Paul Sin, Ph.D.

Senior Managing Consultant • Financial Services Sector • Global Business Services • Greater China Group
+852 9625 2427 • +852 2825 6977 • paulsin@hk1.ibm.com • Nov 2012

Foreign Account Tax Compliance Act (FATCA)

© 2012 IBM Corporation

FATCA aims to tackle tax evasion to tax havens or strong personal
data protection countries, e.g. Switzerland. It covers specific
financial institutes, accounts, and transactions.
Foreign Financial Institutes (FFI) Affected FFI Contract
Ev Annual FATCA
– Banks er with US Report
– Insurance Firms yt by Dec 31, 2013 by Mar 31 2016
hi
– Fund Houses, Custodians, etc. ng
Ke Withholding
– And All Affiliates Withholding on
Requirement
ep On Jan 1, 2014
Gross Proceeds
Accounts Affected s On Jan 1, 2017
C
– Individuals with US Nationality, US Address, US Phone ha Due Diligence
Number, US Account for Standing Instruction, etc. ng Pass-thru
For
in High Value Payment
– Corporations with Substantial US Ownership gAccounts
! Requirement
– Accounts Refused to Provide Information by Dec 31, 2014 by Jan 1, 2017
– Low Value Accounts (< US$50,000) Exempted Until Dec 31,
2014 Due Diligence
for All Pre-Existing
Transactions Affected
Accounts
– Interest Income and Dividend from US Investment (2014) Completed
– Gross Sales Proceed of US Investment (2014) On Dec 31, 2015

– Pass-thru Payment of Non-US Asset (2017)

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© 2012 IBM Corporation
FATCA requirements have 3 different impacts to the technology
platform, namely customer classification, transaction monitoring
(and withholding), and IRS reporting.
Classification

Account Opening Regular Retesting Pre-Existing Account Analysis

Customer

& Maintenance
Customers Counter-Party
KYC
(FATCA Indica) (FATCA Certification)

Participant Non-Participant
Transaction
Monitoring

US Source Income:
$100 → $70

Account Account
Non-US Source Income:
$100 → $70
IRS Reporting

Disbursement Refund W-8BEN / W-9

KYC
File File Filing
Documentation

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© 2012 IBM Corporation
The 5 key challenges, including 1) agility, 2) automation, 3)
compliance, 4) customer impact, and 5) integration, can only be
addressed by workflow and rule-based engine.

Complex Negative presumption, investigation

Cope with a Ambiguous Keep a good Reporting to the IRS
business logic Ever changing relationship with Withholding
that is... your client
Need transparency and agility Need to understand and
justify

Huge impact on workload Integrate in the existing applications:

Apply Upgrade the existing processes account opening, payments, etc
Integrate in your
FATCA Specific due diligence procedures Need for a service oriented
IT landscape
procedures
Need to automate complex approach
decisions

FATCA compliance WebSphere Operational Decision

Ensure Comply with local regulations Management (WODM) and IBM
compliance Comply with your best practices
Business Process Management (BPM)
Need for transparency and
adaptability are key enablers
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© 2012 IBM Corporation
The principle of rule-based engine is to externalize and centralize
all business rules for business-IT collaboration and system
deployment.

ifif
the
the account
account isis required
required toto be
be
Express the treated as a US account U.S. Client
treated as a US account Deploy business
business logic as then Identification
then services
rules for each individual
for each individual holder
holder
the
the FFI
FFI should
should collect
collect aa Form
Form W-9
W-9
Shared services
Business language
Platform agnostic
1 business rule = 1 WODM rule
Consistency and traceability
Transparency

Rule
Externalize and Bring the IT and
Repository
centralize the the lines of
business logic business together Rule Designer Decision Center

Controlled access One single view on rules

Decoupled from the application logic Test, simulation, versioning
Agility Cooperative governance

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© 2012 IBM Corporation
FATCA rules are not developed from scratch, but from a foundation
and dictionary.

Rules of FATCA Defined in Natural and Declarative Language

FATCA Dictionary Ensured Consistency

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© 2012 IBM Corporation
The value proposition of a rule-based account opening process can
be extended beyond FATCA into strategic advantages.

IBM + KPMG Differentiate with Better

Agile FATCA Closing Deal on
Account Opening Process
Compliance Spot with Mobility
with KYC, HKMA, etc.

Common Software Large Investment for Complicated

Firms a Specific Solution System Integration

Other Consulting
Firms Gap Analysis Long Process of Continual System Enhancement

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© 2012 IBM Corporation