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PROPOSED REGULATIONS TO REQUIRE 

REPORTING OF NONRESIDENT ALIEN 

DEPOSIT INTEREST INCOME 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

OCTOBER 27, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–78 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

LARRY C. LAVENDER, Chief of Staff 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

SHELLEY MOORE CAPITO, West Virginia, Chairman 

JAMES B. RENACCI, Ohio, Vice Chairman 

EDWARD R. ROYCE, California 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JEB HENSARLING, Texas 

PATRICK T. MCHENRY, North Carolina 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

MICHAEL G. GRIMM, New York 

STEPHEN LEE FINCHER, Tennessee 

CAROLYN B. MALONEY, New York, 

Ranking Member 

LUIS V. GUTIERREZ, Illinois 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

GREGORY W. MEEKS, New York 

STEPHEN F. LYNCH, Massachusetts 

JOHN C. CARNEY, JR., Delaware 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

October 27, 2011 ............................................................................................... 1 

Appendix: 

October 27, 2011 ............................................................................................... 33 

WITNESSES 

THURSDAY, OCTOBER 27, 2011 

Cardwell, J. Thomas, former Commissioner, Florida Office of Financial Regulation ..................................................................................................................... 7 

Sanchez, Alex, President and Chief Executive Officer, Florida Bankers Association .................................................................................................................... 8 

Schwebel, Gerry, Executive Vice President, IBC Bank ........................................ 10 

Wilkins, Rebecca J., Senior Counsel, Federal Tax Policy, Citizens for Tax 

Justice ................................................................................................................... 12 

APPENDIX 

Prepared statements: 

Cardwell, J. Thomas ......................................................................................... 34 

Sanchez, Alex .................................................................................................... 44 

Schwebel, Gerry ................................................................................................ 49 

Wilkins, Rebecca J. ........................................................................................... 57 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Capito, Hon. Shelley Moore: 

Letter from the Texas Department of Banking, dated October 25, 2011 .... 62 

Written statement of the American Bankers Association ............................. 64 

Written statement of the Conference of State Bank Supervisors ................ 68 

Written statement of the Credit Union National Association ...................... 72 

Written statement of the Florida International Bankers Association ......... 78 

Written statement of the Independent Community Bankers of America .... 81 

Written statement of the Institute of International Bankers ....................... 83 

Bachus, Hon. Spencer; Posey, Hon. Bill; and Hinojosa, Hon. Ruben: 

Letter to President Obama from various Members of Congress, dated 

March 2, 2011 ................................................................................................ 86 

Hinojosa, Hon. Ruben: 

Letter to President Obama from various Members of Congress, dated 

April 15, 2011 ................................................................................................ 89 

Hinojosa, Hon. Ruben; and Posey, Hon. Bill: 

Letter to Treasury Secretary Geithner and IRS Commissioner Shulman 

from various Members of Congress, dated May 16, 2011 .......................... 92 

Hinojosa, Hon. Ruben: 

Letter to Treasury Secretary Geithner from Senator Hutchison and Senator Cornyn, dated April 7, 2011 ................................................................. 94 

Maloney, Hon. Carolyn: 

Letter to IRS Commissioner Shulman from Senator Levin, dated April 

12, 2011 .......................................................................................................... 96 

Posey, Hon. Bill: 

Letter from the Florida International Bankers Association, dated September 19, 2011 ............................................................................................. 102 

Letter to the U.S. Senate from various associations, dated August 5, 

2011 ................................................................................................................ 103 

Page

VI 

Posey, Hon. Bill—Continued 

Letter to the U.S. House of Representatives from the Independent Community Bankers of America, dated September 20, 2011 ........................... 105 

Letter from the National Taxpayers Union, dated September 21, 2011 ...... 107 

Written statement of Senator Marco Rubio ................................................... 108 

Letter from the Small Business & Entrepreneurship Council, dated September 20, 2011 ............................................................................................. 113 

Letter from the U.S. Chamber of Commerce, dated September 28, 2011 ... 115 

(1) 

PROPOSED REGULATIONS TO REQUIRE 

REPORTING OF NONRESIDENT ALIEN 

DEPOSIT INTEREST INCOME 

Thursday, October 27, 2011 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 9:32 a.m., in room 

2128, Rayburn House Office Building, Hon. Shelley Moore Capito 

[chairwoman of the subcommittee] presiding. 

Members present: Representatives Capito, Renacci, Pearce, 

Luetkemeyer, Huizenga, Canseco, Fincher; Maloney, Hinojosa, 

McCarthy of New York, Baca, and Scott. 

Ex officio present: Representative Bachus. 

Also present: Representatives Posey and Green. 

Chairwoman CAPITO. Welcome. We are going to have votes today 

between 11:00 and 11:30, so we would like to finish this hearing 

if we can before 11:00, before our votes. But if not, we will recess 

and reconvene. 

This morning, the Financial Institutions and Consumer Credit 

Subcommittee will examine the proposed IRS regulation that would 

require U.S. financial institutions to report the interest paid to 

nonresident aliens to the Internal Revenue Service. 

This proposal is not new. The IRS put forth this proposed regulation before. In 2001, the IRS came forth with a similar concept and 

after significant comments and suggestions, the IRS narrowed the 

proposal significantly in 2002, but the measure has never been finalized. 

I know that many members of this subcommittee and the full 

committee have expressed concerns about the proposed regulation. 

For many of them, the financial institutions in their districts rely 

on deposits from nonresident aliens. In some cases, the percentage 

of nonresident alien deposits comprises a significant percentage of 

the institutions’ overall deposits. 

There is concern that the proposed IRS regulation will make the 

United States and our financial institutions a less attractive venue 

for investment and that nonresident aliens will retreat from their 

current institutions in favor of institutions in other nations. 

Members of the subcommittee need to hear more about the cost 

and benefits of this proposal. We also need answers to questions 

about the information that would be gathered by the IRS. 

2 

What will the IRS do with the information about the individuals 

and families who are depositing their resources in U.S. financial institutions? Which countries will the IRS share this information 

with if needed? 

This morning’s hearing will provide Members with an opportunity to better understand the merits of these concerns as well as 

the merits of the proposed IRS regulation and to hopefully find 

some answers to these questions. I will look forward to hearing 

from our witnesses, and I want to thank you all for your willingness to participate in this hearing. 

I would now like to recognize the ranking member of the subcommittee, the gentlelady from New York, Mrs. Maloney, for 3 

minutes for the purpose of making an opening statement. 

Mrs. MALONEY. Thank you. And I would like to welcome all the 

witnesses here today. This hearing concerns a proposed IRS rule 

that would require U.S. banks and broker-dealers to report to the 

IRS any deposit interest income paid on a U.S. account opened in 

the name of a non-U.S. person who resides abroad. 

Currently, banks are required to report the amount of interest 

earned on the bank deposits of people who are U.S. citizens or citizens of Canada. The proposed regulation would expand that role to 

all nonresident aliens who hold accounts at U.S. banks. The idea 

behind the proposed regulation is to strengthen the exchange of information programs that the United States has with other countries. 

It is also expected to increase taxpayer compliance by making it 

more difficult for U.S. individuals to avoid information reporting by 

claiming to be nonresident aliens. Simply stated, the United States 

should not actively make it easier for the laws of other countries 

to be broken or evaded. 

It complements what Congress required of foreign institutions in 

the Foreign Account Tax Compliance Act (FATCA). I understand 

legislation has been proposed by some of my colleagues on the committee that would effectively prevent the IRS from enacting its 

rule. 

And although this is not a bill that has been referred to our committee, the purpose of this hearing is to really explore the potential 

problems that this proposed regulation may pose for banks because 

that is our jurisdiction. 

