Foreign Account Tax

Compliance Act
(FATCA)

Dr. Badrul Hisham Mohd Yusoff

CPC, CFP, CA(M), CMIIA, ASA(AUST), MMIM, CRMA, DBA,
MBA, BACCT (HONS)

1
FATCA Technical Overview

Dr Bad Yusoff
General Overview and Concepts

Dr Bad Yusoff
Congressional Action
Tax Haven Banks and U.S. Tax Compliance - 2008
• ISSUE:
• U.S. persons are using foreign
entities to invest and avoid U.S.
reporting and backup withholding.
• Certifying to be foreign persons
• Availing themselves of treaty
benefits
• U.S. loses an estimated $100 billion
in tax revenues annually due to
offshore tax abuses.
• Financial institutions may be
facilitating international tax evasion

Dr Bad Yusoff
Congressional Action
Tax Haven Banks and U.S. Tax Compliance – 2008 (Continued)

• Recommendations:

• Strengthen Reporting of Foreign Accounts Held by U.S. Persons.

• Strengthen 1099 Reporting
• Strengthen Audits
• Penalize Tax Haven Banks that Impede U.S. Tax Enforcement
• Attribute Presumption of Control to U.S. Taxpayers Using Tax Havens
• Allow More Time to Combat Offshore Tax Abuses
• Enact Stop Tax Haven Abuse Act

Dr Bad Yusoff
The Congressional Reaction- FATCA
What? Why? How?
FATCA – Foreign Account What is the intent? What are the
Tax Compliance Act consequences of being
noncompliant?
The purpose of FATCA is Create greater FATCA requires reporting to
to “detect, deter and transparency by the IRS certain information
discourage offshore tax strengthening information on direct and indirect US
evasion” by US citizens or reporting and compliance account holders.
residents. with respect to US FATCA imposes a 30 percent
accounts. withholding tax on
Major functions impacted:
• Client on-boarding “withholdable” and
• Tax reporting “passthru” payments made
• Tax withholding to a recalcitrant account
• Governance holder or a non-
participating FFI.

Dr Bad Yusoff
Five concepts you need to know
• 1) A Foreign Financial Institution is any non-US entity that:
1. Accepts deposits in the ordinary course of a banking or similar business;
2. Holds as a substantial portion of its business financial assets for the account of others;
3. Is engaged (or holding itself out as being engaged) primarily in the business of investing,
reinvesting, or trading in securities, partnership interests, commodities, notional principal
contracts, insurance or annuity contracts, or any interest in any of the above; or
4. Is an insurance company (or the holding company of an insurance company) that issues or is
obligated to make payments with respect to a financial account.

• 2) Financial account:
1. Any depository account maintained by the financial institution,
2. Any custodial account maintained by the financial institution,
3. Any equity or debt interest in a financial institution that is an investment fund (other than those
that are regularly traded on an established securities market), and
4. Any cash value insurance contract and any annuity contract issued or maintained by the
financial institution.

Dr Bad Yusoff
Five concepts you need to know
• 3) US account – A financial account held by specified US persons or US owned foreign entities.

• 4) US owned foreign entity – Any non-financial foreign entity (“NFFE”) with one or more
substantial US owners (a specified US person owning more than 10% of the stock of a
corporation or capital or profits of a partnership).

• 5) Specified US person - Any US person other than :

• 1) publicly traded corporation,
• 2) affiliates of a publicly traded corporation,
• 3) exempt organization or IRA,
• 4) the United States,
• 5) US state, DC, or US possession,
• 6) any bank defined section 581,
• 7) REIT,
• 8) RIC or SEC registered company under Investment Company Act of 1940,
• 9) common trust fund,
• 10) exempt trust under section 664(c),
• 11) dealer registered under laws of US or US state, and
• 12) a broker as defined in 6045(c)

Dr Bad Yusoff
Participating FFIs (“PFFI”)
• To avoid the 30% withholding an FFI generally must:
• Enter into an agreement with the IRS to comply with certain requirements
• Under the FFI agreement, a PFFI will be required to:
• Obtain information on all account holders to determine which accounts are US accounts
• Comply with required due diligence/verification procedures and certify completion of
such procedures
• Report information on US accounts
• Deduct and withhold a 30% tax on any “passthru payment” to recalcitrant account
holders and nonparticipating FFIs
• Comply with IRS information requests
• Attempt to obtain a waiver of applicable bank secrecy or other information disclosure
limitations or close the US account (if necessary)

Dr Bad Yusoff
Deemed-Compliant FFIs
• The proposed regulations have few true carve outs from FATCA but there are two
categories of entities with a potentially lighter compliance burden than
participating FFIs.

