Banks face non-compliance risks


Malawi is yet to sign the Inter-governmental Agreements (IGAs) with the United States on Foreign Accounts Tax Compliance Act (Fatca), which puts local financial institutions at risk of non-compliance.

In an effort to improve compliance of US taxpayers with foreign financial assets and offshore accounts, the Fatca was enacted by the US government in March 2010.

Fatca was developed by the United States Department of Treasury and the Internal Revenue Service (IRS) to combat offshore tax evasion by US nationals.


Fletcher and Evance Head of Research and Consulting, Handsome M’bwana, said Malawian banks and other financial institutions may face huge financial and reputation risks if they do not comply with the Act.

M’bwana said banks, bankers, account holders and others have been placed under investigation for committing or facilitating tax evasion.

“In order to enforce compliance, Fatca requires financial institutions, such as banks, to report information to IRS about financial accounts held by US taxpayers and entities, in which US taxpayers hold a substantial ownership interest or suffer a 30 percent withholding penalty. The legislation affects both personal and business customers who are treated as a US person for US tax purposes,” he said.


M’bwana, however, wondered if the Malawian financial institutions are ready to comply with the Act considering the huge impact on the business if there is non-compliance.

He said as Fletcher & Evance, leveraging on their expertise in anti-money laundering, regulatory compliance and tax, they are helping financial institutions assess Fatca readiness, develop and implement policies and manage the risks associated with Fatca compliance.

M’bwana further said the US and a number of countries have signed the Inter-governmental Agreements to build Fatca compliance into the country’s legal framework so that the country can implement it.

“These IGAs will require financial institutions to provide the information on US account which they hold, either directly to the IRS or to the local tax authority of the resident country,” he said.

The United States estimates a loss of approximately $100 billion through tax evasion every year.

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