It has been argued that Congress has pursued policies that will 

attract foreign capital, which in turn helps to finance economic 

growth. Accordingly, financial institutions are concerned that the 

proposed regulation will drive foreign investment out of our economy and, therefore, goes against congressional intent in this area. 

So, I am hopeful that the witnesses will be able to respond to 

these concerns. It has been expressed that the proposed regulation 

will impose a burdensome new reporting requirement on smaller 

banks that do not have the infrastructure to handle the reporting. 

This is something else I would like the witnesses to be prepared 

to explore. 

I am particularly interested in whether the policy goal of international cooperation in tax policy along with disclosure and transparency desires outweighs the burden that the policy might pose. 

3 

So, this is another area I look forward to hearing about from the 

witnesses today. I thank the Chair for calling this hearing. 

Chairwoman CAPITO. Thank you, Mrs. Maloney. I would like to 

recognize Mr. Canseco for 11⁄2 minutes for the purpose of making 

an opening statement. 

Mr. CANSECO. Thank you, Madam Chairwoman. In April of this 

year, I helped lead an effort along with my colleague, Mr. Hinojosa, 

to express the concerns of several Members from the Texas delegation about the IRS’ proposed rule regarding nonresident alien deposits. 

In a letter to President Obama, we outlined the tremendous damage that could be caused to banks in Texas and around the country 

if the proposed rule went into effect. One study done on a similar 

proposed rule 9 years ago estimated as much as $88 billion could 

flee American banks as a result of this rule. 

American banks have become attractive destinations for foreign 

depositors due to the reliability and transparency of our banking 

system, and we should not be turning away voluntary capital when 

financial institutions are already struggling. Yet, the IRS was willing to go forward with this rule under the disjointed logic that it 

would somehow help the United States recover money from tax 

evaders. 

Aside from whatever benefit may come, what concerns me the 

most is that it appears the IRS has not properly taken the potential costs of this proposed rule into account. Should it go into effect, 

the costs could be tremendous, and Federal agencies not taking the 

potential cost of rules into account has become a very disturbing 

trend in Washington. 

I appreciate very much Chairwoman Capito’s calling this hearing 

today in order to examine the issues a little closer. I yield back. 

Chairwoman CAPITO. Thank you. I would like to recognize Mr. 

Scott for 3 minutes for the purpose of making an opening statement. 

Mr. SCOTT. Thank you, Madam Chairwoman, for holding this 

hearing today on a regulation proposed by the IRS to require 

United States financial institutions to report the amount of interest 

earned by nonresident aliens. I am pleased that this subcommittee 

will discuss the potential effects such a reporting requirement 

would have on financial institutions. 

We know that the IRS has proposed such a rule before, first, in 

1996 when the IRS mandated that United States banks had to report interest payments from nonresident aliens from Canada. 

Also, 10 years ago in 2001, the IRS proposed a regulation that 

would have expanded this rule to all nonresident aliens. However, 

critics have stated that such regulations would have hurt banks by 

dissuading foreign capital from entering the United States which 

could in turn harm the status of banks here in our own country. 

And while this is a valid concern, we also must consider the advantages such a rule could have in strengthening the United 

States’ tax enforcement efforts. Supporters of the IRS regulations 

say that the rule would prevent a tax haven situation in which citizens of other countries utilize the United States financial institutions to avoid paying taxes at home. 

4 

They also state that in allowing the United States to provide account information to foreign countries, the rule would reaffirm the 

ability of the United States to offer cooperative tax information in 

exchange for IRS enforcement efforts. 

In any case, I look forward to discussing the potential benefits 

and drawbacks in the event this rule is enacted. And I certainly 

look forward to the testimony of our distinguished witnesses as 

well as ongoing discussions on this issue and the issue of foreclosure prevention in general. 

As many of you know, foreclosure prevention is one of my primary interests, and I am certainly interested in pursuing that further with my colleagues. Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. I would like to recognize the 

chairman of the full Financial Services Committee, Mr. Bachus, for 

3 minutes for an opening statement. 

Chairman BACHUS. I thank the chairwoman. And I can’t stress 

enough how important this hearing is at a time when our financial 

institutions especially need capital. Regulations have a real cost 

and real consequences. 

On January 7th, as we all know, the IRS proposed a regulation 

that would force American financial institutions to report any interest paid to nonresident aliens. This regulation will have a tremendous negative effect on our financial institutions. 

Generally, U.S. tax authorities require only information they 

need to impose a tax. Because the United States does not tax nonresident alien deposit interest, it is hard to understand why the 

IRS feels the need to collect any information about this income. 

The IRS says this rule intended to strengthen the exchange of information programs the United States has with other countries and 

to increase compliance by making it more difficult for individuals 

to avoid information reporting. 

But more than 90 years ago, in an effort to attract foreign investment into the U.S. economy, our Congress got it right when they 

opted not to tax nonresident alien interest income. Should this regulation be finalized, I fear it will drive the capital out of the United 

States and limit critical funds that banks can use to finance lending and investment activities that are critical to our economic 

growth, creation of jobs, and increased revenue. 

This hearing presents a great opportunity for Members to learn 

about the cost and consequences of the proposed IRS regulation. I 

would like to introduce a letter from the Florida delegation to the 

President of the United States, and my colleague Bill Posey is actually the first signature on this letter. 

Let me read this paragraph from it: ‘‘Many nonresident alien depositors are from countries with unstable governments or political 

environments, where personal security is a major concern. They are 

concerned that their personal bank account information could be 

leaked by unauthorized persons in their home country governments 

to criminal or terrorist groups upon receipt from U.S. authorities, 

which could result in kidnappings or other terrorist actions being 

taken against them and their family members in their home countries, a scary scenario that is very real.’’ 

5 

Every day, we read about a kidnapping in one of these countries 

and in many cases, the death of the victim. Do we really want this 

blood on our hands? Do we really want to contribute to this? 

And as far as the figure, this also says that it could cost—the 

Mercatus Center at George Mason University, a very respected university—said that this could drive $88 billion dollars from American financial institutions; and that was actually an earlier draft. 

This one is more damaging, so it is as if our policyholders and 

some of our government agencies are really not living in the real 

world, and don’t realize what a desperate situation we are in with 

our economy, that they would come forward with such a proposal 

at a time like this. 

I think it is one of the reasons the American people are shaking 

their heads and beginning to lose confidence in our government, 

and those who make the decisions. But ultimately, it will be our 

responsibility to say that this regulation—either the IRS backs off 

of it or we stop it. Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. I understand the Minority has 

no more opening statements, so I will go to Mr. Posey for 3— 

Mrs. MALONEY. May I make a unanimous— 

Chairwoman CAPITO. Oh, yes. 

Mrs. MALONEY. I request unanimous consent to place in the 

record a letter by Senator Carl Levin in support of the proposed 

rule to require the U.S. banks and broker-dealers to report to the 

IRS. 

Chairwoman CAPITO. Without objection, it is so ordered. 

Mr. Posey? 

Mr. POSEY. Thank you, Madam Chairwoman. Although I am not 

a member of the subcommittee, I very much appreciate you allowing me to participate due to my great interest, as the chairman had 

mentioned. 

At a time when both sides of the aisle in this House have gone 

out of their way to make more capital available to American businesses, the Administration is doing just the opposite by pursuing 

a regulation well-described previously by the Members that will 

drive capital out of our country, out of our economy. 

This policy will not further any U.S. interests. And, in fact, the 

IRS has admitted that this information is not needed to enforce 

U.S. tax law. It is being requested solely for the benefit of foreign 

governments. Although some may put the utmost importance on 

global information sharing, we put the most importance on America’s interests first. 