Registered Deemed-Compliant FFIs Certified Deemed-Compliant FFIs

Must register with the IRS, agree to deemed- Must certify to a withholding agent that it meets the
compliant criteria, and certify every 3 years to its requirements on a Form W-8 and provide any other
compliance. required documentation.

•Local FFI •Nonregistering local bank

•Nonreporting member of participating •Retirement funds
FFI group •Non-profit organizations
•Qualified collective investment vehicle •FFIs with only low value accounts
•Restricted fund •Owner documented FFI

Dr Bad Yusoff
U.S. Tax Classification of Entities

• Entities are grouped into the following

broad categories:
1. Entities organized in the U.S. (or subject
to U.S. law)
2. Foreign (non-U.S.) Financial Institutions
(FFIs)
3. Non-Financial Foreign (non-U.S.) Entities
(NFFEs)

Dr Bad Yusoff
Foreign (Non-U.S.) Financial Institutions (FFIs)

• FFIs include most: • FFIs must abide by international tax

• Banks reporting rules set out in the
• Life insurance companies Canadian Income Tax Act and
• Collective investment vehicles administered by the CRA
• Hedge funds • Managing General Agencies and
• Mutual funds Insurance Broker Corporations are
• Trust companies categorized as NFFEs, not FFIs
• Custodians
• Stockbrokers
• Investment banks

Dr Bad Yusoff
Non-Financial Foreign Entities (NFFEs)

• NFFEs are defined as any non-U.S. entity

that is not an FFI
• NFFEs include:
• Corporations
• Partnerships
• Trusts
• Estates
• NFFEs are classified as either active or
passive

Dr Bad Yusoff
Active NFFEs

• NFFEs are generally classified as

active if:
• Less than 50% of their income is
investment income and;
• Less than 50% of their assets held
produce passive income, such as:
dividends, interest, royalties etc.
• Accounts of active NFFEs are not
reportable

Dr Bad Yusoff
Passive NFFEs

• Entities that do not pass the active tests

are passive
• Passive NFFEs must provide added details
regarding ownership and control
• If beneficial owners or those controlling the
entity directly or indirectly are U.S.
persons, then the entity and the beneficial
owner information is reportable under
FATCA

Dr Bad Yusoff
Impact of FATCA on the Financial Services Industry
•
• Financial institutions (both US and non-US) to classify all account holders as either US or
non-US and as individuals or entities, which are further broken down as financial and non-
financial.
• On an annual basis, Banks and other Financial Organisations will be required to report
information on financial accounts held directly or indirectly by US Persons.
• Foreign Financial Institutions (FFIs) are asked to enter into agreements with the IRS to
identify US accounts and report certain information about those accounts to the IRS on an
annual basis.
• USFIs and FFIs must report certain information to the IRS about substantial US owners of
non-financial foreign entities (NFFEs).

Dr Bad Yusoff 16
FATCA Exemption
• The FATCA regulations exempt many categories of FFIs from the
requirement to register and report, including:
• Most governmental entities
• Most non-profit organizations
• Certain small, local financial institutions
• Certain retirement entities

Dr Bad Yusoff 17
FATCA Registration
• The FATCA Registration system is a secure, web-based system that Financial Institutions (FI)
can use to register under FATCA.
• https://sa.www4.irs.gov/fatca-rup/
• See the FATCA Registration User Guide for instructions on how to register online.
• https://www.irs.gov/pub/irs-pdf/p5118.pdf
• It establishes an online account with a home page and issues Global Intermediary
Identification Numbers (GIINs) to FIs and their branches.

