With $50 billion at stake in Florida, foreign accounts rule a threat
By Robert Grattan
Updates on the progress of a proposed regulation that would require banks to report interest earned by foreign accounts held in the US have been few and far between, and South Florida's bankers are worried.
The state's congressmen and bankers have united to fight the proposal since the Internal Revenue Service introduced it in January. Financiers consider this a key issue because sharing foreign accountholders' financial information would expose clients to personal risk in unstable regions, which would drive many to put their money elsewhere, banking experts say.
"Every bank in Florida has money from NRAs," or nonresident aliens, said Obdulio Piedra, market president of Great Florida Bank. The rule "will impact every bank."
Lobbying against the bill has been complicated by lack of information, said Alex Sanchez, president and chief executive officer of the Florida Bankers Association, an advocacy group that represents more than 300 financial institutions across the state.
"Nobody in the administration wants to say anything. They have no comment. Democrats have called the White House, Republicans have called the White House," he said. "The wait is really keeping South Florida on pins and needles."
The IRS did not respond to requests for an update on the regulation's status.
IRS spokesman Eric Smith told Miami Today in a June 2 interview that there was no timetable for deciding whether the rule is to be enacted: "You'll see it when you see it."
The proposed policy is intended to bolster tax information sharing programs among countries, according to the explanation provided within the regulation.
"There is a growing global consensus regarding the importance of cooperative information exchange for tax purposes…," the regulation reads. "Requiring routine reporting to the IRS of all US bank deposit interest paid to any nonresident alien individual will further strengthen the United States exchange of information program."
But reporting interest earned on foreign accounts would expose the accountholders in unstable regions to personal risk, Mr. Sanchez said.
"Unfortunately, there's a lot of kidnapping and a lot of fraud in the Latin American states," he said. "That's why people have their money here. They don't trust their institutions."
If the US started sharing information with those institutions, Mr. Sanchez continued, foreign clients would remove their money from the US "in a New York minute," taking with them much of South Florida's lending capital.
Banking professionals referred to the proposal as the "biggest issue facing [bankers] right now" at the Greater Miami Chamber of Commerce's Goals Conference in June.
The US Department of Commerce has estimated that $3.5 trillion in US nonresident alien accounts sits in banks, with $35 billion to $50 billion of that in Florida.
A George Mason University study estimated that $300 billion would leave the US if the regulation were applied to accounts from 15 countries, Mr. Sanchez said, and the proposed rule applies worldwide.
"That's the money that our banks use to lend to small businesses," Mr. Sanchez said. "That's a big liquidity number. That's the money they circulate in our community."
Each of Florida's legislative representatives has written to President Obama and asked him to reconsider the rule.
A hearing on the regulation was held May 18 after being repeatedly pushed back. The regulation's records have not been updated since the hearing.
The most recent action has been Florida Sen. Marco Rubio's introduction of a bill that would prohibit the IRS from requiring interest reporting on foreign accounts.
The bill, co-sponsored by Texas senators John Cornyn and Kay Hutchison, was read twice and referred to the Committee on Finance on Aug. 2.
"Our state and county have benefited from international investors who confidentially place deposits in American financial institutions," said Mr. Rubio in an email.
"The proposed regulation would have a devastating impact on job creation as a capital flight of any magnitude would hurt lending and make it harder for entrepreneurs to secure loans to start businesses or expand existing ones."
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