OVER the past 18 to 24 months, financial institutions' reactions to Fatca, the US Foreign Account Tax Compliance Act, have run the gamut from scepticism to resignation and matter-of-fact compliance. Fatca is the United States' effort to crack down on American tax cheats by harnessing the compliance of foreign banks as part of its tax policing network. All banks globally are required to report on the assets of clients deemed to be "US persons". The law is able to do this through onerous penalties: Institutions, including hedge funds, stock brokerages, banks, trusts and insurance companies, will have to impose a 30 per cent withholding tax on US transactions by clients who are non-compliant.

To date more than 50 countries have signed up to comply with Fatca through inter-governmental agreements, including major proponents of banking secrecy such as Switzerland. The notable holdouts have been Russia and China. Fatca was supposed to be in force from July 1 but the US government recently allowed yet more breathing space, designating 2014 and 2015 as a "transition period" where the US tax authority, the Internal Revenue Service (IRS), is to ascertain that "good faith" efforts have been made towards compliance. In any case, Singapore appears to be on track. It recently announced that it has concluded talks with the US to facilitate compliance with Fatca by Singapore financial institutions. Under their agreement, financial accounts held by US persons will be reported to the Singapore tax authority which will in turn convey the information to the IRS.

To be sure, opposition to Fatca is mounting, particularly among Americans living abroad whose access to banks and other businesses is already being curtailed. Over the last couple of years, numerous banks have refused to cater to Americans. But the tide may be irreversible. Already Fatca is serving as a framework for similar actions in the escalating crackdown against tax evasion. The Organisation for Economic Co-operation and Development (OECD) recently issued a report on a global standard for automatic exchange of tax information between countries, which also provides a model inter-governmental pact for countries similar to Fatca. Details to be shared include bank balances, dividends and interest income. Financial centres such as Switzerland and Singapore are signatories, along with some 50 other countries. This suggests that financial institutions will have to brace themselves for yet more compliance issues. While it may have been possible for foreign institutions to shun American accounts in response to Fatca, such a stand becomes unrealistic if the automatic information exchange that the OECD envisions becomes a global standard.