m
ore
Con
duct
dili
gent
re
view
of
acco
unt f
iles
asso
ciat
ed w
ith
acco
unt t
o de
term
ine
if th
ere
is in
dici
a of
U
.S. S
tatu
s3N
o
No
No
Yes
Yes
STA
RT
STEP
1A
ccou
nt h
olde
r do
cum
ente
d as
U
.S. P
erso
n fo
r ot
her t
ax p
urpo
ses1
Yes
No
No
No
13 | D ISPUTES & INVESTIGATIONS MAY 2011
App
endi
x B
FATC
A: T
he F
FIʹs
Prel
imin
ary
Wor
kflo
w C
once
rnin
g Pr
e-Ex
istin
g En
tity
Acc
ount
s
1. T
he IR
S N
otic
e 20
10-6
0 pr
ovid
es th
e ex
ampl
e of
an
entit
y in
corp
orat
ed in
the
U.S
. as
indi
cia
of a
U.S
. ent
ity.
END
Exce
pted
NFF
EN
on U
.S. A
ccou
nt
No
repo
rtin
g re
quir
emen
t
END
U.S
. Acc
ount
Trig
gers
repo
rtin
g re
quir
emen
t
Acc
ount
hol
der d
ocum
ente
d as
U.S
. Per
son
for t
ax p
urpo
ses
STA
RT
Entit
y A
ccou
nt Id
entif
ied
FFI s
earc
hes
thro
ugh
elec
tron
ical
ly s
earc
habl
e fil
es to
det
erm
ine
if th
e ac
coun
t ha
s in
dici
a of
pot
entia
l U.S
. sta
tus1
Pres
umed
U.S
. Ent
ity
Fore
ign
Entit
yFF
I det
erm
ines
if e
ntity
acc
ount
is: (
1)
FFI;
(2) a
ctiv
e tr
ade
or b
usin
ess
or (3
) no
n-ac
tive
trad
e or
bus
ines
s
Act
ive
Trad
e or
Bus
ines
s
Non
-Act
ive
Trad
e or
Bu
sine
ssFF
I has
or o
btai
ns
docu
men
tatio
n to
de
term
ine
entit
y st
atus
FFI
(tent
ativ
e cl
assi
ficat
ion)
FFI h
as o
r obt
ains
do
cum
enta
tion
to
dete
rmin
e en
tity
stat
us
END
Rec
alci
tran
t Acc
ount
Hol
der
Trig
gers
with
hold
ing
and
repo
rtin
g re
quir
emen
t
NFF
E FF
I has
or o
btai
ns w
ithin
two
year
s of
the
date
the
FFI
Agr
eem
ent d
ocum
ents
su
ppor
ting
exce
pted
NFF
E st
atus
or
iden
tifyi
ng p
erso
ns th
at h
ave
an in
tere
st in
an
entit
yEN
DPa
rtic
ipat
ing
FFI
No
repo
rtin
g re
quir
emen
t
END
Exce
ptio
n 14
71(f)
No
repo
rtin
g re
quir
emen
t
END
Dee
med
Com
plia
nt F
FIN
o re
port
ing
requ
irem
ent
END
Part
icip
atin
g FF
IN
o re
port
ing
requ
irem
ent
END
Exce
ptio
n 14
71(f)
No
repo
rtin
g re
quir
emen
t
END
Dee
med
Com
plia
nt F
FIN
o re
port
ing
requ
irem
ent
END
Exce
pted
NFF
EN
on U
.S. A
ccou
nt
No
repo
rtin
g re
quir
emen
t
END
Iden
tify
indi
vidu
als
and
othe
r sp
ecifi
ed U
.S. p
erso
ns th
at h
ave
an
inte
rest
in e
ntity
. U
.S. A
ccou
ntTr
igge
rs re
port
ing
requ
irem
ent
END
Rec
alci
tran
t Acc
ount
Hol
der
Trig
gers
with
hold
ing
and
repo
rtin
g re
quir
emen
t
END
Non
-Par
ticip
atin
g FF
ITh
ese
incl
ude
FFIs
that
do
not
prod
uce
docu
men
tatio
n w
ithin
on
e ye
ar o
f FFI
Agr
eem
ent
Trig
gers
with
hold
ing
and
repo
rtin
g re
quir
emen
t
END
Non
-Par
ticip
atin
g FF
ITh
ese
incl
ude
FFIs
that
do
not
prod
uce
docu
men
tatio
n w
ithin
on
e ye
ar o
f FFI
Agr
eem
ent
Trig
gers
with
hold
ing
and
repo
rtin
g re
quir
emen
t
No
Yes
No
Yes
END
Doc
umen
ts e
stab
lish
non-
U.S
. Pe
rson
for C
hapt
er 4
N
o re
port
ing
requ
irem
ent
This
sum
mar
y do
cum
ent i
s ba
sed
on
Nav
igan
t’s p
relim
inar
y in
terp
reta
tion
of F
ATC
A a
nd N
otic
e 20
10-6
0.