I believe that we should be focusing on America’s economic recovery, jobs, and keeping capital within our economy, especially during 

these turbulent financial times. Make no mistake about it. The proposed regulation will drive hundreds of billions of dollars out of 

America and cause irreparable harm to an already fragile U.S. 

economy. 

According to the Commerce Department, foreigners have $1.6 

trillion passively invested in the U.S. economy. My colleague here 

in the community, Mr. Meeks, and I have introduced bipartisan 

legislation, bicameral legislation, H.R. 2568 which would prevent 

the Secretary of the Treasury from forcing financial institutions to 

report interest on deposits paid to nonresident aliens. And Senators 

6 

Marco Rubio, Bill Nelson, John Cornyn, and Kay Bailey Hutchison 

have introduced identical legislation in the Senate. 

At the appropriate time, I would like to introduce a couple of our 

witnesses today, Madam Chairwoman, and submit some items for 

the record. I would ask unanimous consent to insert the Florida 

letter that the chairman read; your letter; my letters to the Treasury; letters of support; and Senator Marco Rubio’s written statement. 

Chairwoman CAPITO. Without objection, it is so ordered. 

Mr. POSEY. And I yield back. 

Chairwoman CAPITO. Thank you. I think that concludes our 

opening statements. I would like to introduce our panel of witnesses for the purpose of giving a 5-minute opening statement, but 

I will yield to Mr. Posey if he would like to make some remarks 

about some of our witnesses in the form of an introduction. 

Mr. POSEY. Thank you, Madam Chairwoman. I am familiar with 

two of the witnesses you are kind enough to call today. First, Tom 

Cardwell is the former commissioner of the Florida Office of Financial Regulation. He serves as a public official who has the responsibility for safety and soundness of the financial institutions chartered in Florida. He knows the issue. He has served as general 

counsel to the Florida Bankers Association for over 20 years. I 

think he will have some great testimony for us today. 

Second, Alex Sanchez is the president and CEO of the Florida 

Bankers Association, located in Tallahassee, Florida’s capital. He is 

the leading voice for Florida’s banking industry. His duties include 

representing and advocating for Florida’s banking industry before 

all legislative and regulatory bodies in Tallahassee and here in 

Washington. 

Alex has served under two Presidents—President Bush and 

President Obama—on the Federal Retirement Thrift Investment 

Board of Directors. He worked very well with my predecessor; he 

worked well with Congressman Weldon to squash several proposed 

rules in 2001. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you— 

Mr. BACA. Madam Chairwoman, if I could just make a quick 

comment— 

Chairwoman CAPITO. Yes. 

Mr. BACA. Thank you very much, Madam Chairwoman, for having this hearing. And as I was hearing the discussion by Members 

on the other side talk about nonresident aliens and capitals that 

we need and the amount of revenue, $1.6 trillion in revenue that 

could be lost—hearing that, I say, maybe that is why the other side 

should support comprehensive immigration—that would deal with 

the 14.7 million people who are here in the United States who 

would actually be able to help the banking industry and others— 

with matriculas and others as well. 

So I wanted to throw that into the record as we begin to discuss 

this one issue. Let us just not look at it from one perspective of revenue, but let us look at the potential of additional revenue not only 

in the banking industry but to other individuals as it pertains to 

those undocumenteds who are here and needing comprehensive imVerDate Nov 24 2008 16:33 May 02, 2012 Jkt 072619 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\72619.TXT TERRIE
7 

migration; Ronald Reagan did in 1986, and this legislation can do 

something there as well. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you. 

Now, we will go to our first witness who has already been introduced, Mr. Thomas Cardwell, a former commissioner of the Florida 

Office of Financial Regulation. 

Welcome. 

STATEMENT OF J. THOMAS CARDWELL, FORMER COMMISSIONER, FLORIDA OFFICE OF FINANCIAL REGULATION 

Mr. CARDWELL. Thank you, Madam Chairwoman, and members 

of the subcommittee. My name is Tom Cardwell, and I am the 

former commissioner of the Office of Financial Regulation for Florida, a position I held from August 2009 until about 60 days ago. 

As the regulator of financial institutions in Florida, I undertook to 

determine the effects of the rule on those that are regulated and 

the public that they served. We conducted a survey of a set of 

banks under my jurisdiction in South Florida. 

Of 16 reporting commercial banks and 22 foreign banks, we 

found $14.2 billion of NRA deposits. This doesn’t include deposits 

that would have been in national banks, non-Florida State banks, 

or federally-regulated banks. So I would estimate collectively that 

they hold more than twice the NRA deposits of the banks that I 

regulated and I would not be surprised to find $30 billion to $40 

billion worth of NRA deposits alone just in South Florida. 

We also found a high concentration of NRA deposits in certain 

banks: 41 percent of the deposits of the 16 commercial banks and 

90 percent of those in foreign financial institutions were NRA deposits. 

So with that factual background, we considered what would happen if these deposits or some subset of them were lost and we 

found three areas of serious concern. 

The first concern is liquidity. Banks, as you know, do not keep 

their deposits in their vaults; they lend their money to borrowers. 

The typical loan-to-deposit ratio is 85 percent. The loans are illiquid, the borrowers don’t have to give the money back until the 

stated terms of the loan. 

A deposit run of 15 percent would put an institution in jeopardy. 

There wouldn’t be cash to pay off the depositors and the result of 

that, I can tell you from experience, is that the bank fails. A runoff 

of only 30 percent of the NRA deposits would put 11 of the 16 commercial banks that I surveyed in South Florida at a risk for failure. 

The second concern I had was increased stress on the health of 

the already fragile banks; lower deposits means less lending capacity which means less opportunity for earnings. There are significant expenses associated with implementing the rule which fall 

more heavily on smaller community banks who don’t have assets 

over which to spread them. 

Many NRA deposits are in fact a part of larger customer relationships including wealth management business interests, so that 

if the deposit account goes, so does a whole lot of other business. 

So we are not just talking about NRA deposits. 

8 

The third concern is reduced lending capacity. It is generally recognized that for every dollar in deposits, there is a multiplier effect 

of about 9 times. That is, a $10 billion decrease in deposits that 

could result in $90 billion in diminished lending capacity. 

We estimate that a 20 percent reduction in NRA deposits would decrease lending capacity in South Florida by $25.6 billion. The 

economy there is fragile. The community banks that we regulate 

provide much of the small business lending. This, frankly, is not 

a time to restrict it. 

But the next question as a regulator was, is the benefit worth 

the cost? The IRS plan is for blanket collection of depositor information which it may or may not use. So what will the IRS get in 

return for this rule? It won’t get any increased tax revenue because 

the deposits are not taxed, so it will not get any U.S. tax cheats, 

and then, for example, in Colombia or Venezuela, because that isn’t 

where the U.S. money is. It won’t get the right to ask for specific 

information about identified accounts because they already have 

the right to get that; there is a free flow of information. 

As best I can tell, what the IRS wants is the generalized ability 

to say that they are promoting international tax transparency, albeit at the expense of domestic institutions and citizens. So as the 

banking regulator of Florida, I concluded that there was a real potential and actual cost to our institutions and citizens and little 

discernible benefit. I did not see this rule as being in the public interest of the State of Florida and that is why I have opposed it before the IRS and why I appeared before you today. 

I think, frankly, this is the kind of rule that gives regulation a 

bad name. As a regulator, I saw many good rules, and saw some 

bad ones. I understand the importance of rules in carrying out policies and our laws. This rule has the lofty intent of stopping U.S. 

tax cheats but the application of it, I fear, is going to cause far 

more harm than benefit. It may cause a failure, and we certainly 

will weaken, and so it may cause the failure of financial institutions, it will harm local economies by reducing loan capacity, it will 

add additional expenses and regulatory burden to institutions, 

many of whom can ill-afford it, and the goal of tax cheats will not 

really be advanced because we are not collecting information from 

many countries that are not associated with tax cheating. 

