Chile Forum

The U.S. IRS is opening international audit divisions and hiring more agents for joint audits with other countries including an office in Panama:
http://www.reuters.com/article/idUSTRE5BA45320091211

It looks like the banks did get an extension of time until 2012 in to the house bill.

I don't think everyone is quite appreciating the rock and a hard place that this law puts Banks in Chile when dealing with Americans.

The practical effect will be something like this.

Some yoko attorney at the various bank headquarters in Chile will have his secretary write up a little pamphlet that gets distributed to all the bank branches. Likely he will get a pamphlet from some government agency, that got one from another government agency, that got it from the embassy, and so on. What starts out as 3,000 pages of legal text, international law, and hundreds of studies and comments on those studies will be boiled down to a page of bullet points.

It will explain in a page or two that in order to open an account for an American citizen (no matter how long they have lived in Chile), they must do a bunch of extra paperwork, get approval from x office, y office, and so on but will politely emphasize at the end of the day it is just better not to try because it will likly not be approved anyway.

The under educated and trained desk jockey at the branch that generally does not know what a SWIFT code is, the OECD, the U.S. IRS, or much of anything other than how to fill in the one form he was trained to fill in when they hired him to open accounts for Chileans, will simply turn to the American and tell them it is not possible.

It will not matter how much money you have. It will not matter who you know. It will not matter what the intent of the law was. Basically, it will not matter. Their eyes will cross, and that will be the end of the discussion as they tell you it is not possible to open an account. The bit about a $50,000 exemption will likly not trickle down to them as a bullet point. If by chance it does, they would not know how to alter accounts to comply with that.

Now for Americans that already have accounts, some middle manager is going to look for all accounts in their bank owned by American Citizens and simply close every single one of them. There will not be an explanation or an opportunity to file an appeal. They will simply site your contract as sufficient reason (which is all they need). If you do push it, perhaps they might offer you a new contract. I would not hold your breath for this to be a priority for the banks (not much is).

Why do I believe that is how it will translate in to Bank policy in Chile?

As I mentioned before, Chile is still one of the few countries with bank secrecy laws. It is illegal for a Chilean bank to comply with this law that is before the U.S. congress right now in its current form, regardless of what screws the U.S. congress thinks they are passing. They can not, even by voluntary waver of the client, disclose any information about checking accounts (savings accounts are not protected) to third-parties including foreign countries. So the banks can not enter agreements with the U.S. IRS to comply with this law.

So, that leaves Chilean banks with a couple of options. They can simply close all American Citizens accounts and refuse to open any new ones, pay the 30% withholding this law proposes on their assets in the United States, or withdraw from all financial investment / buisness with the United States.

You can see which is the cheapest and quickest option.

The bank secrecy law in Chile would have to be significantly altered, and to alter it in such a way that it does not run afoul of whole mess of other laws is no easy trick from what I understand. The constitutional guarantee of equal treatment of property by foreigners and Chileans comes to mind, among many others I am sure.

We have a right leaning government about to come in to power by all indications. Changing that law I believe would be very expensive, and I doubt many on either side of the political spectrum want their account information exposed to the U.S. or anyone else.

Something has got give in the Chilean congress one way or the other in regards to foreigners and accounts. We also got the OECD breathing down the neck of the Chilean banking system, the U.K. is passing similar laws, and everyone else.

So, you see this is not just an issue of are you a good tax paying / reporting American, and 'what do you have to hide' sort of mess. Even though the Obama administration did not get included a presumption of guilt just for doing a financial transactions outside the country, the effect around the World will be essentially that for Americans living abroad. Chile is not alone in facing this dilemma. I bet a lot of banks around the World, just say it is too much of a hassle. I have read that many are already considering this, and just visit the Swiss bank web sites for an idea of what that means. They have big "GRINGO GO HOME!" signs all over the place now.

Well, this all academic at this point. Especially when you consider what a pain it has always been for foreigners to do banking in Chile. So on some level a lot of Americans in Chile will never even miss it. They will pull out their U.S. ATM card and buy their groceries as always.

The one that scares the hell out of me is when they decide to go after ATM and credit card transactions of Americans internationally. That one has got to be in the back of some congressional aids mind, now that congress smells the blood in the water of easy tax money with no political consequences at home.

There was also a downgrade on Chilean banks because of the low interest rates they are now charging are suppose to squeeze their profits relative to the run up in their stock price over the last few years. I don't think they appreciate how Chile's banking system makes money off of fees on everything, especially small consumer loans and credit cards.