14 | D ISPUTES & INVESTIGATIONS MAY 2011
App
endi
x C
FATC
A: T
he F
FIʹs
Prel
imin
ary
Wor
kflo
w C
once
rnin
g N
ew In
divi
dual
Acc
ount
s
1. N
otic
e 20
11-3
4 up
date
d th
e in
dici
a of
U.S
. sta
tus
for p
re-e
xist
ing
indi
vidu
al a
ccou
nts,
whi
ch c
ould
lead
to a
cha
nge
to in
dici
a of
U.S
. sta
tus
for n
ew in
divi
dual
acc
ount
s.Th
e in
dici
a fo
r new
indi
vidu
al a
ccou
nts
w
as id
entif
ied
in th
e IR
S’ p
revi
ous
guid
ance
, Not
ice
2010
-60
as th
e fo
llow
ing:
(a) U
.S. a
ddre
ss a
ssoc
iate
d w
ith a
ccou
nt h
olde
r; (b
) U.S
. pla
ce o
f bir
th id
entif
ied
for t
he a
ccou
nt h
olde
r; (c
) any
oth
er in
dici
a of
po
tent
ial U
.S. s
tatu
s, in
clud
ing
if an
acc
ount
hol
der h
as o
nly
an ʺi
n ca
re o
fʺad
dres
s, h
old
mai
l add
ress
or a
P.O
. Box
add
ress
with
resp
ect t
o th
e ac
coun
t hol
der;
(d) a
pow
er o
f atto
rney
or s
igna
tory
aut
hori
ty h
as
been
gra
nted
to a
per
son
with
a U
. S. a
ddre
ss o
r (e)
stan
ding
inst
ruct
ions
to tr
ansf
er fu
nds
to a
n ac
coun
t mai
ntai
ned
in th
e U
.S. o
r dir
ectio
ns re
ceiv
ed fr
om a
U.S
. add
ress
.
No
FFI o
btai
ns fr
om c
lient
the
follo
win
g ap
prop
riat
e do
cum
enta
tion
to d
eter
min
e U
.S. t
axpa
yer s
tatu
s: (1
) W-9
or (
2) W
-8BE
N w
ithin
one
yea
r of B
ank’
s re
ques
t for
info
rmat
ion
END
Reca
lcitr
ant A
ccou
nt H
olde
r Tr
igge
rs w
ithho
ldin
g an
d re
port
ing
requ
irem
ent
FFI e
xam
ines
doc
umen
tary
evi
denc
e es
tabl
ishi
ng U
.S. s
tatu
s of
acc
ount
hol
der
Acc
ount
hol
der h
as p
revi
ousl
y be
en d
ocum
ente
d as
U.S
. Per
son
for t
ax p
urpo
ses
STA
RT
Acc
ount
bal
ance
s eq
ual t
o or
gre
ater
th
an $
50,0
00 o
n av
erag
e fo
r the
ye
ar(o
ptio
nal s
tep)
If W
-8BE
N
and/
or o
ther
do
cum
enta
tion
rece
ived
FFI s
earc
hes
thro
ugh
all i
nfor
mat
ion
colle
cted
by
the
FFI i
n co
nnec
tion
with
the
new
fina
ncia
l acc
ount
to d
eter
min
e if
the
acco
unt h
as in
dici
a of
U.S
. sta
tus1
Yes
No
Yes
END
Non
U.S
. Acc
ount
N
o re
port
ing
requ
irem
ent
END
U.S
. Acc
ount
Tr
igge
rs
repo
rtin
g re
quir
emen
t
If W
-9
rece
ived
w
ithin
on
e ye
ar
Yes
No
Yes
No
This
sum
mar
y do
cum
ent i
s ba
sed
on
Nav
igan
t’s p
relim
inar
y in
terp
reta
tion
of F
ATC
A a
nd N
otic
e 20
10-6
0.
