Standard Chartered: The bank of cowards!

A picture of SCB in Hong Kong, I took while there.

Recently, It has been called to my attention that Standard Chartered Bank will no longer accept US citizens, US green card holders, and US residents as clients. To go a step further, these cowards are basically telling current and even long time clients with  US ties, to take their money and stick it where the sun don't shine. This is being done with very little warning and under false pretenses.

Of course Standard Chartered is making the claim that the bank is shifting toward the target markets of Africa, the middle east, and the Asia Pacific region. And that clients who are not a part of this demographic will no longer be welcomed at Standard Chartered. This of course is a lie. The real reason for this forced exile stems from The Foreign Account Tax Compliance Act (FATCA), which was passed in 2010 and set to take effect in 2013. FATCA has systematically turned US citizens into banking and investment pariahs the world over.

To refresh your memory, this little gem, FATCA, is a new tax law that will require overseas institutions (such as financial institutions, investment entities, and many other organizations that operate on a global basis) to report their American clients to the IRS. The cost of complying with FATCA carries a steep price tag which is estimated to be around $100 million for a large sized bank. Mind you, I am speaking of compliance cost only, what I am neglecting from this figure is the forced 30% withholding that must be levied from non-declared accounts of American citizens. This action would essentially turn a private banking institution into an arm of the IRS at the further expense of the banking institution.

Of course here is Standard Chartered's solution for this problem: show US clients the door and tell them "don't let it hit you on the ass on the way out!"

The Standard Chartered treatment of US clients

Now I will share with you the story of a man who I will call Mr. X. Mr. X is a dual national of America and an Eastern European country, where he currently resides. Mr. X was also a client of Standard Chartered's private bank and had been banking with them for 20+ years until he received a letter to move all of his assets elsewhere. Mr. X was given 90 days to do so. Bewildered, Mr. X had written to his banker Ms. Y, only to have the director of the branch reply.

In the email written by Mr. X to his banker, he asks "I have had this account at your bank for over 20 years! May I ask why this is being done now?" In response, the director of the branch replied "As detailed in my letter of XX/XX/XXXX, In order for the Bank to continue to focus on delivering appropriate services and products to its clients, we periodically conduct reviews of our client base to ensure that our clients remain aligned to the Bank’s strategy of Asia, Africa & the Middle East.  Given that you are based between Eastern Europe and the United States, these areas are not target market for Standard Chartered."

Let me translate what this director really means, "even though you are a good, high net worth client, because you have ties to the United States, you have become not only an undesirable but a liability to our bank. Don't go away mad, just go away!"

What bothers me the most about this situation is the fact that Standard Chartered knuckled under like a bunch of cowards needlessly. Standard Chartered Bank kicked loyal clients to the curb when they were one of the few banks in a good enough circumstance to fight such draconian measures being perpetrated by the United States government against its citizens at the expense of banks the world over. The outcome of fighting these draconian measures could be come quite profitable for the bank as well.

FATCA: Making you bank in the US, whether you like it or not.

Here is what I mean:

Firstly, Standard Chartered has only a small token presence in the United States. Hell, there are only 6 Standard Chartered Banks in the whole entire country of America. Most of Standard Chartered's clients with ties to America use branches outside of the US. This is done in order to take advantage of outside investment opportunities not available in the US. Further, over 90% of its profits come from Africa, Asia and the Middle East.

Being in such a protected position against the penalties of the IRS and other American authorities, Standard Chartered Bank could have said "we will not comply as FATCA is in direct violation of the privacy policies of the respective countries we operate in. Also, our bank is not an arm of any government, thus we refuse to spend OUR MONEY to act as an arm on the behalf of any government." With this statement, Standard Chartered could have sold its US presence to another bank in America who would be happy for the market share.

The next move would have been for Standard Chartered to no longer offer US investments. The bank has been divesting in the US since 1987 anyway, so this move would be nothing new. Plus Standard Chartered has made it clear anyway that it's target is to stay "aligned to the bank’s target markets of Asia, Africa & the Middle East." So I am sure the hottest investments they offer are in these markets anyway.

