New Russian Law Allows Local Banks to Disclose US Taxpayer Information

MOSCOW, June 30 (RIA Novosti) - Russian President Vladimir Putin signed a law allowing Russian banks to transfer data directly to the US tax authorities, according to the corresponding document published online.

The legislation creates the legal conditions necessary for Russian financial institutions to register online with the US Internal Revenue Service (IRS) and subsequently fulfill their obligations under the Foreign Account Tax Compliance Act (FATCA).

The US FATCA requires foreign banks to supply the Internal Revenue Service (IRS) with information on American taxpayers’ bank accounts. Under FATCA, signed into law in 2010, financial institutions worldwide are required to report details on the accounts and transactions of US taxpayer clients to the IRS and act as fiscal agents for the US, with the right to charge a 30 percent tax on their passive income related to the United States. Banks can be sanctioned if they do not join FATCA.

As under Russian law, banks are not allowed to disclose information to foreign government institutions, the US was previously in negotiations with Russia on signing an intergovernmental agreement that would simplify the process for all banks acceding to FATCA requirements.

However, the negotiations fell apart due to a rift in the countries' relationship following the buildup of the political crisis in Ukraine. The Russian Ministry of Finance therefore tackled the problem unilaterally by amending Russian legislation.

According to the provisions of the new law, Russian banks may direct American taxpayer information to the US tax body upon client consent, whereby the bank’s customers refusing to disclose the required details to the respective Russian bank can legally be denied service. Before submitting the FATCA-required information, Russian banks will have to report to the Central Bank of Russia and the relevant government agency on financial control, both of which reserve the right to deny further disclosure of any such information.

The law enters into force upon its official publication.