Dr Bad Yusoff 18
Account Due Diligence

Dr Bad Yusoff
Account due diligence rules to identify U.S.
account holders – Individual Accounts
• Pre-existing individual accounts (only applies to FFIs, not USFIs)
• $50,000 or less – Certain accounts are exempt from review
• $50,000 to $1,000,000 – Search electronically searchable account information for US
indicia
• More than $1,000,000 (“high value accounts”)– Inquire into actual knowledge of
relationship manager; if certain required fields are not electronically searchable,
also search all other account information and documentation
• New individual accounts (only applies to FFIs, not USFIs)
• Must collect documentation sufficient to establish account holder’s FATCA status
(e.g., U.S. or non U.S.)
• Review all of the information provided at the opening of the account, including
identifying information collected under AML/KYC rules for indicia
• If an indicator of U.S. ownership is found, obtain additional documentation or treat
the account as held by a recalcitrant account holder

Dr Bad Yusoff
Account due diligence rules to identify U.S.
account holders – Entity Accounts
• Pre-existing entity accounts
• $250,000 or less – Excluded from review, until account balance exceeds $1,000,000
• Search existing information / documentation on file to determine an account holder’s FATCA
status. Generally can rely on documentation and information collected as part of AML/KYC
or existing account opening procedures. However, if existing information / documentation is
not sufficient, must request additional documentation.
• Passive NFFEs – Must identify substantial U.S. owners
New entity accounts
• Upon account opening, request and obtain withholding certificates, documentary evidence,
and additional statements from entity account holders (e.g., letters of counsel, withholding
statements, statements made in account opening documents, etc.)
• Must review all documentation collected upon account opening along with other information
collected as part of AML/KYC to determine the account holder's status under FATCA (i.e. U.S.
Entity, PFFI, NPFFI, Registered Deemed-Compliant FFI, Certified Deemed-Compliant FFI,
Exempt Beneficial Owner, Passive NFFE, U.S. owned foreign entity, Excepted NFFE, etc)

Dr Bad Yusoff
U.S. Indicia
• Searches for U.S. indicia are used to identify U.S. persons that own accounts
• An account holder has indicia of U.S. status if he:
1. Is a U.S. citizen or resident
2. Was born in the U.S.
3. Has a U.S. residence or mailing address;
4. Has a U.S. telephone number
5. Has provided standing instructions to transfer funds to a U.S. based account
6. Has granted power of attorney over the account to a person with a U.S. address
7. Has a “care of” or hold mail address that is the sole address of account holder

Dr Bad Yusoff
Verification by the Responsible Officer

Dr Bad Yusoff
Verification of Compliance
• Certifications required of a “responsible officer”:
1. To the best of the responsible officer’s knowledge, from August 6, 2011 until the date of
certification, no formal or informal practices or procedures were in place to assist account
holders in the avoidance of FATCA;
2. Within one year of the effective date of the FFI agreement, the responsible officer is required
to certify to the IRS that the participating FFI has completed the review of all high value
accounts; and
3. Within two years of the effective date of the FFI agreement, the responsible officer is
required to certify to the IRS that the participating FFI has completed the review of all other
accounts.

Dr Bad Yusoff
Verification of Compliance
• After initial certifications, the responsible officer of the participating FFI will also need
to periodically certify to the IRS:
1. Conducted periodic reviews of the FFI's compliance with due diligence,
withholding and reporting obligations under the FFI agreement.
2. The responsible officer may be required to provide certain factual information and
to disclose material failures with respect to the participating FFI’s compliance with
any of the requirements of the FFI agreement.

Dr Bad Yusoff
Documentation Requirement for U.S person/U.S
Company
• The minimum requirement of FATCA for new client is to identify whether the potential
client is a U.S Person or if there are any U.S Indicia (Potential U.S Person) which may
potentially classify the client as a U.S Person.
• This process of identification shall be established by the new client declaring his/her status
in the FATCA Declaration Form (“FATCA Form”).
• Each new client needs to complete and sign the FATCA Form and the questions answered
in the FATCA FORM is part of client due diligence process.