15 | D ISPUTES & INVESTIGATIONS MAY 2011
App
endi
x D
FATC
A: T
he F
FIʹs
Prel
imin
ary
Wor
kflo
w C
once
rnin
g N
ew
Entit
y A
ccou
nts
1. T
he IR
S N
otic
e 20
10-6
0 pr
ovid
es th
e ex
ampl
e of
an
entit
y in
corp
orat
ed in
the
U.S
. as
indi
cia
of a
U.S
. ent
ity.
This
sum
mar
y do
cum
ent i
s ba
sed
on
Nav
igan
t’s p
relim
inar
y in
terp
reta
tion
of F
ATC
A a
nd N
otic
e 20
10-6
0.
END
Exce
pted
NFF
EN
on U
.S. A
ccou
nt
No
repo
rtin
g re
quir
emen
t
END
U.S
. Acc
ount
Trig
gers
repo
rtin
g re
quir
emen
t
Acc
ount
hol
der d
ocum
ente
d as
U.S
. Per
son
for t
ax p
urpo
ses
STA
RT
Entit
y A
ccou
nt Id
entif
ied
Use
all
info
rmat
ion
colle
cted
by
the
FFI (
CIP
, KYC
, AM
L, e
tc...
) to
det
erm
ine
pote
ntia
l U.S
. sta
tus
of a
ccou
nt h
olde
r1
Pres
umed
U.S
. Ent
ity
Fore
ign
Entit
yFF
I det
erm
ines
if e
ntity
acc
ount
is: (
1)
FFI;
(2) a
ctiv
e tr
ade
or b
usin
ess
or (3
) no
n-ac
tive
trad
e or
bus
ines
s
Act
ive
Trad
e or
Bus
ines
s
Non
-Act
ive
Trad
e or
Bu
sine
ssFF
I has
or o
btai
ns
docu
men
tatio
n to
de
term
ine
entit
y st
atus
FFI
(tent
ativ
e cl
assi
ficat
ion)
FFI h
as o
r obt
ains
do
cum
enta
tion
to
dete
rmin
e en
tity
stat
us
END
Reca
lcitr
ant A
ccou
nt H
olde
r Tr
igge
rs w
ithho
ldin
g an
d re
port
ing
requ
irem
ent
NFF
E FF
I has
or o
btai
ns w
ithin
two
year
s of
the
date
the
FFI A
gree
men
t do
cum
ents
sup
port
ing
exce
pted
N
FFE
stat
us o
r ide
ntify
ing
pers
ons
that
hav
e an
inte
rest
in a
n en
tity
END
Part
icip
atin
g FF
IN
o re
port
ing
requ
irem
ent
END
Exce
ptio
n 14
71(f)
No
repo
rtin
g re
quir
emen
t
END
Dee
med
Com
plia
nt F
FIN
o re
port
ing
requ
irem
ent
END
Part
icip
atin
g FF
IN
o re
port
ing
requ
irem
ent
END
Exce
ptio
n 14
71(f)
No
repo
rtin
g re
quir
emen
t
END
Dee
med
Com
plia
nt F
FIN
o re
port
ing
requ
irem
ent
END
Exce
pted
NFF
EN
on U
.S. A
ccou
nt
No
repo
rtin
g re
quir
emen
t
END
Iden
tify
indi
vidu
als
and
othe
r sp
ecifi
ed U
.S. p
erso
ns th
at h
ave
an
inte
rest
in e
ntity
. U
.S. A
ccou
ntTr
igge
rs re
port
ing
requ
irem
ent
END
Reca
lcitr
ant A
ccou
nt H
olde
r Tr
igge
rs w
ithho
ldin
g an
d re
port
ing
requ
irem
ent
END
Non
-Par
ticip
atin
g FF
ITh
ese
incl
ude
FFIs
that
do
not
prod
uce
docu
men
tatio
n w
ithin
on
e ye
