updated 2:11 PM CET, Oct 31, 2023

Growing FATCA, CRS scrutiny on wealth ownership, transfers between Israel, U.S. and LatAm: Report

Growing FATCA, CRS scrutiny on wealth ownership, transfers between Israel, U.S. and LatAm: Report Bruce Emmerling

Growing global enforcement of two major anti-tax-evasion regulations – America's Foreign Account Tax Compliance Act, and the OECD's almost-identical Common Reporting Standard – has begun to impact financial institutions and their clients in Mexico and LatAm generally who also have ties to Israel and, in some cases, the U.S., the Jerusalem Post newspaper  has reported. 

Noting that a 2018 Haaretz report had found foreign deposits in Israeli banks had shrunk by 30% in the wake of  recent "heavy pressure" from the U.S. "in its fight against money laundering" (an apparent reference to FATCA, which came into force in 2014), the Post said FATCA updates by the U.S. earlier this year, combined with the coming into force over the last couple of years of the CRS, had put new pressure on those Jewish individuals in such countries as Mexico, Colombia and Argentina who "look for places to discreetly keep their capital". 

In particular, CRS has meant that funds held in Israeli bank accounts on behalf of Mexican taxpayers must now be reported to the Mexican authorities, and vice-versa, the article noted, although thus far, Mexico is not officially included on the OECD's current list of CRS-participating countries.

The result, the Post article continued, is that, while Israel may in the past have been a "haven for undeclared capital",  FATCA and the CRS have now made it "increasingly hard for wealthy Jews to hold their capital in Israel without reporting it to their country of origin".

"While Israel has long been an easy and convenient destination for Mexican investors, and especially the wealthy Jewish community of Mexico City, [these new] regulations threaten to end the “golden age” of Israel-Mexico ties." 

The article went on to cite ways that the regulations have begun to affect clients and would-be clients, such as Israeli banks "refusing to open accounts for foreign entities", and balking at accepting money transfers, on money-laundering concerns.

Both Israel and Mexico signed Model 1 FATCA Intergovernmental Agreements to participate in the American tax information exchange program from 2014 onwards, according to the U.S. Treasury's website.  

Like Mexico, the U.S. is not named among the OECD's CRS-participating jurisdictions, but this is because it has said it doesn't need to, as it has its own global tax-evasion regulation, in the form of FATCA.

Some critics have said this is enabling the U.S. to become a "tax haven" for wealthy individuals from CRS-participant countries, who, because FATCA in most cases isn't reciprocal, are able to park their wealth in U.S. financial institutions without having to fear that it will be reported to their home tax authority. As long as Mexico continues to avoid signing up to it as well, Mexican banks and financial institutions may also benefit, some observers have said.