So I appreciate this opportunity to express my concerns about it 

and look forward to answering your questions. 

[The prepared statement of Mr. Cardwell can be found on page 

34 of the appendix.] 

Chairwoman CAPITO. Thank you. Our next witness is Mr. Alex 

Sanchez, president and chief executive officer of the Florida Bankers Association. 

Welcome, Mr. Sanchez. 

STATEMENT OF ALEX SANCHEZ, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, FLORIDA BANKERS ASSOCIATION 

Mr. SANCHEZ. Thank you, Madam Chairwoman, and good morning to the members of the subcommittee. I want to first of all thank 

you and the Members for having this hearing. I also want to thank 

Congressman Posey for his leadership in our State. Our governor 

is opposed to this. 

9 

Our legislature, on a bipartisan basis, passed a resolution in opposition to this NRA proposal. And I also want to thank Chairman 

Bachus, because, Mr. Chairman, you were there 11 years ago, and 

you are here today on this issue again. Thank you. 

I also want to thank the American Bankers Association and the 

ICBA for their opposition to this as well as a united group in our 

industry. 

Madam Chairwoman and members of the subcommittee, I speak 

on behalf of thousands of Florida small business owners who depend on loans from our banks and also the nonresident aliens who 

shop, buy, buy real estate, invest in our State, and obviously who 

will live in our State 3 to 6 months out of a year primarily, Madam 

Chairwoman, from our hemisphere, from South America. 

I will tell you that some will say that the privacy standards of 

the United States will be the same in other countries, and again, 

I particularly emphasize our hemisphere, the countries in the western hemisphere, in South America, and my response to them is I 

think they are naive. I think they are naive, Madam Chairwoman. 

Some will say that these deposits are tainted by criminals and 

drug traffickers and all that. Again, they are using emotional and 

non-factual arguments and they forget about the banking regulatory scheme that we have in our great country on BSA, on ‘‘know 

your customer.’’ 

So these deposits are generational and have been in our banks 

for generations because of the primary reasons that from our hemisphere, people have—they do not trust the institutions in their 

home countries. They are worried about an economic collapse 

where their currency will be worthless. That is why they have their 

monies in the United States of America. I have heard that personally, myself, from customers, from our banks in Florida, and I have 

spoken to them on why they have their monies here. 

They are afraid that some bureaucrat back home will leak the information out for a month’s salary to the kidnappers and the terrorists. And as Chairman Bachus pointed out, this happens all the 

time in our hemisphere. 

At a time when we are trying to create jobs, Madam Chairwoman, and the burden on businesses is high, I do not understand 

why this Administration proposes just this January, in the State 

of the Union Address, President Obama said he would offer regulatory burden relief for businesses in the United States, yet, the 

same month, Madam Chairwoman and members of the subcommittee, this Administration proposed this rule. 

And as we have been pointing out, the loss of these deposits, 

which is what bankers lend to small businesses, to the real job creators—small business owners—will be at risk. So I don’t understand why this was proposed at a time when our economy is soft 

and we are trying to create jobs. Why did every Member of our 

Florida delegation sign a letter to the President asking for withdrawal of this, led by Congressman Posey and Congresswoman 

Debbie Wasserman Schultz? 

Why? Because I think, on a bipartisan basis, every Member of 

our congressional delegation realized this is a bad, bad idea. 

When I spoke to the Treasury Tax Counsel, Ms. Corwin, and told 

her that hardly any, if none—any Americans who had bank acVerDate Nov 24 2008 16:33 May 02, 2012 Jkt 072619 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\72619.TXT TERRIE
10 

counts in Venezuela and Colombia and Ecuador and Peru—I asked 

her, ‘‘Where is the reciprocity for the United States? There are no 

Americans down there with bank accounts.’’ 

And her response was, ‘‘We are only going to exchange this information with countries we have a tax-treaty exchange information 

with.’’ 

And I said, ‘‘Ms. Corwin, the only two countries in this hemisphere we have a tax exchange treaty with that I am aware of are, 

number one, by most human rights groups, the purported number 

one extortion and kidnapping country in the world, Mexico; and 

number two, Hugo Chavez’s Venezuela. Ms. Corwin, will you exchange information with those two countries?’’ 

And Madam Chairwoman and members of the subcommittee, she 

was silent. She was silent. And she knows that is wrong. 

The United States hopefully would never do that to people who 

believe in the United States, who have their monies here for safety, 

both from a personal and economic perspective. 

Our economy has been hit hard, Madam Chairwoman, and I 

would like to conclude that as Mr. Cardwell said, this will really 

affect our economy. And from a personal perspective, I will say I 

came over, Madam Chairwoman, on a freedom flight on September 

3rd, 1962 at 1 p.m. from Havana, Cuba, 1 month before the missile 

crisis. My family was very fortunate to get out of that communist 

tyranny in that island, to freedom in this great country. That is 

why I served in the military. 

And Madam Chairwoman, let me say this: I think most South 

Americans learned from the Cuban experience that my parents lost 

everything they had, they were middle class in Cuba, ma’am, and 

they lost everything. I think most South Americans took note of 

that and said, ‘‘That isn’t going to happen to me.’’ 

And now, obviously, the kidnapping and other criminal issues 

have accelerated since that time. So this is an important issue. I 

appreciate your opposition to this. Thank you. 

[The prepared statement of Mr. Sanchez can be found on page 

44 of the appendix.] 

Chairwoman CAPITO. Thank you. 

Our next witness—I am going to have to slip out for 10 or 15 

minutes, and Mr. Renacci is going to take the chair—is Mr. Gerry 

Schwebel, the executive vice president of International Bancshares 

Corporation, for 5 minutes. 

STATEMENT OF GERRY SCHWEBEL, EXECUTIVE VICE 

PRESIDENT, IBC BANK 

Mr. SCHWEBEL. Thank you very much. 

Good morning, Madam Chairwoman, and members of the subcommittee. Thank you for holding this important hearing on the 

Treasury Department’s proposed regulation to require U.S. banks 

to report interest paid on deposits to nonresident alien individuals 

and the damaging effects this regulation would have on our economy and U.S. employment. 

By way of background, IBC Bank, our bank, was founded in 1966 

to meet the needs of small businesses in Laredo and serve crossborder trade. In 2010, Hispanic Business Magazine ranked IBC as 

the number one Hispanic-owned financial institution in the Nation. 

11 

I happen to oversee the international banking operations of our 

bank, but I am also here speaking today on behalf of the Coalition 

of Depository Institutions and Industry Trade Associations including the Texas Bankers Association, our friends from the Florida 

Bankers Association, as well as other trade groups such as the 

ABA and the Independent Bankers Association. 

I want to state at the onset that we strongly oppose this Treasury initiative which is actually the resuscitation of a plan proposed 

by the IRS a decade ago but eventually withdrawn in the face of 

substantial congressional opposition. 

U.S.-based depository institutions are the repository of literally 

trillions of dollars of foreign deposits throughout the Nation. These 

deposits flows are particularly important in States such as Texas, 

Florida, and California, which have international borders, large immigrant populations, and significant volumes of international trade 

and travel. 

American banks and other financial institutions benefit greatly 

from this international deposit flow. The communities in which 

they do business benefit immensely from loan generation, job creation, and related economic growth which stem from this form of 

capital investment. 

