July 2, 2001
Politics & Policy:
Treasury to Reconsider Regulations On Banks'
Reporting on Foreigners
By DAVID S. CLOUD and JOHN D. MCKINNON
Staff Reporters of THE WALL STREET JOURNAL
WASHINGTON -- The Treasury Department will consider easing draft regulations aimed at curbing tax evasion by foreigners following pressure from White House officials and Florida Gov. Jeb Bush.
The draft regulations would require U.S. banks to report interest earned on accounts held by nonresident foreigners. Such accounts are exempt from U.S. tax. But foreign governments want the Internal
Revenue Service to collect and pass along data on interest so it can be taxed abroad.
The proposal, unveiled in the last days of the Clinton administration, has infuriated bankers in Miami and other U.S. money centers that depend heavily on foreign deposits. They say the rule will
cause huge withdrawals from U.S. banks by depositors in Latin America and elsewhere worried about financial information being reported to their home governments.
The bankers have drawn support from Lawrence Lindsey, head of President Bush's National Economic Council. "It's an issue of a lot of concern," Mr. Lindsey said. He added that he
"probably chatted" with Assistant Treasury Secretary Mark Weinberger and advised him to "have a look at this" and "get the rule right."
Gov. Bush sent a letter last month to Treasury Secretary Paul O'Neill arguing the regulation "would place U.S. banks at a competitive disadvantage relative to banks in the Caribbean and Europe
... and would seriously hamper the ability of U.S. banks to continue to attract foreign deposits."
The lobbying appears to be paying off: The Treasury Department has asked Florida bankers to submit information about the rule's financial impact. Rep. Dave Weldon, a Florida Republican, says Treasury
Department officials told him the agency "may scale the rule back," possibly by giving the information only to a few close U.S. allies, such as Britain. Currently, the IRS regularly gives only Canada data
on the U.S. interest income earned by its citizens.
Treasury Department spokeswoman Tara Bradshaw said, "We're reviewing it," adding, "We have no idea how we'll come down on it."
White House aide Pippa Malmgren arranged a meeting in May between the agency's Mr. Weinberger and more than a dozen bankers and trade-association officials from Florida, Texas, New York and Washington
state who are concerned about the rule, an aide to Mr. Weldon said.
One attendee, Robert Brookes, president of Miami's Eagle Bank, said the rule could prompt withdrawals of $15 billion to $20 billion by Latin American depositors in Miami alone. At least some of the
money is deposited in the U.S. to avoid taxes at home, bankers concede, but the majority of depositors are attracted by the security and privacy of the U.S. banking system.
At an IRS hearing on the rule last month, opponents said that once the information is shared with governments in Latin America, it wouldn't be protected adequately and could make depositors possible
targets of kidnapping for ransom.
A number of foreign countries have specifically asked the U.S. to provide data about bank-deposit interest earned by their citizens, according to an IRS rule- making notice; some nations already
provide such data to U.S. tax authorities. The notice also said routine reporting of interest payments within the U.S. would help minimize false claims of foreign status by U.S. residents who seek to avoid taxes by
putting their accounts in foreigners' names.
Copyright © 2001 by The Wall Street Journal