Dr Bad Yusoff 26
Documentation Requirement for U.S person/U.S
Company
• The forms are available in the U.S. IRS website.
• i. Form W-9, Request for Taxpayer Identification Number (TIN) and Certification
http://www.irs.gov/pub/irs-pdf/fw9.pdf
• ii. Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax
Withholding http://www.irs.gov/pub/irs-pdf/fw8ben.pdf
• iii. Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax
Withholding and Reporting (Entities)
• http://www.irs.gov/pub/irs-pdf/fw8bene.pdf

Dr Bad Yusoff 27
FATCA Withholding

Dr Bad Yusoff
Non-Compliance with FATCA
• According to the IRS, foreign financial institutions "FFIs that enter into an agreement with
the IRS to report on their account holders may be required to withhold 30% on certain
payments to foreign payees if such payees do not comply with FATCA”.

• Related Video: FATCA Withholding Requirements

Dr Bad Yusoff 29
FATCA Withholding Transactions and payments subject to
FATCA
• Withholdable Payments
• Interest and dividends paid on U.S. securities, and other US source income
• Gross proceeds from sale of U.S. securities that generate interest or dividends
• Excludes: certain short-term obligations, effectively connected income, ordinary course of business
payments, grandfathered obligations
• Foreign Passthru Payments
• Payment by a participating FFI of a withholdable payment or other payment to the extent attributable to a
withholdable payment.

Dr Bad Yusoff
FATCA Reporting

Dr Bad Yusoff
Reporting Requirements
2014 and 2015 Specified US NFFEs that are US-owned foreign
(for calendar years 2013 persons entities
and 2014) • Name • Name
Limited reporting due • Address • Address
30 September 2014 (for • TIN • TIN
accounts on record as of • Account number • Account number of entity
30 June 2014) and
• Account balance • Account number for each substantial
31 March 2015,
respectively. US owner

2016
(for calendar year 2015)
• Above information plus US source FDAP income
Reporting due 31 March
2016
2017
(for calendar year 2016) • Above information plus gross proceeds
Full reporting due
31 March 2017
Aggregate reporting
 FFIs must report aggregate amounts paid in 2015 and 2016 to non-participating FFIs
 Concession for delay of withholding on foreign (non-US) passthru payments Dr Bad Yusoff
Multilateral Agreements

Dr Bad Yusoff
Multilateral efforts
The joint statement – an overview
• US government considering intergovernmental agreements (agreements with
countries referred to as “FATCA Partners”) to:
• Avoid legal impediments to compliance, by not requiring a FFI established in
the FATCA partner to
• Terminate the account of a recalcitrant account holder;
• Impose passthru payment withholding on payments to recalcitrant account
holders;
• Impose passthru payment withholding on payments to other FFIs organized
in the FATCA partner or in another jurisdiction with which the United States
has a FATCA implementation agreement.
• The goal is to simplify implementation and reduce cost to the FFI.
• France, Germany, Spain, Italy and UK issued a joint statement with US.
• Press has reported that Ireland, Mexico, Luxembourg and others are interested.

Dr Bad Yusoff
Timeline of Important Dates

Dr Bad Yusoff
FATCA timeline – for FFIs (for agreements effective July 1, 2013)
2012 2013 2014 2015 2016 2017

Jan 1 2013 – FFI can enter Jul 1 2014 – Jul 1 2015 – Jan 1 2016 – Two-year
into FFI Agreement online Certify Certify completion transition period ends for
(Note 1) completion of of account "Limited FFIs" and "Limited
FFI Jul 1 2013 – IRS review of pre- identification Branches"
Governance encourages FFIs to existing high procedures and
sign up by July 1 value individual documentation
2013 to ensure accounts requirements for all
readiness by (Note 2) other pre-existing
Jan 1 2014 individual accounts

Jul 1 2014 – Jul 1 2015 –

Complete due Complete due
diligence for any diligence for
Due pre-existing account all other
diligence for holder that is a pre-existing
pre-existing prima facie FFI accounts
accounts
Jul 1 2014 –
Complete due
diligence for high
value accounts

Due Jul 1 2013 – New account opening

diligence procedures must be in place to
for identify US accounts and classify non-
new US entity accounts(Note 3)
accounts

Jan 1 2013 –Cut-off date for Jan 1 2014 – FATCA Jan 1 2015 – FATCA Jan 1 2017 – FATCA
Withholding grandfathered obligations withholding begins on US withholding begins on gross withholding expected to
source FDAP income proceeds begin for foreign passthru
payments

