As an American living abroad, you may have experienced firsthand the challenges of finding a financial institution willing to work with you. Whether it’s for opening a bank account, investing in local markets, securing a loan, or creating a trust, many foreign financial institutions (FFIs) are reluctant to do business with U.S. citizens or green card holders. This issue is largely driven by the Foreign Account Tax Compliance Act (FATCA) — a U.S. law that mandates foreign financial institutions report information about their American account holders to the U.S. government.
What is FATCA and Why Does It Matter for Foreign Financial Institutions?
FATCA, passed by the U.S. government in 2010, was designed to combat tax evasion by U.S. citizens hiding money and assets in foreign accounts. The law requires FFIs to report detailed information about accounts held by U.S. persons. This includes a wide range of accounts, such as checking and savings accounts, brokerage accounts, foreign trusts, holding companies, and private banking accounts.
The law imposes a significant compliance burden on foreign financial institutions. Under FATCA, FFIs are required to:
- Conduct extensive due diligence to identify U.S. account holders,
- Report balances, transactions, and other details of U.S. accounts to the U.S.,
- Withhold tax on certain payments.
For many foreign institutions, meeting these reporting requirements is both costly and complex, which may make U.S. clients less desirable. As a result, some financial institutions choose to avoid working with U.S. clients altogether.
Why Do Americans Abroad Struggle to Find Financial Institutions That Will Work with Them?
The core reason that many Americans abroad struggle to find financial institutions willing to work with them is the additional administrative burden and compliance risks associated with U.S. clients. The costs of meeting these reporting requirements can be significant and may not be justified for FFIs that have only a small number of U.S. clients. Furthermore, the penalties for non-compliance can be severe, leading many FFIs to view U.S. account holders as more trouble than they’re worth.
In this context, U.S. persons are often seen as “high maintenance” clients, and the effort required to comply with FATCA and other regulations may not seem justified when the financial institution would only have a handful of U.S. customers.
The Shift: More Financial Institutions Are Opening Up to U.S. Expats
In recent years, financial institutions have been required to comply with common reporting standards (CRS). CRS is essentially the global equivalent of FATCA. The laws have some distinctions but much of the due diligence and reporting standards overlap. Because financial institutions must have the systems in place to comply with CRS, the additional cost of FATCA compliance is not as significant. More financial institutions are now beginning to recognize U.S. expatriates as valuable clients. As international banking becomes more interconnected and as U.S. citizens and green card holders living abroad, particularly high-net-worth individuals, represent a growing market, some FFIs are seeking ways to accommodate this demographic while navigating FATCA compliance.
Global financial centers like Singapore have become attractive destinations for U.S. expatriates seeking private banking and investment opportunities. Singapore’s well-regulated financial system, strong adherence to international banking standards, and large number of multinational banks make it a viable option for Americans abroad seeking financial services.
Conclusion
FATCA has undeniably made it more challenging for Americans living abroad to find financial institutions that are willing to engage with them. The law’s reporting requirements have placed a substantial compliance burden on foreign financial institutions, which can lead to U.S. citizens being turned away. However, there are still financial institutions, particularly in jurisdictions like Singapore, that are open to working with U.S. expatriates.
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