FATCA Take 2_Navigant

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

[email protected]

Richard Kando

Navigant

212.554.2698

[email protected]

Jeffrey Locke

Navigant

212.554.2694

[email protected]

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.


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.


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.


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).


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

)


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.


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.


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.


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.


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-


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).


App

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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.


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.


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


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


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.


© 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.

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