Sep 30 2014 – Begin Mar 15 2015 – Form Mar 15 2016– Form 1042-S Mar 15 2017 – Form
limited reporting for US 1042 FATCA reporting reporting (calendar year 1042-S reporting
accounts and aggregate begins 2015) now includes gross (calendar year 2016)
reporting for recalcitrant proceeds; as well as foreign expected to include
accounts (calendar year reportable amounts paid to foreign passthru
Mar 15 2015 –
2013) with respect to NPFFIs payments
Reporting Begin Form 1042-S
accounts identified as of
FATCA reporting Mar 31 2016 – Reporting
June 30 2014 (Note 4)
(calendar year 2014) for on US accounts (calendar Mar 31 2017 –
US source FDAP income year 2015) required to Reporting for US accounts
include income associated (calendar
with the US account year 2016) required to
include proceeds paid
(1) IRS may make the online FFI registration system available before Jan 1 2013 to US accounts
(2) As part of the first certification, FFI must certify that it did not have any procedures in place from August 6, 2011 that would assist account holders in the avoidance of FATCA Dr Bad Yusoff
(3) New accounts are generally permitted a 90-day grace period before being treated as recalcitrant
(4) Limited reporting includes name, address, TIN, account number, and account balance of each specified US person who is an account holder. For account holders that
are NFFEs that are US owned foreign entities, report name, address and TIN (if any) of such entity and each substantial US owner of such entity
FATCA timeline – for US withholding agents (including USFIs)

2012 2013 2014 2015 2016 2017

Due Jan 1 2013 – New account Jan 1 2015 –

diligence for opening procedures must be in Complete due diligence on
pre-existing place to classify entity-owned pre-existing
and new accounts non-US entity accounts
entity
Accounts
(Notes 1
and 2)

Jan 1 2013 – Cut-off date for Jan 1 2014 – FATCA Jan 1 2015 – FATCA
grandfathered obligations withholding begins on US withholding begins on gross
source FDAP income, proceeds
Withholding including payments to pre-
existing entity accounts held
by prima facie FFIs and
documented NPFFIs

Mar 15 2014 – Begin Mar 15 2015 – Begin Mar 15 2016 – Form

reporting on Form 1042 FATCA 1042-S reporting (calendar
substantial US owners reporting year 2015) now includes
of US-owned foreign gross proceeds
Reporting entities (calendar year
2013) (Note 3) Mar 15 2015 – Form
1042-S reporting
(calendar year 2014) on
US source FDAP income

(1) US Withholding Agents only perform due diligence on entity clients, not on individuals
(2) The due diligence process must be completed prior to making a withholdable payment
(3) Reporting requirements include name of the US owned foreign entity; and name, address and TIN of each substantial US owner

Dr Bad Yusoff
General Project Approach

Dr Bad Yusoff
Phased Approach to FATCA Compliance

• Determine the population of legal entities to be assessed

Phase 1 Entity
• Analyze FATCA relevant characteristics of the legal entities
Current State Classification
Analysis and • Identify impacted entities and their classifications and FATCA obligations
Impact • Interview with key personnel across relevant internal functions (e.g., client on-
Functional Impact
Assessment Analysis boarding, AML/KYC, withholding, reporting, technology, etc.), to assess FATCA
process, data, systems gaps

Business Impact • Review other business processes , procedures, and relationships to assess
Analysis significant business impacts as it relates to external stakeholders (e.g.
Administrators, Custodians, Distributors, etc.)
Project • Create project governance structure (i.e., working group, etc.)
Management
• Track and communicate progress, issues, and risks
Phase 2 • Identify critical options and strategies for implementation
Future State and
Project Plan / • What can we do now vs. wait for further guidance / final regulations?
Roadmap Road Map • Develop a high level roadmap to identify next steps, timelines, and milestones to
Development
be followed between now and July 1st 2013?

