Lebanon Braces for FATCA
The Lebanese banking sector has been preparing for FATCA like the teacher’s pet not because it is a major advocate of reining in tax havens — Lebanese law explicitly allows companies set up with offshore tax status — or greater taxation transparency and new tax laws in the country. Rather, the sector is exceedingly wary of international regulators, specifically of falling foul of the US Treasury. This is due to Lebanon’s immense exposure to American leverage: some 70 percent of local deposits are held in US dollars; banks need to keep good relations with correspondent banks in the US and elsewhere; and no one wants a repeat of the 2011 Lebanese Canadian Bank fiasco, when the bank was accused by the US of money laundering and subsequently closed its doors.
However, that the banking sector has prepared for FATCA so early can be read as a further indication of the country’s inability to defy US demands. Indeed, as one compliance officer put it off the record, “It is ridiculous that it takes a foreigner to come here and say you have to apply regulations, and we do it, but not because we are afraid of the Lebanese regulator.”
But herein lies the primary problem with the law. How will FATCA compliant Lebanese banks deal with what the IRS calls “recalcitrant” FFIs? And does the sector stand to lose business by not dealing with non-participating FFIs in say West Africa, Algeria or China? No one interviewed by Executive could give a clear answer.
Elsewhere in the region this may be more challenging. For example, Syria is requiring banks to be FATCA compliant, including Lebanese banks operating in the country.
Editor's Note: Check out this article for more information on the odious FATCA law and here for countries that have signed up for it, as well as those that might not.