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Heavy rules demand evidence of who we are

Complex: cross-border financial regulations

Another Reader FAQ to Moneywise: “Can a US citizen obtain a Bermuda issued credit card if they have a PO box address in Bermuda?”

Short answer = No.

Long answer = No.

Very, very long answer = Maybe, under certain circumstances.

First reason. A post office box is not a legal residence. Big deal. So, what’s the problem? Bermuda residents have held post office boxes for years, given the varying reliability of home delivery.

There are so many, more reasons.

Let’s focus on the key words in the e-mail: US citizen - Bermuda credit card - Bermuda post office box.

Who is this person (let’s use male terminology)?

Where does he come from?

What does he do?

Is he real or fake?

Is this he resident in Bermuda?

Is he living in the US?

Maybe he is a Bermuda work permit holder?

Is he related to, or married to a Bermudian?

Is he a dual-citizen with the United States?

Why does he want a Bermuda credit (or debit) card?

Why should we even care? Well, of course, we don’t care — we aren’t in the finance business!

But, all manner of financial institutions in Bermuda do care — a lot.

Bermuda banking and local financial institutions of all descriptions here are rigorously vigilant regarding the demographic make-up of their account holders. They want assurance that all their customers are legitimate, independently verifiable, compliant as to each customer’s own country tax resident status, as well having authentic business/investment purposes.

Our Bermuda financial entities (so-labelled FFIs foreign financial institutions by US tax compliance agencies) not only want certainty of identity of their account holders, they are required to adhere to very strict financial compliance screening and reporting procedures — all mandated by multiples of Bermuda legislation, internationally negotiated treaties, and other global agreements.

In Bermuda’s transparent international business environment today, compliance heavy regulations (and regulators) are paramount: Know Your Client, Anti-Money Laundering and Anti-Terrorism Financing Supervision and Enforcement Act, Anti-Corruption Regulations, US-Bermuda Intergovernmental Agreement Model 2, Fatca (US Foreign Account Tax Compliance Act), Gatca (Global Account Tax Compliance Acts), Bermuda’s Financial Intelligence Agency oversight, the US Bank Secrecy Act - regulations for foreign accounts (FBARs) held by US persons, TIEAs (Tax Information Exchange Agreements), and the newest transparency, tax compliance and reporting reciprocation act, the OECD Common Reporting Standard agreements negotiated by Bermuda with more than 90 countries.

What does all this regulation have to do with a rather simple question about credit cards?

Provenance! A post office box is not a connection. You must prove who you are and how you are connected to Bermuda. Essentially, in today’s tax compliance climate, individuals must certify to their own provenance, not quite as if they are old art masters worth millions, but pretty darn close.

This means there is basic information and credible assertions that each individual must provide to any local financial institution if they want to open an account to hold their financial assets.

PS: it does not matter if you have lived in Bermuda 50 years, you must document your existence!

Among items required (list not inclusive):

• Authentic citizenship(s) documents, passport, birth certificate, etc. Bermuda status.

• Legal residency verification, you know the drill, eg land tax bill, utility bill, rental lease.

• Sources of funds, intended uses of funds.

• Compensation structures, employment contract, work permit.

• Personal identification by a verifiable independent third party.

• Verification of country tax compliance and reporting, eg, US tax returns / FBARs.

• Explanation of other country connections including the 183-day substantial presence test.

• No fingerprints needed as yet, but who knows what the future holds.

Resistance of, and failure to provide adequate information can mean frozen accounts, and more costly aggravation where, for instance, you may be reported to US tax authorities labelled a US person and non-compliant.

Is this anonymous inquiry legitimate? Let’s assume that this US person is for real, perhaps, a Bermudian dual-citizen with the United States, who has moved back to Bermuda. Even in his case, he will be required to certify, at a minimum, that he has a legal residence in Bermuda verified by all of the above documents above, and maybe more. And gosh, he maintains a Bermuda post office box it is convenient to this city office job.

Note: each FFI has its own due diligence compliance procedures.

At this point, I know you are probably bored to tears hearing about this plethora of constant financial paperwork, a complete aggravation for the ordinary Bermuda islander, and a bewildering challenge for Bermuda residents with more than one citizenship, multinational families and international connections.

So, Readers, what do you think, truly? Are you as cynical as I am?

Here is the thing.

An individual attempting to open a foreign bank account, acquire a credit card in another country by using a foreign post office box while providing little to no verifiable documentation as to his “real” residence or identity is raising the proverbial red flag.

Might this inquiry be indicative of non-legitimate purposes? A classic fraud situation perpetrated — and prosecuted with US prison terms / horrendous fines — so often in the US will involve a US person opening bank/investment accounts offshore, funding the accounts through some sympathetic foreign country (certainly not Bermuda), then using foreign credit cards to maintain an elaborate US lifestyle — tax free.

We’ll never know!

Our readers have commented that this increased focus on individual financial ‘provenance’ and Bermuda’s reciprocal exchange of information with other countries is “outrageous, an invasion of privacy” to “a frustrating morass” to “these financial institutions have some nerve doing this (and charging us extra for our tax compliance)” to “the Bermuda Government should just tell these other country revenue agencies where to go” to total resignation.

In reality, our financial institutions have no choice. Failure to adhere to these negotiated compliance regulations with the US, for instance, means severe fines and limited or no access to US capital markets, a disaster for conducting international business.

Bermuda is an international offshore financial centre of the highest financial integrity, transparency and compliance. We must be ever vigilant to thwart attacks on our hard-earned reputation.

There you have it.

To read another Royal Gazette article on US/Bermuda persons coping with the offshore account reporting mandate, see Making sense of cross-border financial rules, click on this link: goo.gl/EA2Q1F

Martha Harris Myron CPA PFS JSM : Masters of Law, International Tax and Financial Services. Pondstraddler Life™, financial perspectives for Bermuda islanders with multinational families and international connections on the Great Atlantic Pond. Contact: martha@pondstraddler.com