Phase 3 • Support for critical project management activities

Implementation • Provide subject matter support and guidance for requirements and design
and Remediation Implementation activities
Support • Provide implementation support as needed for development of policies,
procedures, and data and system enhancements
• Recommendations on best practice

Dr Bad Yusoff
Internal Controls and
Certification Considerations

Dr Bad Yusoff
What areas of the organization are
impacted?
• Departments Business functions
• Tax • Product design, development, and
implementation
• IT
• Marketing, sales, and distribution
• Legal and Executives
• On boarding, KYC/AML, and tax
• Regulatory Compliance documentation
• Accounting • Account holder communications
• Customer relations • Payments and deposits
• Operations • Tax withholding
• Tax reporting
• Governance
These functions may be performed by third parties and under FATCA
management has a responsibility to perform the appropriate oversight
Dr Bad Yusoff
Developing a controls framework
• Key questions to consider
• Have you appointed who will be the certifying officer(s) under FATCA?
• In the case of an affiliated group with multiple FFIs, how will your organization
ensure that each are in compliance as one FFI can affect all others?
• Have you developed a sub-certification process to enable disparate reporting
units to provide assurance to the certifying officer?
• Where you have you assigned individuals to certify on behalf of the affected
legal entities how have you ensured they have the appropriate insight into the
related activities?
• Have you assessed the current controls design regarding withholding and
reporting and/or re-designed controls to assist you in making your certification
that you are in compliance with FATCA?
• Have you developed a plan to test those controls whether using internal or
external resources?
• Where you have outsourced key FATCA-related functions to service providers,
how are you ensuring that they have adequate controls in place and operating
effectively to form a basis for your certification?
Dr Bad Yusoff
Verification of compliance
• IRS Certification for Registered FFIs
• Staged certifications of existing accounts
• Ongoing annual certifications over compliance with due diligence,
withholding and reporting obligations under the FFI Agreement
• One-time certification asserting no practices exist to assist clients in
evading identification
• Flexibility in designating officials to certify
• Appropriate functional responsibilities at high enough level
• Management required to “self-test” policies and procedures put in
place
• General standards to be developed by IRS in pending draft FFI
Agreement
• Potential option of obtaining third-party reviews

Dr Bad Yusoff
Verification of compliance
• Certification for FFIs
• Ability for IRS to request “additional information” (to be defined)
• Compliance subject to review by IRS or an external party
• Robust policies and procedures should support certification process – beyond
sub-certifications
• Certification for deemed-compliant FFIs
• Certified deemed-compliant FFIs include local banks, certain retirement funds,
certain non-profits and FFIs with only low-value accounts. Certification needs to
be made to withholding agents only
• Registered deemed-compliant FFIs include non-reporting members of FFI
groups, Qualified Collective Investment Vehicles and restricted funds.
Certification to IRS required every three years

Dr Bad Yusoff
Certification structure
In order for an affiliated group to certify to the IRS that it is in compliance, the responsible officer of the lead
FFI must obtain sub-certifications across the organization. Below is a sample certification structure.

Responsible Officer

Legal Entity A Legal Entity B Legal Entity C

Sub-Certifying Officer Sub-Certifying Officer Sub-Certifying Officer

Process Level
Certification

Account Set-Up Certifying Non US Corporate Actions U.S Corporate Actions

Officer Certifying Officer Certifying Officer

Dr Bad Yusoff
PwC
Who is responsible for all of this?
• FATCA requires certification of compliance by a “responsible officer”
• FATCA requires that a responsible officer must certify to the IRS
regarding the organization’s compliance with FATCA
• Should be involved in the development of the company's FATCA
compliance policies and procedures
• Should ensure that appropriate evaluation of the effectiveness of
controls is conducted and supports the certification
• Should leverage the internal audit and sub-certification network to
perform its responsibilities
• The provisions of FATCA are closely linked to an organization's
operations functions
• Certifying officer must be in a position within the organization to be
able to leverage resources across the organization

Dr Bad Yusoff
FATCA controls framework
• Control framework
• FATCA requirements should be mapped to processes
• Identify or design key controls over these processes
• Operating effectiveness assessment over key controls should be performed on a
periodic basis
• Risk and complexity
• FATCA is far reaching and complex
• Many different legal entities within an organization can be impacted
• One noncompliant FFI impacts the compliance of all FFI’s in an affiliated
group
• Data sources and processes can differ across products / geography
• Expansion of IT applications subject to controls testing
• Outsourcing activities to third parties does not alleviate responsibilities
• Certifying officer maintains responsibility for overall certification

•
Dr Bad Yusoff
Characteristics of controls
• Controls established to address the risks of non-compliance following
characteristics:
• Automated or manual
• Preventive or detective
• Primary or compensating
• Designed to meet the following objectives
• Completeness
• Accuracy
• Validity
• Restricted Access
Within a controls framework, an appropriate balance of controls will be
designed based on risks for non-compliance. Controls are then routinely
assessed for effectiveness to enable management’s assertion of
compliance.

