Will Foreign Dollars Flee Florida Before a New IRS Reporting Rule Goes Into Effect in January? Millions Have Already Been Moved From Florida Banks and Bankers Fear More Will Leave
In an October 15, 2012 memorandum from the Inspector General for the Department of the Treasury's Tax Administration Department, J. Russell George, to Secretary of the Treasury Geithner several issues of "... top management and performance challenges...." for Fiscal Year 2013 are discussed. Among them, globalization concerns that include:
International business holdings and investment in the United States have grown from nearly $188 billion in 1976 to over $14.5 trillion in 2007, while U.S. business and investment grew from nearly $368 billion to nearly $15 trillion during the same period.
Today, trillions of dollars are sitting in U.S. banks, and particularly in accounts of Florida financial institutions that are held by international investors. Effective January 1, 2013, federal regulations propounded by the Internal Revenue Service will require American banks to disclose non-taxable interest the banks pay on deposits in their accounts held by non-resident foreign nationals.
The IRS will be expecting Florida banks to reveal how much interest they have paid to foreign customers on any account that has earned more than ten dollars annually. Which basically means, all of the foreign client accounts may not have their names revealed, but the federal government will soon learn how much money is being kept in Florida banks.
South Florida Foreign Bank Deposits: Will International Investors Avoid Miami Now?
The Florida International Bankers Association is concerned about this new rule and has been working with the federal government to stop this regulation from going into effect at all or at least, putting it on hold until its ramifications to Florida's weak economy can be more readily understood. The bankers are also explaining the situation to their international clientele.
Of course, the worry is that foreign accounts will simply be closed as international clientele not interested in sharing this information, however anonymously it might appear, with the U.S. government. They can easily move their money to other financial centers which are more favorable to those foreign clients interested in privacy.
Panama comes to mind.
In fact, since this regulation passed in April, according to the executive director of the Florida International Bankers Association, millions have already been moved out of Florida in response to this new regulation.
What about concerns that American banks are being used by foreigners as a way to avoid paying their taxes at home? FIBA President Grisel Vega has explained the bank position on foreign money being deposited in the United States as a tax haven for international investors interested in finding places to hide cash. Simply put, it is not the job of the bank to make sure that its clients are paying their income taxes: banking doesn't go that far.
From the Florida banker's perspective, their clients aren't evildoers hiding ill-gotten gains in Florida bank accounts, but instead they are wealthy individuals who fear what may happen to them or their loved ones if the extent of their financial net worth becomes known. Kidnapping is a real concern in much of Latin America, for example.
According to Control Risks, a global risk consulting company, Latin America (Mexico, Central America, and South America combined) experienced 26% of the total kidnappings reported around the world in 2011. According to the Insurance Journal, "express kidnappings" are particularly popular in Latin America, where kidnappers take individuals and then force them to withdraw money from an ATM for a few days until they've grabbed sufficient cash from the daily withdrawal limits set by the bank for ATM withdrawals.
With these experiences in their home countries, it's no wonder that foreign banking customers here in Florida would not like to see the federal government forcing Florida banks to reveal anything at all about their local bank accounts. Competitive locations like the Cayman Islands understandably might seem a safe alternative for these depositors.
Right now, this is an open issue - the privacy guaranteed to foreign investors by Florida banks. As January 1, 2013, gets closer the extent of the impact of this new federal regulation on Florida's banking interests will be revealed. With trillions of dollars at stake here, this is a potential hit that South Florida doesn't need.