On January 17, 2011, the IRS published its proposed rule for 

public comment due by April 7th of this year. Hundreds of comments were submitted, most of which were overwhelmingly negative. I would also point out that the FDIC weighed in against the 

earlier incarnation of this proposal in a 2003 letter suggesting that 

no action be taken without a careful study of the potential impact 

on the U.S. banking system as well as a separate evaluation of the 

proposal’s regulatory impact cost. 

Notwithstanding the overwhelming level of public opposition, 

there is no reason to believe on the basis of Treasury Department 

actions to date that there was any intent to back off this highly 

controversial initiative. 

It is for this reason that we are asking the Congress to oppose 

this proposal as it successfully did 10 years ago. According to the 

most recent Bureau of Economic Analysis report, liabilities to private foreign residents reported by U.S. banks increased by $166 

billion and now total $3.7 trillion. 

Our experience as bankers indicates that a substantial portion of 

the $3.7 trillion represents individual NRA deposits or business accounts connected to such individual depositors. This is because customers often place their individual and business accounts at the 

same bank for a number of reasons, including convenience. 

There should also be no confusion about the fact that the imposition of a reporting requirement will be a clear and present threat 

to the retention of these deposits in the United States. 

I can tell you from personal experience that the mere announcement of the proposed regulation and its widespread publicity has 

already generated major concerns on the part of our nonresident 

depositors. 

Mexican newspaper accounts are stating that interest earned on 

banking accounts in the United States is already being sent to the 

Government of Mexico and up to 30 percent of current customer 

calls or inquiries are related to this matter. 

12 

The reasons for these calls and a high level of concern being expressed has little or nothing to do with tax compliance, but are occurring for reasons related to the security of the institutions involved, the physical safekeeping of the funds, and depending upon 

the depositor’s domicile, the security of the depositors and their 

families. 

It goes without saying that in all situations, the outflow of substantial deposit accounts can only reduce the ability of local banking institutions to recycle these funds into job-creating loans. 

Deposit losses would result in large losses in funds available for 

mortgage loans, small business loans or other credit availability. 

Economic texts routinely state that for every dollar of deposits lost, 

there is a loss of $9 of credit. Regardless of whether one holds the 

view that the U.S. economy is near recession or near recovery, 

there is no reason to take any steps which would affirmatively curtail lending activity, reduce economic growth, and kill job creation. 

We appreciate the degree to which Congress has once again 

stepped forward on this issue in a broad and bipartisan matter, beginning with the March 2nd letter of opposition from every Member 

of the Florida House Delegation. 

The Texas House Delegation is likewise broadly on record in opposition to this proposal through the leadership of Representative 

Canseco and Representative Hinojosa. In addition to holding this 

hearing, we appreciate the April 15th letter of this year, which the 

House Financial Services Committee, through the efforts of Representatives Posey and Meeks, sent to the President. 

It is our view, however, only legislation that blocks the proposed 

information reported regulation from taking effect will return confidence to the community of NRA depositors. 

Thus, we stand strongly in support of H.R. 2568 which would 

specifically prevent the Secretary of the Treasury from expanding 

the interest reporting requirements to U.S. banks, credit unions, 

and securities firms regarding nonresident aliens. 

We thank you again for bringing attention to this issue at today’s 

hearing. And we look forward to working with this committee and 

your colleagues on the House Ways and Means Committee as well, 

to achieve such passage. 

Thank you very much. 

[The prepared statement of Mr. Schwebel can be found on page 

49 of the appendix.] 

Mr. RENACCI. [presiding]. Thank you, Mr. Schwebel. 

Our last witness is Ms. Rebecca Wilkins, senior counsel for Federal tax policy at Citizens for Tax Justice. 

STATEMENT OF REBECCA J. WILKINS, SENIOR COUNSEL, 

FEDERAL TAX POLICY, CITIZENS FOR TAX JUSTICE 

Ms. WILKINS. Thank you. 

Thank you for the opportunity to testify today. Citizens for Tax 

Justice has been around for over 30 years, and we work to maintain and promote a fair and sustainable tax system. 

We want to be on the record that we fully support the IRS in the 

promulgation of these rules. We hope that it is only the first step 

in a long and ongoing improvement of the type and quality of inforVerDate Nov 24 2008 16:33 May 02, 2012 Jkt 072619 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\72619.TXT TERRIE
13 

mation that the IRS collects that can be shared with other countries pursuant to tax information exchange agreements. 

Governments around the world right now are facing severe budget crises and this is due in no small part to the tax evasion that 

is facilitated by bank secrecy. It is estimated that the U.S. Treasury loses $100 billion annually in revenue to tax haven abuses. 

Secrecy in the financial system facilitates corruption, tax evasion, 

and money laundering. Shell corporations, anonymous trusts, and 

bank secrecy in both the United States and abroad make it easy 

for criminals, terrorists, government officials, and even otherwise 

legitimate multinational corporations to hide their money, and they 

make it difficult for law enforcement and tax authorities to do their 

job. 

America should not be a tax haven for international tax evaders. 

We do not believe that the United States should be a haven for citizens of other countries who wish to evade their tax obligations to 

their home country. 

Regardless of the economic benefit to the United States from the 

inflow of capital, we should not make it easier for the laws of other 

countries to be broken or evaded. There is a global growing consensus that responsible governments must cooperate in exchanging 

tax information in order to combat the rampant tax evasion that 

is facilitated by offshore tax havens. And make no mistake; the 

United States is a tax haven for citizens of other countries. 

The proposed rule will allow the United States Government to 

respond to requests from other governments. We have a major 

stake in assisting those other governments. Not only is it the moral 

and ethical thing to do, but we need the help of those governments 

in combating tax evasion in our own country. 

We cannot meet our obligations under tax exchange information 

agreements unless we create a process that allows us to do that. 

And these rules are an important step in that direction. 

These rules will also help the IRS catch cheating by U.S. taxpayers. We know that some U.S. taxpayers use a foreign name or 

a foreign entity in order to evade tax. And any action that reduces 

tax cheating brings not only much-needed revenue into the system, 

but it furthers other important goals. It ensures compliance by 

other taxpayers and it restores Americans’ faith in the equity of the 

tax system. 

We believe that the dire claims of economic consequences are 

completely unfounded. First of all, the rule only applies to deposits 

held by nonresident individuals. It only applies to bank deposits. 

Of the $4 trillion in bank deposits in the United States by foreigners, over three-fourths of those funds are held by other governments, official institutions, international and regional organizations, and foreign banks. 

Of the less than $1 trillion left, only the amount held in the 

name of individuals would be subject to the reporting requirements. And even for those accounts, you are covered by these rules. 

Only depositors who are tax evaders, money launderers, drug dealers, human traffickers, or other criminals will have an incentive to 

move their funds. 

14 

Mr. Sanchez said that most of his depositors have their accounts 

in U.S. banks because they don’t trust the banking system in their 

own country, and I fully understand that. 

If that is their reason, they have nothing to fear from these regulations because I assume if their only concern is the unstable banking system in their country, they are reporting the income on those 

accounts to their government and paying tax on them. 

Objections to these rules on humanitarian grounds are largely 

baseless. The rules allow the IRS to collect the information. They 

don’t require an exchange. The IRS exchanges the information only 

as a response to a specific, carefully limited request under a tax information exchange agreement. 

We believe that the Treasury could add further safeguards to 

these rules to address any other humanitarian concerns. 

Anti-money laundering, national security, anti-corruption, and 

anti-terrorism efforts could be enhanced through the implementation of these rules. But make no mistake, this is about tax evasion. 

Those who oppose the current rules have a vested interest in facilitating tax cheating. But it is the honest tax-paying citizens of 

the United States and countries around the world who pay the 

price. 

