I began thinking of FATCA compliance on the part of money managers after last month’s report that 2 Canadian money managers resident in the Caymans and the Turks and Caicos islands were arrested when they visited Miami. Among other things, a statement from the DOJ noted that the accused “represented that the funds would not be reported to the US government”. The situation of these 2 accused goes much deeper than that but I still could not help but wonder about the responsibility of money managers to report the activities of their US clients. When I say money managers, I am thinking about fund GPs, trust companies, asset managers etc.
Have a look at 26 CFR 1.1471-5 – DEFINITIONS APPLICABLE TO SECTION 1471 and pay attention to examples 7 and 8 below which suggest that money managers organized as separate legal entities rather individuals may be considered FFIs (foreign financial institutions) and since Singapore is not yet an IGA (inter-governmental agreement) model 1 jurisdiction, they are required to self-register on the portal –
Individual introducing broker. IB, an individual introducing broker, provides investing advice to her clients, and uses the services of a foreign entity to conduct and execute trades on behalf of her clients. IB has earned 50% or more of her gross income for the past three years from her services as an investment advisor. Because IB is an individual, she is not an investment entity within the meaning of paragraph (e)(4) of this section.
Entity introducing broker. The facts are the same as in Example 7, except that IB is a foreign entity and not an individual. Because IB is an entity that conducts investment activities and its gross income is primarily attributable to such investment activities, IB is an investment entity under paragraph (e)(4)(i)(A) of this section and an FFI under paragraph (e)(1)(iii) of this section.
Some make the point that a money manager should provide discretionary management of a portion of the financial assets on behalf of customers, before it is required to self-register as an FFI. I am unsure however, whether that is where the line should be drawn. Rather one can argue in favor of self-registration even where there is no discretionary management of a portion of the financial assets.
For many Singaporean FFIs, this may perhaps be an interim precaution because if Singapore signs a model 1 IGA similar to the Cayman Islands, it is quite possible that there may be a clause that excludes many locally registered money managers. Annex II of that IGA includes quite a number of deemed compliant entities including –
· Certain retirement funds
· Small or Limited Scope Financial Institutions
· Local Banks
· Financial Institution with Only Low-Value Accounts
· Qualified Credit Card Issuer
· Investment Advisors and Investment Managers
On July 18, 2013, the Singapore Ministry of Finance announced the opening of a consultation on proposed amendments to the draft legislation to facilitate FATCA compliance. This development follows a previous announcement from the Singapore government that it plans to sign a Model 1 IGA and the US Treasury statement that the United States and Singapore were actively engaged in a dialogue towards concluding an IGA. On November 13, 2013, the Singapore Ministry of Foreign Affairs announced that discussions with the United States to finalize an IGA are “progressing smoothly.”
We’ll see how the negotiations proceed between the two governments. But in the meantime, money managers should consider whether they are FFIs that should self-register to become participating FFIs (PFFIs). These FFIs should also start their verification and due diligence procedures. Meaning they should be on the look-out for customers, owners or beneficiaries evidencing any “US indicia”. It is better to be safe than to be sorry.