Dr Bad Yusoff
FATCA controls framework
Establish controls to address the key risks of non-compliance

Area Control Objectives

Legal entity assessment • Controls provide reasonable assurance that all legal entities are identified, assessed
and classified for FATCA impact and approved by the appropriate personnel within the
organization.
• Controls provide reasonable assurance that legal entity assessments are
communicated to all relevant parties.
• Controls provide reasonable assurance that changes in legal entity listings and related
classifications are appropriately updated in a timely manner and approved by the
appropriate personnel.
• Controls provide reasonable assurance that all FFI agreements are appropriately
executed, tracked and protected.

Client account assessment • Controls provide reasonable assurance that required data is obtained during the new
individual account set up process. Appropriate client account due diligence procedures
are performed on all applicable accounts and appropriate documentation is retained.
• Controls provide reasonable assurance that pre-existing accounts subject to FATCA
requirements are identified completely and accurately
• Controls provide reasonable assurance that changes to account information are
captured and assessed for impact on classifications.
• Controls provide reasonable assurance that due diligence is performed appropriately
for all accounts (new accounts, pre-existing accounts, changes in accounts) and
accounts are appropriately classified.

Withholding • Controls provide reasonable assurance that tax withholding is performed completely
and accurately for accounts impacted by FATCA requirements

Reporting • Controls provide reasonable assurance that reporting to the Internal Revenue Service
required by FATCA is complete and accurate and produced on a timely basis.

Dr Bad Yusoff
FATCA controls framework
Area Controls Objective

Certification Procedures • Controls provide reasonable assurance that FATCA processes and procedures are
performed consistently across the organization to support applicable certifications to
be made to the IRS and/or withholding agents.

Technology – Change Management • Controls provide reasonable assurance that new developments and changes to
existing systems are documented, tested, approved, and implemented by authorized
personnel.
• Controls provide reasonable assurance that access to FATCA data is appropriately
restricted to authorized personnel.

Dr Bad Yusoff
FATCA controls framework – example
controls
Sample controls to support “due diligence”
Relative Priority Control type
Control points
(High/Low) (CAVR)
Due diligence procedures are performed depending on the type and size of account. Policies High C,A
and procedures are in place regarding the definition of an account, the types of accounts for
which due diligence is required, and the dollar thresholds. Due diligence is performed for the
accounts that meet this pre-defined criteria. Standardized checklists are used to faciliate the
due diligence reviews.
An indicia search is conducted across relevant client data repositories and reviewed. Where High A
relevant indicia are identified, appropriate follow up is conducted and documented.

Aging is performed to indicate the status of open information requests. Accounts with US High C,A
indicia where additional information was requested (including any applicable waivers) that
are aged above a specified threshold are reviewed. Accounts over a specified threshold are
deemed recalcitrant accounts and classified as such in accordance with the FATCA criteria.
Accounts and balances are reviewed periodically to ensure that an electronic or paper search High C,A
was performed for all accounts depending on the account type.

Customers have unique identification numbers that are used to aggregate accounts across the High C
organization. These identification numbers are used in the creation of summary reports of
customer balances that are used to determine account classifications.
Client systems use the FX spot rate as of the last day of the calendar year to convert foreign High V
accounts to US dollars when classifying accounts.

Dr Bad Yusoff
FATCA controls framework
Below is a depiction where controls should be in place across your operational work flow. Note the points
included are at a summary level and these may vary by entity.

