Many American citizens living abroad have recently been contacted by their U.S. brokerage firms to inform them that their accounts have either been frozen, such that they can no longer change their investments, or that they need to close their accounts entirely.
In many instances Fidelity, Wells-Fargo, Merrill Lynch and others no longer want to deal with non-U.S. resident clients through their U.S. offices. Often there is little in the way of explanation, just a letter in the mail or a phone call from a broker who is following instructions and really doesn’t understand the issue. At the same time, non-U.S. offices of these firms often do not have the knowledge or cannot accommodate accounts such as IRAs or 401ks, or do not offer good investment options or adequate investor protection for regular brokerage accounts.
There are two regulations that govern U.S. brokerage firms’ and banks’ reporting and due diligence responsibilities with respect to dealing with non-U.S. residents: The “Know Your Customer” (KYC) rule and FATCA (Foreign Account Tax Compliance Act) regulations. Each is intended to make financial institutions responsible for ensuring that their clients do not partake in money laundering or tax evasion activities.
Unfortunately, the vast majority of Americans living abroad who are simply trying to maintain U.S. bank or brokerage accounts are also affected since rather than comply with the additional reporting and surveillance burden imposed by these regulations, their financial institution may simply close their account. If the client has many millions of dollars to invest then it is worthwhile for the U.S financial institution to undertake the additional due diligence and reporting but the relationship may not be valuable enough for the large corporation to bother with the extra reporting and oversight.
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