The IRS: punishing the successful since 1913

Also Standard Chartered would have to be protected from the 30% withholding of their US dollars supply. This is because all dollars begin life with a US bank some where down the line. Which means whatever dollars the bank receives could be subject to this withholding. Thus the solution is that Standard Chartered would have to stop offering dollar denominated accounts. This is would be a pretty ballsy move for any bank. However, the ballsy-ness would merely be symbolic. A good alternative for clients who want to hold dollars but can't for this reason, would be to offer accounts denominated in Hong Kong Dollars. This is because HK dollars are easily converted into dollars as they carry a HK$7.75 to $1 USD direct peg to the US Dollar. Thus the values of the currencies move in tandem.

However, there would always be the added benefit of a possible revalue of the Hong Kong Dollar in case the US wishes to further debase it's own currency so that other pegged currencies go down with the ship. This would be a bitch move on the part of the US but it has already started to some degree. By this I am referring to America's on going currency war being waged against China in order to force the Yuan to revalue as to make American goods look attractive once again, but this is another story for another time.

Lastly, think of all the high net worth clients with American ties who would flock to Standard Chartered under the current exile Americans are facing from other foreign banking institutions. In the ranks of those no longer serving American clients we have:

HSBC, Deutsche Bank, Bank of Singapore, DBS, Hang Seng, Julius Baer, Wegelin & Cie, Bank Sarasin, Pershing and Williams de Broë, Barclays Wealth, and even those Judases at UBS are no longer taking clients with American ties. What is even funnier is the European division of Morgan Stanley, which is an American company for fuck's sake, are also turning away American clients. Not to even mention many American financial institutions in Hong Kong, like JP Morgan, have not accepted US clients in YEARS!

Yep, flies on shit! This could have been you SCB!

Wow, talk about a huge piece of market share! If Standard Chartered had the balls, all of those wealthy US clients would be all over Standard Chartered like flies on shit! However, this is the real world, and in the real world Standard Chartered knuckles under like every other cowardly bank even though they are in the best position to do the opposite. Well, on the bright side, at least they are not rolling over on clients like those Judas Swiss banks!

Solution? A second citizenship or possible expatriation,  perhaps. One could also form a company that of course is not majority own by American citizen... LOL Hang on tight, the next few years is going to be a bumpy ride... :-D

IRS to expats and foreign account holders : "Freeze! This is a stick up!"

Recently, the IRS has announced a new voluntary disclosure program targeting foreign account holders. This piece of crap is called The 2011 Offshore Voluntary Disclosure Initiative (OVDI) which expires August 31, 2011. This is the second program of this type in recent years. This disclosure program was "designed to bring money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes." How generous of the IRS to take time out of their busy schedule to "help" US citizens. :-D

Here is the low down on OVDI: By August 31st, US citizens who hold foreign accounts are being allowed to disclose them, paying penalties that are lower than if the IRS had caught them "red-handed". The "new lower penalties" include of course payment off all back taxes, interest for up to 8 years, and standard delinquent fines. Also as a gesture that the IRS is attempting to help you, they will take ONLY an additional penalty of 25% of the highest annual balance you had for any one year between 2003-2010.

OVDI also is targeting Americans who live outside of the US with foreign income in which taxes have not been filed in the US. The US is one out of only 2 other countries who requires its citizens who work outside of the country, to pay taxes in the country they are a citizen of, yet do not live in!

When I bring this topic up, usually some anti-wealth, moderate socialist tries to fight me tooth and nail. Generally they say things like, "This is a good thing as it will scare these greedy fat cats into paying their fair share! These are rich people who are just trying to avoid paying taxes anyway, so really the punishment is too generous!" Here is the fallacy of this argument:

For instance, let's say you are some Joe "six pack" American from ANYTOWN, USA. Joe is not a fat cat, he is a truck driver who makes $35,000 a year. About 7 years ago Joe's grandmother died. Joe's Grandmother was born in and lived in Italy, where she had a bank account. After her death, Joe was lucky enough to inherit grandma's Italian bank account. An account which contained $55,000 of money grandma earned, saved, and paid taxes on throughout her life. Joe being the simple guy he is, knows he has this account, but doesn't really know how to access this account, so he let's it sit. The bank the account is in is a very stable bank in Italy and gains very little interest.