Chairman Bachus asked, ‘‘Do we want to have blood on our 

hands as a result of these rules?’’ I want to tell you, the United 

States already has blood on its hands. For every dollar of tax revenue that is taken out of the governments of developing countries, 

it impairs the ability of those countries to provide health and safety 

measures to feed its citizens, to provide sanitation, to provide 

health care, and to provide military and police that are not corrupt. 

Every time we facilitate a dollar coming out of those economies, 

we have blood on our hands. In any case, it is wholly inappropriate 

to combat— 

Chairwoman CAPITO. The gentlewoman’s time has expired. Do 

you want to—are you— 

Ms. WILKINS. —to combat unlawful activity in one country by encouraging unlawful activity in another country. We applaud the 

IRS for proposing these rules. And we support their implementation. Thank you. 

[The prepared statement of Ms. Wilkins can be found on page 57 

of the appendix.] 

Chairwoman CAPITO. Thank you. 

Let me ask you a quick question. Mr. Sanchez mentioned on the 

tax exchange agreements that only two countries in the western 

hemisphere—that we only have two agreements. Is that factual, according to what you— 

Ms. WILKINS. I believe that is factual. We have, around the 

world, 97—either tax treaties or tax-exchange information agreements—but we have very few in the southern hemisphere here. 

Chairwoman CAPITO. Okay. 

I would say you make a pretty strong statement when you say 

anybody who opposes is, thus, in favor of tax cheaters. I would like 

to give Mr. Cardwell, who is a former regulator, a chance to respond to that. 

Mr. CARDWELL. Thank you. 

15 

First, there is no credible evidence I have seen that says that any 

of these funds that we are talking about are here for tax-cheating 

purposes. This is—as best I can tell—a broad, generalized assertion 

with no factual background that I am aware of in there. 

What I note is a large inconsistency in the IRS position. And the 

inconsistency is this, on the one hand they say, we have all these 

individual tax cheats and so, we need to get all of this information 

regarding reporting. On the other hand, the rule doesn’t apply to 

most of the foreign money that is here in terms of businesses and 

trusts and everything else. So the IRS, if it is trying to solve the 

problem that foreign money in this country is involved in tax cheating—an unsupported assertion—this rule only touches a portion of 

that problem. 

I think the real answer is, the United States to my knowledge 

has never been seen as a tax haven for tax cheaters. I am sure 

some amount of that may go on, but that has never been the criticism of the United States, that it is one of world’s tax cheat havens. 

Chairwoman CAPITO. Thank you. 

Let me ask another question and I will—Mr. Sanchez, I will ask 

this of you. You mentioned the President’s Executive Order so— 

that if regulations rise to a level of $100 million in fighting this on 

all different fronts that we should have an economic analysis as to 

the results of such a regulation. 

In your mind, has any—Mr. Cardwell did a survey of the Southern Florida Banks. It is pretty extensive, showing $14.2 billion in 

deposits from nonresident aliens. 

But to your knowledge, has the government ever or the IRS ever 

done such a study that shows the effects of this and quantifies the 

cost? 

Mr. SANCHEZ. No, no, Madam Chairwoman. And I asked Treasury that same question, and the Administration several times, and 

the answer is ‘‘no.’’ They are dead silent on that question. 

And Madam Chairwoman, if I can just add, too—when Ms. Wilkins said that of the $4 trillion in FDIC deposits in the United 

States, she emphasized the word ‘‘only’’ $1 trillion would be at risk. 

I don’t know where Ms. Wilkins comes from, Madam Chairwoman, 

but in Florida, that is a lot of money, ma’am. 

And, even if we lose $0.5 trillion in our great country in these 

deposits, that is going to be a tremendous loss of economic activity 

and jobs in our country. And I think you confirmed what I said 

about the two countries we have treatises with. 

Look, I don’t have a problem, Madam Chairwoman, with Canada; 

it has established, democratic, safe institutions like the United 

States, but I think the point is well-known to you, ma’am, and the 

members of the committee, and even Ms. Wilkins would admit it 

that in Latin America, sadly, sadly, Madam Chairwoman, and unfortunately, they do not have the freedom and the safety and the 

democracy that we have in our institutions. 

And that is why people put their money here, not to be tax 

cheats, ma’am. 

Chairwoman CAPITO. Let me ask you, Mr. Schwebel, in your institution, you have attracted, obviously, a lot of these types of deposits. Do you cast about and advertise for this? Is it word of 

16 

mouth? What do you attribute that to besides your location, obviously? 

Mr. SCHWEBEL. As you said, location, but at the same time, we, 

by virtue of our location, where we are, most of our business is generations, they have been with us for many, many years and 

through—as to diligence, we are constantly in contact communication, looking at their business and looking at them personally as 

well. 

Chairwoman CAPITO. You have to have their documentation in 

front of you? 

Mr. SCHWEBEL. Definitely, definitely. We are enhancing— 

Chairwoman CAPITO. How often do you check that? 

Mr. SCHWEBEL. Ours is ongoing. We looked at even the smartest 

transactions and looking at activity what everybody is doing, especially, in the environment that we have been—as a result of BSA 

and PATRIOT Act, that is a requirement. 

Chairwoman CAPITO. If there is suspicious activity in an account, 

like large withdrawals or large deposits, do you then—are you empowered to go in and look at those? 

Mr. SCHWEBEL. Definitely. 

Chairwoman CAPITO. And report them to certain law enforcement agencies or regulators? 

Mr. SCHWEBEL. Definitely, we— 

Chairwoman CAPITO. Even these accounts, I know you are on other accounts if you have a deposit over $10,000 or such. 

Mr. SCHWEBEL. Definitely. We are constantly in contact with not 

just the regulators, but all of the law enforcement organizations. It 

is very important to us that we understand what our customers are 

doing every day. 

And we look at down to transactions. We look at the type of activities. And we have the mechanisms in place to track and monitor 

that. And, that is just part of life that we are in today. 

Chairwoman CAPITO. All right. Thank you. My time has expired. 

Mrs. Maloney? 

Mrs. MALONEY. Thank you. I would like to thank all the witnesses for their testimony and to ask Ms. Wilkins, we have heard 

testimony today from financial institutions who believe that the 

proposed rule will create a liquidity run on our banks. One person 

testified that the rule would—that there is roughly $14 trillion in 

financial institutions invested in the United States by foreigners. 

Are you not concerned that this rule will cause nonresidents to 

pull their investments out? 

Ms. WILKINS. Thank you, Congresswoman. Of the $14 trillion 

that foreigners have invested in the United States, a large majority 

of that is in real estate, hedge funds, other things besides bank deposits. 

The Federal Reserve in its most recent reports said $4.4 trillion 

of foreign deposits are in U.S. banks. And, yes, Mr. Sanchez, where 

I come from, a trillion dollars is a lot of money. But my point is 

the amount that is at risk is a very small fraction of that trillion 

dollars. Because that trillion dollars is the amount of deposits that 

are in U.S. banks from foreigners that are not in the name of another bank, another government or a regional or global organization. 

17 

Of that trillion—$1.2 trillion—in the most recent Federal Reserve report, a lot of that is going to be in the name of companies, 

of corporations, of partnerships, of trusts, and the rules only apply 

to individuals. 

So, the amount that is in the name of individuals is some fraction of that $1.2 trillion. 

And then, again, I emphasize that the amount that is really subject to flight is the accounts of people who have some reason to 

hide the fact that they are earning interest on U.S. deposits. So, 

they are not reporting that income to their country of origin and 

paying tax on that. 

Mrs. MALONEY. But what about the concerns that some of my 

colleagues and some of the panelists have expressed that some 

banks would have a specific liquidity problem because of this. And 

I would also like to understand why such a substantial portion of 

these deposits are held in banks in Florida and Texas. 