OPERATIONAL WORKFLOW

New Accounts

Legal Entity Info

Management
& Updates

Account & Legal Entity Info

Example
Derivativ Banking/

Asset
Equities Rates Credit
es Deposits
Front Front Front
Front Front
office Office Office
office Office

5 Account activity
New Account Reporting Portal
9 8
Process 13, 14
Pre- 7 11
existing
Books & Records System(s) 10
FATCA
Client, Account Regulatory
Account 6 8 Cost Basis Margining Payments Chp. 3 &4 WH reporting
analysis & Counterparty
1 2 Management Clearing & FATCA
9 P&L Corp Actions
Clients Settlement Computations FATCA
Client reporting

Account

Results
Account 13,
IRS

Info
Remediation Maintenance 14
PPP reporting
13,
4 5 7 8 14

1 2 FATCA Warehouse
3 Reference FATCA Payments 11
Clients
Legal Entity Doc Mgmt Results
Data Rules
Management FATCA IRS Deposits
9 TPA
Legal Entity IRS Deposits
Classification Finance, Legal, Tax
4
Finance General Ledger(s) Calculate PPP
Client & FI deposits
FFI Certification
Firm
9 12 13
Governance
Management
FATCA Governance

Key showing existing, new and modified functions/activities

= Existing operational function/activity = New or modified function/activity due to FATCA
Dr Bad Yusoff
PwC
FATCA controls framework

1. Controls provide reasonable assurance that all legal entities are identified, assessed and
classified for FATCA impact and approved by the appropriate personnel within the
organization.
2. Controls provide reasonable assurance that legal entity assessments are communicated to all
relevant parties.
3. Controls provide reasonable assurance that changes in legal entity listings and related
classifications are appropriately updated in a timely manner and approved by the
appropriate personnel.
4. Controls provide reasonable assurance that all FFI agreements are appropriately executed,
tracked and protected.
5. Controls provide reasonable assurance that required data is obtained during the new
individual account set up process.
6. Controls provide reasonable assurance that pre-existing accounts subject to FATCA
requirements are identified completely and accurately.
7. Controls provide reasonable assurance that changes to account information are captured and
assessed for impact on classifications.

Dr Bad Yusoff
FATCA controls framework

8. Controls provide reasonable assurance that due diligence is performed appropriately for all
accounts (new accounts, pre-existing accounts, changes in accounts) and accounts are
appropriately classified.
9. Controls provide reasonable assurance that policies and procedures related to account
maintenance and classification is communicated throughout the organization and to third
party service providers.
10. Controls provide reasonable assurance that tax withholding is performed completely and
accurately for accounts impacted by FATCA requirements.
11. Controls provide reasonable assurance that reporting to the Internal Revenue Service
required by FATCA is complete and accurate and produced on a timely basis.
12. Controls provide reasonable assurance that FATCA processes and procedures are performed
consistently across the organization to support applicable certifications to be made to the IRS
and/or withholding agents.
13. Controls provide reasonable assurance that new developments and changes to existing
systems are documented, tested, approved, and implemented by authorized personnel.
14. Controls provide reasonable assurance that access to FATCA data is appropriately restricted
to authorized personnel.

Dr Bad Yusoff
Sample of FATCA Self-Certification Forms
•
• OCBC Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS) Self-Certification Form for
Entities
• http://ocbc.com.my/assets/pdf/FATCA%20and%20CRS%20Self%20Certification%20form.pdf
•
• UOB Foreign Account Tax Compliance Act (“FATCA”) - Self-Certification (Entity)
• https://www1.uob.com.my/web-resources/business/pdf/forms/fatca-self-Certification-Non-Ind.pdf
•
• FATCA AND CRS DECLARATION FORM
• http://www.asnb.com.my/v3_/pdf/perkhidmatan/lainlain/FATCA-CRS_DeclarationForm20170628.pdf

Dr Bad Yusoff 55
Sample of FATCA Policy
• https://www.ocbc.com.my/personal-banking/fatca_policy.html
•
• FATCA References
• https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca
• https://www.irs.gov/businesses/corporations/fatca-related-forms
• http://www.hasil.gov.my/bt_goindex.php?bt_kump=6&bt_skum=2&bt_posi=1&bt_unit=1&bt_sequ=1

Dr Bad Yusoff 56
Thank
You
FB: Dr Bad Yusoff
+012-3124466
[email protected]
www.drbadyusoff.com