Joe hears the IRS is making some changes and is about to go after foreign account holders. Then he hears about OVDI and figures "well, gee, let me declare this account before I run the risk of going to jail." So using this new "generous" disclosure program, with back taxes paid, 25% penalty paid on the highest annual balance, interest for the 7 years, and standard delinquent fines, Grandma's dying gift to her grandson Joe, is completely gone!

What else I find disgusting is a story I had read in The Financial Times about an American expat by the name of Cindy living in Germany. Cindy had heard about the disclosure program being offered before the IRS was going to hunt full-force for American's with foreign income and accounts. Mind you Cindy has lived in Germany for 30 years.

After disclosing her information voluntarily to the IRS, Cindy was informed that because her foreign income was under $91,500 a year, she did not actually owe any taxes. However, since she did not file a tax return for all these years, even though she did not owe any taxes AND has not lived in the US for 30 years, she must pay a LARGE penalty. Cindy was so frustrated over this, she turned in her US citizenship.... And I can't say I blame her based on principle.

Clearly both our Joe "six pack" and "expat" Cindy are not rich fat cats. Nor were they trying to "evade" taxes.

The 2011 Offshore Voluntary Disclosure Initiative is really just the calm before the storm......

Last year, The Foreign Account Tax Compliance Act (FATCA) was passed. This little gem is a new tax law that will require overseas institutions (such as financial institutions, investment entities, and many other organizations that operate on a global basis) to report their American clients to the IRS.

I know most people are thinking "Yeah, don't hold your breath. You can't enforce American laws in other countries where they have no jurisdiction..." In most cases, this would be correct. However, the US government will force institutions to comply by withholding 30% of any US source income including gross sale proceeds. This law will take effect in 2013.

Many foreign institutions are fighting this new law tooth and nail. Hell, Canada is already asking for an exemption to this new law. Chinese institutions have simply responded by saying, "don't talk to us, go talk to government...." :-D And who can blame them? Searching their records for addresses, citizenship documents, etc proving citizenship of any account holders with more than $50,000 is very expensive. In Germany alone, if all German banks were to comply, it is expected that the costs to implement FATCA will reach €10 billion! Plus, in many countries the implementation of FATCA would conflict with current privacy laws.

Wow, that sounds like a real no brain-er... Let's put on our logic hat for a second and ask: Why would ANY institution spend a large amount of money to do something that will not just make them lose money but clients too? Why would any institution spend a large amount of money to be in violation of local laws but compliant in laws of a country that they do not have a large presence in?

The consequences of these actions would be dire, not just to these institutions but to America itself. The reason why is that many of these overseas institutions will pull out of the US market in order to avoid the 30% withholding for non-compliance. To further combat the withholding, these banks will probably stop offering US dollar accounts. This is because all US dollars that go into a bank, even a foreign one, must originate from a US bank somewhere down the line... Which means that the 30% withholding could still be applied. Could you imagine what kind of consequences would arise from foreign banks in mass dumping their US dollars?!

Plus, think of the actions of the US clients... First thing any US client of an overseas bank or investment entity would do is move on over to a foreign bank that offers only foreign investments. The next thing these US clients would do is dump all American investments to avoid this law. Sorry but US investors may be patriotic but not when it come to their money. People will protect their assets at all cost even if it risk doing damage to the US economy by opting out of American investments. People are concerned with what is theirs first, these are the facts of life.

As a person who spends a great deal of time out of the US on what has become a consistent basis, I ask the question, why would a government alienate the very people that help keep the economy afloat the most? Americans who make money outside of the US, generally put that foreign money into the US economy because that is the land that we have a home at!

If the US economy is a person struggling to keep its head above water, alienating foreign institutions and US citizens with foreign assets, will become the water that drowns it.