Ms. WILKINS. Obviously, their location is key. But I wonder if 

what Mr. Sanchez says is true, that these people are primarily 

using the U.S. banks because of the stability it provides. Why are 

they concerned about these regulations? 

And if a particular bank may fail because a large number of deposits might be pulled, I have to ask, should we be protecting a 

bank whose core business is facilitating tax evasion and criminal 

activities? 

Mrs. MALONEY. Some of my colleagues have expressed concerns 

about confidentiality. What steps or requirements are you aware of 

that the IRS must take to safeguard confidentiality about the information that is obtained about interest paid to nonresident aliens? 

Ms. WILKINS. We are constantly frustrated by our inability to get 

any information out of the IRS. And, obviously, the IRS is very 

good about keeping tax information confidential. 

I do think there is room in the regulations to improve requirements for other countries with whom we exchange information on 

the way they keep information confidential. 

The U.S. Treasury does have the ability to refuse any request for 

information under a TEIA. 

So, I think that will be very common if they feel like there is 

some risk. 

Mrs. MALONEY. And can you explain how the proposed IRS rule 

is related to the FATCA, the Foreign Account Tax Compliance Act? 

Ms. WILKINS. The FATCA that was passed last spring requires 

foreign branches of the U.S. banks and foreign financial institutions to report to the IRS interest earned by U.S. citizens and residents. 

So, what the IRS is doing by collecting the information in these 

proposed rules is just turnabout is fair play. They are saying that 

if you will collect this information for us so that we can collect tax, 

we will collect this information for you. 

I think that these rules are very important to encourage foreign 

financial institutions to comply with FATCA. 

Mrs. MALONEY. And what impact do you think it would have on 

foreign compliance or cooperation with our country? 

Ms. WILKINS. I think it will help a lot. I think the IRS and the 

Treasury are getting a lot of pushback from the foreign financial 

18 

institutions and from foreign governments about FATCA. And I 

think promulgation of these rules and more rules like this will help 

create cooperation among all the governments in the world. 

Mrs. MALONEY. My time has expired. 

Chairwoman CAPITO. Thank you. I would like to recognize Mr. 

Renacci for 5 minutes for questions. 

Mr. RENACCI. Thank you, Madam Chairwoman. And I thank the 

witnesses for being here. 

It is interesting. I have been a Congressman now for 10 months, 

and I sometimes wonder why the Federal Government does some 

of these things and the IRS gets involved. 

And as I listened to all of you, I tried to break this down into 

three pieces: the cost to report; the potential loss of deposits; and 

a potential increase in tax revenues, is what I am hearing from one 

of the witnesses. 

Let us talk about the cost to report. 

Mr. Schwebel, can you tell me—you are already printing up 

1099s for all of your other customers. There is probably not that 

much of a cost to report these additional taxpayers. 

Mr. SCHWEBEL. As a matter of fact, we are going through the 

process of reviewing the requirements that—by having to submit 

specific new forms—that we do a 1042-S form, which is a standard 

IRS form that will be required for reporting individuals as well 

that are these NRAs. 

If you take a bank like ours and we look at the volume of deposits that we have and then our—we are talking about individual accounts, personal accounts. In our deposit, our foreign deposit base, 

it is about 95 percent of those foreign deposits are personal accounts. 

Ms. Wilkins was saying that they are not really individuals who 

are being affected. Our particular case—if you took my foreign deposit base, 95 percent of that would be almost $2.3 billion, $2.2 billion in the foreign deposits that had turned. 

I would have to generate new reports to the IRS by submitting 

the 1042-S’s that we currently have not doing. 

Mr. RENACCI. That is not real—that is a change in the computer 

programming and— 

Mr. SCHWEBEL. Yes. It is not just flicking the switch. It is a matter of collecting the data because we don’t—and I will tell you that 

we submit our reports to Treasury, to the Federal Reserve, and and 

we do not distinguish in our reports whether they are personal or 

business accounts. 

The requirements for the BL 1 report that is submitted is very 

clear. It is just the total number of accounts. 

Mr. RENACCI. Mr. Cardwell, Ms. Wilkins states that there is no 

foundation to the argument that billions of dollars of deposits will 

leave the United States if these rules take effect. The regulation 

only applies to accounts owned by nonresident alien individuals. 

You had a summary, I think, in your testimony. Do you agree 

with that statement? 

Mr. CARDWELL. No, I don’t agree with that statement. Obviously, 

the rule has not been in effect so we don’t know what the effect 

will be. So, what you are doing is analyzing the risk of that hapVerDate Nov 24 2008 16:33 May 02, 2012 Jkt 072619 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\72619.TXT TERRIE
19 

pening. And as a regulator, I ask myself the question, what do you 

think is likely to occur? 

First, I asked banks individually and anecdotally what they were 

hearing from their customers. And what they were hearing from 

their customers—a number of them—is, ‘‘Yes, we will pull our 

money out.’’ And markets work. 

We find instances where countries which don’t do this kind of reporting are now soliciting these accounts on the grounds that the 

information will be reported. 

So, the best information we have is that it is likely to have some 

portion pulled. Is it going to be all of it? Absolutely not. 

I have used fairly conservative numbers like 20 or 30 percent to 

try to assess the harm that we have. 

What concerns me the most is unless there is a really good reason to put this rule in place, why would you take the risk of losing 

the money? Because once it is gone, it is gone. 

Once it leaves this country, if that is the result, we are not going 

to see it back here again. 

So, unless you could convince me as a regulator that it is really 

important that we risk losing these deposits, I would say, let us not 

take the risk. 

Mr. RENACCI. Thank you. You led right into my next question because I was going to ask Ms. Wilkins that question. First off, you 

have made a couple of bold statements here about taxation and tax 

cheats and how much money the United States Government is losing. This is the cost of the United States Government to start doing 

some of this if they are going further in reach. 

So, what is the return to the Federal Government? Do you have 

any studies on that? And what is the risk of losing potential dollars? 

I know the risk is the loss of liquidity in the banks. Are you saying that is okay? That you are not as concerned with that? That 

there is an amount of tax revenue that the IRS is going to be able 

to collect because of having other countries now report that income? 

Ms. WILKINS. There are two answers to the flight issue. I think 

the risk of a lot of capital leaving is small. But I think whatever 

does— 

Mr. RENACCI. But you don’t know that for sure. 

Ms. WILKINS. I don’t. And I have to say, neither do they. 

But I also think that it has come right back to the United States 

through the foreign—through the depository accounts of Cayman 

Island banks, Bermuda banks, Bahama banks right now. The biggest liability that U.S. banks have to foreigners is to banks in the 

Cayman Islands. 

So, I think— 

Mr. RENACCI. My time is almost—I guess, it is already out. But 

the question really is, do you have any studies to show how much 

the IRS is going to be able to find in new tax revenue by taking 

the expense of doing this? 

Ms. WILKINS. No. Like Mr. Cardwell said, we don’t know what 

the effects of these regulations are going to be. And the revenue increase to the United States in the short term is probably not big. 

But I think in the long term, as the governments continue to coVerDate Nov 24 2008 16:33 May 02, 2012 Jkt 072619 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\72619.TXT TERRIE
20 

operate on tax matters, I think tax revenues for countries all over 

the world will go up. 

Mr. RENACCI. So, the revenue is not big but the risk of cash leaving is a potential. Thank you. 

Chairwoman CAPITO. Thank you. 

Mr. Hinojosa, for 5 minutes, for questions. 

Mr. HINOJOSA. Thank you. Thank you, Chairwoman Capito. And 

I also want to thank Ranking Member Maloney for holding this important and timely hearing today on reporting interest on nonresident alien deposits at U.S. financial institutions. 

