Barbados boasts a healthy domestic and international financial services sector. If you are looking to establish a regular or international business company, an offshore bank or insurance company, Barbados has numerous tax treaties by way of Double Taxation Agreements and Bilateral Investment Treaties which facilitates business and is continuing to expand its network. Barbados takes international standards very seriously and is committed to a sound and reputable financial sector. With a strong legislative framework supported by two key regulators, the Central Bank of Barbados and the Financial Services Commission, provides supervision and ensures stability of the financial system.

In 2010, the U.S. Congress enacted the Foreign Account Tax Compliance Act (“FATCA”) to target non-compliance by U.S. taxpayers holding foreign accounts. FATCA came into force July 1, 2014, and requires all non-U.S. financial institutions in every country of the world to report data about financial accounts held by U.S. Persons on an annual basis to the U.S. Internal Revenue Service (“IRS”). Barbados entered into an Inter-Governmental Agreement (“IGA”) with the IRS in order to facilitate FATCA compliance.

Foreign Financial Institutions (“FFIs”) including depository institutions, custodial institutions, investment entities and certain insurance companies with cash value products or their holding company as well as various other non-financial foreign entities (“NFFEs”) must register with the IRS using an online registration portal. Registrants will in turn receive a Global Intermediary Identification Number (“GIIN”) to be provided to withholding agents.

Institutions and non-financial business entities and professionals operating in and supporting the financial services sector in Barbados already have specific Know Your Customer (“KYC”) obligations to satisfy their Anti-Money Laundering (“AML”) obligations.

The question is, can FATCA and AML KYC be happily married or are they at risk for divorce? Is there a way to align existing compliance requirements even though the premise behind AML and FATCA are very different? Let’s discuss.

Unlike AML, FATCA does not allow for a risk-based approach. For example, where simplified due diligence is allowable under AML legislation, it does not mesh well with FATCA compliance requirements. Transactions or clients under prescribed and allowable simplified due diligence may not have sufficient information to make a “US Person” determination and/or collect required information for reporting purposes.

Another conflict is that there is a record retention discrepancy. Under the IGA for FATCA, prescribed records and client information must be obtained and retained for 6 years. This is longer than common AML standards which are 5 years. This could potentially pose a challenge to several institutions to amend and extend the retention period. Will it be easier or harder for smaller organizations to change their record keeping timelines? Some organizations may have the advantage of already having an internal record retention period that is long enough, such as 7 years, to capture and satisfy both periods.

Are you an existing organization who is grappling with these requirements? Instead of reinventing the wheel, hopefully you have expanded your existing account opening procedures and due diligence verification to bring FATCA into the mix as of July 1st, 2014.

Organizations frequently review and enhance their AML KYC processes in response to changing international or legislative standards, regulatory inspections or internal and external audit findings. Seize those opportunities to find the synergies! When making process or IT changes, leverage the chance to incorporate the most ideal steps (not the short-term measures you may have felt forced to implement to meet the deadline) for ensuring FATCA compliance. While the hood is up, give the engine a full tune-up!

Are you transferring or setting up a new business in Barbados that will have FATCA and AML KYC obligations? Then you have the key advantage! Design your account opening procedures and data capture requirements at the outset in such a manner that you can seamlessly and simultaneously satisfy both FATCA and Anti-Money Laundering Know Your Customer (“KYC”) obligations.

There are also new, exciting and affordable technology solutions which can help you easily track and retain client records as well as produce detailed reports on both AML KYC and FATCA compliance.

So where do we stand in terms of the relationship between FATCA and AML?

I believe that the two compliance regimes complement one another overall, as both go to great lengths to truly know who you are doing business with, and will stay married… happily ever after.

About the Author

Glenna Smith
Glenna Smith -

Glenna Smith is Managing Director of Smith Compliance Consulting (SCC) Inc. in Barbados as well as a Certified Anti-Money Laundering Specialist and the Vice-President of the Barbados Association of Compliance Professionals. Glenna is a member of the world wide AML Training faculty for a Global Bank to facilitate interactive training sessions for staff and the importance of fighting financial crime. Glenna has worked as a Compliance Officer facing regulators and managing inspections. She has gained wide and in-depth knowledge in compliance, operational risk, corporate governance and legislative matters over 28 years in the financial services sector. Glenna has authored a number of articles on AML, Governance, FATCA and Privacy and speaks regularly at conferences regionally and internationally.