BEIRUT: The head of Lebanon’s banking association warned Tuesday of the challenges facing Lebanon banks due to new U.S. banking regulations on foreign lenders, criticizing the cost of the measure and its potential violation of privacy laws.
The United States’ Foreign Account Tax Compliance Act requires foreign banks to disclose the balances, receipts and withdrawals for any American account holders to the U.S. Internal Revenue Service, or be subjected to a 30 percent withholding tax on income from U.S. financial assets held by the banks.
“FATCA has aroused the suspicion and reservations of many banks and financial institutions in several European, Asian and Arab countries,” Joseph Torbey, who is also the president of the Union of Arab Banks, said at a banking conference.
“They believe that the execution of this law could be financially costly. This act also violates the banking secrecy which is applied in many countries around the world,” he added.
Torbey’s comments come after the banker has previously warned local banks that they needed to step up efforts to comply with the rules, pointing out that it was in their interest to do so.
“Arab and Lebanese banks have all the interest in fully applying the act to avert any damage to their [international] reputation,” Torbey said at an October 2012 banking forum in Beirut.
“This is also vital to continue dealing normally with the United States and international banks and avoid being subject to fines of up to 30 percent tax cut on transfers from the U.S.,” he added.
While banks were originally to work out compliance agreements with the U.S. Treasury by July 31, the deadline was moved back in October, giving the banks an additional six months to come into compliance with the regulations. According to the U.S. Treasury, FATCA does not come into full force until Jan. 1, 2014.
Torbey added that this law had raised many questions about the chances of implementing it, especially since some articles are not clear.
“Furthermore, there is the high cost which banks have to incur whether these institutions opted either to enact this law or not,” Torbey explained.
The IRS and U.S. authorities have enacted the law to clamp down on tax evasion by American expatriates.
According to some estimates, there are close to 90,000 Lebanese with U.S. passports residing in Lebanon.
“Irrespective of the goals of this law, this action raises many big challenges and real difficulties for the Arab governments and institutions, especially those which have regional and international operations,” Torbey said.
Central Bank Vice Governor Mohammad Baasiri said the Central Bank had issued memorandum 128 that calls for the creation of a tax compliance department in Lebanon:
“ Lebanon just like any Arab country has started discussing FATCA with U.S. authorities and had the first contact with the IRS almost a year ago. The decision which was taken is to have direct relations with the IRS through the Central Bank of Lebanon.”
“The main purpose for the creation of this department is to ensure that Lebanon complies with international banking regulations and to respect correspondence with other banks,” Baasiri added.
He said that the goal was protect the reputation of Lebanon’s banks.