Russia’s Rejection of FATCA Could Be a Catalyst
To limit its vulnerability to western sanctions, especially against its financial sector, Russia for several months has been moving away from the US dollar as the main medium of international trade.
How then to explain a recent move that largely unravels this emerging, comprehensive strategy?
On June 30 President Putin signed a law requiring Russian banks to report information on American accounts to the U.S. Internal Revenue Service (IRS) in compliance with the so-called “Foreign Account Tax Compliance Act” (FATCA), enacted by the U.S. Congress in 2010.
FATCA, which went into effect on July 1, constitutes perhaps the most sweeping extraterritorial financial power-grab by any country in world history. It requires every single Russian bank (and indeed every non-U.S. financial institution in the world) to report details on the accounts of “U.S. Persons” (broadly defined) to the IRS, with compliance costs running into the millions of dollars per institution.
Because Russian banks are outside American jurisdiction (or stated differently, are no more obligated legally to submit to American law than domestic U.S. companies are subject to, say, Russian law), Washington seeks to compel compliance by threatening unilateral sanctions: banks in Russia and other countries failing to supply the information demanded by the U.S. government would be deemed “recalcitrant” and slapped with a 30% deduction from all American-sourced payments to that institution. Because so many of the world’s financial transactions are denominated in dollars and flow through the US banking system, the threat is credible.
Moscow’s rejection of FATCA could be a catalyst for its worldwide collapse. This would also help forces in the United States who see in FATCA a grave threat to privacy and personal freedom and are working to get rid of “the worst law most Americans have never heard of.”