ar o
f FFI
Agr
eem
ent
Trig
gers
with
hold
ing
and
repo
rtin
g re
quir
emen
t
END
Non
-Par
ticip
atin
g FF
ITh
ese
incl
ude
FFIs
that
do
not
prod
uce
docu
men
tatio
n w
ithin
on
e ye
ar o
f FFI
Agr
eem
ent
Trig
gers
with
hold
ing
and
repo
rtin
g re
quir
emen
t
No
Yes
No
Yes
END
Doc
umen
ts e
stab
lish
non-
U.S
. Pe
rson
for C
hapt
er 4
N
o re
port
ing
requ
irem
ent
16 | D ISPUTES & INVESTIGATIONS MAY 2011
A. E
nter
into
FFI
agre
emen
t
B. A
naly
ze a
ccou
nts
open
ed o
n or
aft
er
Janu
ary
1, 2
013
C. K
YC re
med
iatio
n fo
r ce
rtai
n pr
e-ex
istin
g ac
coun
ts
D. R
epor
ting
E. W
ithho
ldin
g
F. G
athe
r rel
evan
t pa
ssth
ru p
aym
ent
perc
enta
ges
F. A
udit
G. T
rain
ing
H. C
ontin
uous
sys
tem
im
prov
emen
t
A. I
dent
ify
stak
ehol
ders
B. Id
entif
y C
hief
C
ompl
ianc
e O
ffic
er o
r eq
uiva
lent
leve
l off
icer
to
cer
tify
com
plia
nce
C. F
ATC
A T
ask
Forc
e
D. I
nter
nal a
war
enes
s pr
ogra
m
1. F
AQ
s of
FA
TCA
2. T
rain
ing
E. E
xter
nal a
war
enes
s pr
ogra
m
1. Q
&A
2. In
tern
et o
r int
rane
t po
stin
g
F. C
orpo
rate
gov
erna
nce
G. A
sses
s fo
reig
n ju
risd
ictio
n pr
ivac
y an
d le
gal r
equi
rem
ents
A. I
nven
tory
aff
ecte
d bu
sine
ss li
nes
and
entit
ies,
pro
duct
s an
d se
rvic
es, a
nd c
lient
s
B. D
eter
min
e af
filia
ted
grou
p, F
FI le
ad a
nd
poin
t of c
onta
ct
C. D
eter
min
e w
hich
ac
coun
ts a
re p
riva
te
bank
ing
acco
unts
D. I
dent
ify
and
asse
ss
rele
vant
pol
icie
s,
proc
edur
es a
nd
cont
rols
E. In
vent
ory
exis
ting
info
rmat
ion
-tax
,
Kno
w Y
our C
usto
mer
(“
KYC
”), o
n-bo
ardi
ng,
anti-
mon
ey
laun
deri
ng (“
AM
L”)
and
othe
r rel
evan
t sy
stem
s
F. D
eter
min
e po
tent
ial
to a
ggre
gate
acc
ount
va
lues
G. I
dent
ify
type
s of
U.S
.as
sets
for e
ach
FFI
entit
y
A. C
ondu
ct g
ap a
naly
sis
1. E
stab
lish
best
pr
actic
es a
fter
dete
rmin
ing
requ
ired
co
ntro
ls a
nd g
uidi
ng
com
plia
nce
prin
cipl
es
2. T
est f
or g
aps i
n th
e po
licie
s, p
roce
dure
s,
prac
tices
and
con
trol
s
3. Id
entif
y an
y ob
stac
les
that
cou
ld p
reve
nt th
e de
sire
d re
sults
4. Id
entif
y an
y im
pact
th
at th
ese
chan
ges
m
ay c
ause
to e
xist
ing
polic
ies,
pro
cedu
res
an
d pr
actic
es
B. U
pdat
e on
-boa
rdin
g pr
oced
ures
C. K
YC re
med
iatio
n
D.
