New U.S. financial law could impact expats as some foreign banks say they are closing accounts of U.S. citizens

The first effects of the U.S. Foreign Account Tax Compliance Act (FATCA), which goes into effect July 1, are beginning to felt around the world and they could have a big impact on U.S. expats.

FATCA requires foreign banks to report all accounts of more than $50,000 held by U.S. citizens. Banks that do not comply may be denied access to the U.S. banking system. In addition, wires of funds from U.S. banks to non-compliant banks require a 30% hold-back of funds, repayable to the owner at the end of the year if he or she can prove that the funds were used for legitimate purposes, a task requiring detailed paperwork.

FATCA provides teeth to existing reporting rules for U.S. citizens. According to the U.S. government, tens of thousands of accounts are not reported each year, many simply because their holders, including many exapts, are unaware of the law. In addition to the IRS reporting requirement, U.S. citizens are also required to file this year a Report of Foreign Bank and Financial Accounts (FBAR), reporting all overseas accounts of more than $10,000.

Some foreign banks are reacting to the new rules by simply refusing to allow U.S. citizens to have accounts. Late last year, most banks in Switzerland announced that they will no longer accept accounts from the U.S. citizens, and many banks in other European countries have followed suit.

One of the first banks in Latin America to make the move is Banamex USA in Mexico. Some U.S. citizens, including exapts, with deposits at the bank were notified of the new policy last week. The notice says that accounts must be closed within 30 days.

Banamex USA’s parent, Banamex, is the second largest bank in Mexico and there are over one million U.S. citizens living in Mexico, by far the largest number of U.S. expats of any country, so the effect of the new policy could be  widespread.

Bank customers are being told that it was a “bank decision” to close accounts with no other explanation given. This move has left U.S. Banamex customers scrambling to find a bank that will allow them open an account.

It does not appear that all U.S. accounts at Banamex USA will be closed but the bank refuses to disclose policy details.

In Ecuador, all major banks say they will abide by FATCA rules. A spokeman for Banco Pichincha, Ecuador’s largest bank, said the question of opening new accounts for U.S. citizens will be discussed at an upcoming directors’ meeting.

Credit: Some information for this article courtesty of Dollar Vigilante, http://dollarvigilante.com; Photo caption: Banamex in Mexico