Rev
iew
info
rmat
ion
alre
ady
colle
cted
by
priv
ate
bank
ing
A. I
dent
ify
area
s of
le
vera
ge fr
om e
xist
ing
syst
ems,
pro
cess
es a
nd
repo
sito
ries
B. P
ropo
sed
enha
ncem
ents
cou
ld
incl
ude:
1. Id
entif
y in
dici
a of
U.S
. A
ccou
nts
2. Id
entif
y N
FFEs
and
FF
Is
3. Id
entif
y re
calc
itran
t ac
coun
thol
ders
4. T
rack
cor
resp
onde
nce
to/fr
om a
ccou
nt
hold
ers
5. R
epor
ting
requ
irem
ents
6. Id
entif
y ac
coun
ts
$5
00,0
00 o
r gre
ater
C. T
rack
ing
paym
ents
1. W
ithho
ldab
le
paym
ent
2. P
asst
hru
Paym
ent
3. C
alcu
late
pas
sthr
u pa
ymen
t per
cent
age
A. T
est n
ewly
dev
elop
ed
syst
em e
nhan
cem
ents
B. U
pdat
e po
licie
s,
proc
edur
es a
nd
cont
rols
C. A
naly
ze p
re-e
xist
ing
acco
unts
1. T
rack
doc
umen
tatio
n
need
ed
2. T
rack
cor
resp
onde
nce
to/fr
om a
ccou
nt
hold
ers
3. T
rack
cor
resp
onde
nce
to/fr
om p
riva
te
bank
ing
rela
tions
hip
man
ager
s
D. K
YC re
med
iatio
n
E. R
epor
ting
re
quir
emen
ts
F. T
rain
ing
G. A
dditi
onal
co
mm
unic
atio
n w
ith
clie
nts
App
endi
x E
Sam
ple
Proj
ect P
lan
Janu
ary
2013
VI.
Ong
oing
Janu
ary
2012
The
amou
nt o
f tim
e ne
cess
ary
to c
ompl
ete
each
of t
he a
bove
sta
ges
will
var
y by
inst
itutio
n.
V. D
eplo
ymen
t an
d Im
plem
enta
tion
IV. O
pera
tiona
l an
d Sy
stem
En
hanc
emen
ts
III.
Gap
Ana
lysi
s an
d Po
tent
ial
Expo
sure
II. I
nven
tory
and
R
isk
Ass
essm
ent
I. Pr
epar
atio
n an
d Ed
ucat
ion
Sept
embe
r 201
1Su
mm
er/F
all 2
011
Pote
ntia
l pro
pose
d re
gula
tions
issu
ed
17 | D ISPUTES & INVESTIGATIONS MAY 2011
BIOGRAPHIES
Ellen Zimiles is a Managing Director and Head of Global Investigations and Compliance in Navigant’s Disputes & Investiga-
tions practice. She has more than 25 years of litigation and investigation experience, including 10 years as a federal prosecu-
tor. Ms. Zimiles is a leading authority on anti-money laundering programs, corporate governance, regulatory and corporate
compliance, fraud control and public corruption matters. She has worked with a multitude of financial institutions preparing
for regulatory exams, developing remediation programs and assisting organizations as a regulatory liaison. Ms. Zimiles founded
and served as CEO of Daylight Forensic & Advisory LLC, an international investigations and compliance consulting firm which
merged with Navigant in 2010. As an assistant United States attorney in the Southern District of New York for more than 10
years, Ms. Zimiles served in the civil and criminal divisions and was chief of the forfeiture unit for more than six years. She was
responsible for many high-profile money laundering, fraud and forfeiture cases.
Richard Kando is a Director in Navigant’s Disputes & Investigations practice, and along with Jeffrey Locke, a leader of Navi-
gant’s FATCA Task Force. Mr. Kando primarily assists counsel with anti-money laundering and other regulatory compliance
related engagements and litigation related matters. Prior to joining the consulting industry, Mr. Kando served as a special agent
for the Internal Revenue Service – Criminal Investigation Division in New York City where he investigated allegations of tax
evasion and other tax related criminal offenses, mail and wire fraud, embezzlement, money laundering and identity theft. In rec-
ognition of his services as a special agent, he received the U.S. Department of Justice – Tax Division Assistant Attorney Gen-
eral’s Special Contribution Award.
Jeffrey Locke is a Director in Navigant’s Disputes & Investigations practice, and along with Richard Kando, a leader of Navi-
gant’s FATCA Task Force. Mr. Locke specializes in regulatory compliance, anti-money laundering investigations and financial
investigations. Prior to joining Navigant, he was a prosecutor of white collar crime for the state of New York and he worked
for the United Nations Mission in Kosovo, where he conducted investigations into war crimes, corruption and organized crime.
18 | D ISPUTES & INVESTIGATIONS MAY 2011
© 2011 Navigant Consulting, Inc. All rights reserved. Navigant Consulting is not a certified public accounting firm and does not provide audit, attest, or public accounting services. See www.navigantconsulting.com/licensing for a complete listing of private investigator licenses.