Madam Chairwoman, I ask unanimous consent to insert into today’s hearing record the following three letters. The first one is a 

letter from United States Senator Kay Bailey Hutchison and Senator John Cornyn of Texas asking Secretary Geithner, Secretary of 

the Treasury, to withdraw the IRS’ proposal to require banks in 

the United States to report to the IRS all deposit interest paid to 

certain nonresident investors. 

The second letter is one that the Texas delegation, co-authored 

by me, Ruben Hinojosa, and Congressman Francisco Canseco, sent 

to President Barack Obama, requesting that he withdraw and 

maintain the 90-year policy of attracting foreign capital to the 

United States that improves the safety and soundness of U.S. financial institutions, particularly community banks. 

The third letter is one from the Florida delegation requesting 

that Treasury withdraw the proposed rule. Those are actions that 

justify the drafting of legislation and are offering H.R. 2568, which 

would prevent the Secretary of the Treasury from expanding the 

United States bank reporting requirements with respect to interest 

on deposits paid to nonresident aliens. 

It is my sincere hope that the Obama Administration will withdraw the proposed rule that will endanger the safety and soundness of banks that are keeping the economy of Florida, California, 

and our State of Texas alive, and if promulgated, would result in 

a flight of nonresident alien deposits from U.S. markets. 

As we emerge from the worst recession since the Great Depression, it does not make sense to impose regulations that will harm 

further the economies of Texas, Florida, and California, and will 

endanger the livelihood of the United States residents along the 

U.S.-Mexico border area. 

I urge my colleagues on both sides of the aisle to join me in encouraging this Administration to withdraw the proposed rule. And 

with that, I yield back the remainder of my time. 

Chairwoman CAPITO. The gentleman yields back, and we will 

submit those letters for the record, without objection. 

As you have heard the bells and whistles going off, it means we 

have been called for a vote. We are going to go to Mr. Luetkemeyer 

for questioning, and then I probably will recess the committee and 

reconvene after we have votes. I apologize, but that is just kind of 

the way of life here. 

So, Mr. Luetkemeyer? 

Mr. LUETKEMEYER. Thank you, Madam Chairwoman. 

Ms. Wilkins, in your conclusion, you make the statement, ‘‘make 

no mistake, this is about tax evasion.’’ According to what I am 

21 

reading here and my understanding of the rules, the IRS does not 

collect taxes on nonresident deposits. Is that correct? 

Ms. WILKINS. That is correct. 

Mr. LUETKEMEYER. So the tax evasion then is from people who 

come here and try to avoid taxes in other countries. 

Ms. WILKINS. That is right. This is about the United States helping people evade taxes. 

Mr. LUETKEMEYER. So why is it our problem to try and help 

other countries collect their taxes? 

Ms. WILKINS. Why are we— 

Mr. LUETKEMEYER. Answer my question. That is my question. 

Ms. WILKINS. It is the same reason we are prosecuting the Swiss 

banks. Because they are facilitating tax evasion by our residents. 

Mr. LUETKEMEYER. Yes, but our work—those people evading 

taxes in other countries, they are other countries’ problems. That 

is not our problem, is it— 

Ms. WILKINS. We are asking governments of other countries to 

collect information through— 

Mr. LUETKEMEYER. Yes, but we are helping them—we are asking 

them to help us find our citizens who are cheating and not paying 

taxes here. Why should we be worried about collecting taxes for 

other countries? 

Ms. WILKINS. We shouldn’t help them the way they are helping 

us? 

Mr. LUETKEMEYER. If they request it. But they are not requesting it, are they? 

Ms. WILKINS. They do request it and unfortunately— 

Mr. LUETKEMEYER. Through the existing laws, are we not able 

to accommodate them? 

Ms. WILKINS. Unfortunately, without this rule, the IRS doesn’t 

always have the information they need to respond to those requests. This would help the IRS respond. 

Mr. LUETKEMEYER. Okay. Gentlemen, have you ever had problems with other countries requesting information from you with regard to tax evaders? Is this a normal occurrence that the different 

countries’ governments contact you with regard to tax evasion of 

your customers? 

Mr. SCHWEBEL. Congressman, no. There is a process. And the 

laws are in place and the procedures are in place and we have 

never had—we always cooperate any time there is any request. In 

our particular case basically, is to Mexico. 

Mr. LUETKEMEYER. How many requests do you get a year? You 

have $2 billion worth of deposits— 

Mr. SCHWEBEL. I will tell you that, as I headed the—since 1998, 

I took over the international operations of our bank. I could probably count on one hand the number of requests that have come in 

during those— 

Mr. LUETKEMEYER. Okay. 

Mr. Sanchez? 

Mr. SANCHEZ. Sir, I would— 

Mr. LUETKEMEYER. By the way, I don’t want to interrupt you, 

but thank you for your compelling story and your patience. I appreciate the statements you made earlier during— 

22 

Mr. SANCHEZ. Thank you, sir. I would defer to Gerry on that one, 

but I will answer your question by telling you what is on the mind 

set of Treasury officials specifically who wrote this. Ms. Corwin 

said when I asked her, ‘‘You are only going to exchange this with 

countries we have a tax exchange treaty with?’’ She said, ‘‘Yes.’’ 

And that is when I brought up Mexico and Venezuela. And I 

said, ‘‘Well, then why are you collecting it for the world?’’ And she 

said it was our responsibility, sir, from the banking institution to 

inform all of our customers that the U.S. Federal Government was 

collecting it but we will not exchange it with all countries in the 

world. 

I said, ‘‘Well, limit the rule to those you have a treaty with.’’ And 

I caught her in a bad position there, because how can we tell every 

potential customer in the world that the U.S. Government is collecting this information but they are not going to exchange it? It 

doesn’t make any sense. 

Mr. LUETKEMEYER. Do you believe that they are collecting this 

information in violation of the Bank Secrecy Act? 

Mr. SANCHEZ. As far as the Federal Government is concerned? 

Mr. LUETKEMEYER. Right. 

Mr. SANCHEZ. I mean— 

Mr. LUETKEMEYER. You can’t give that information out to any 

other individual or corporation or entity. You can’t give it out to 

foreign governments, can you? 

Mr. SANCHEZ. No. 

Mr. LUETKEMEYER. They request that because the banks are— 

Mr. SANCHEZ. No. No. No. We do it when we are requested by 

the U.S. Government— 

Mr. LUETKEMEYER. Okay. 

Mr. SANCHEZ. —obviously but—and we comply with the BSA 

laws and the PATRIOT Act, sir. 

Mr. LUETKEMEYER. Right. But technically, this rule would be in 

opposition to the Bank Secrecy Act as it is known to you, right? It 

seemed to me, anyway. 

Mr. SANCHEZ. Yes. I mean certainly the principles of our country—for us to think that Mexico and Venezuela, under Hugo Chavez, respect our privacy laws is absurd, sir. 

Mr. LUETKEMEYER. Okay. The chairman made mention of the 

fact a while ago—and I had a discussion with Ms. Wilkins—and it 

certainly would seem to me that the IRS is by their actions here 

continuing to find ways to make it more difficult for foreign countries, foreign investors, foreign corporations to continue doing business with us either by allowing us to have deposits in their country 

to impact the investments in our country as well as to have them 

have their investments here. 

I don’t understand what the problem is they are trying to solve. 

The testimony today doesn’t lead me to see that we still have a 

problem anywhere, if we are trying to avoid taxes, and you had 

half a dozen instances in 20 years, I fail to see the problem. 

So, Madam Chairwoman, I appreciate your indulgence, and I 

yield back. Thank you. 

Chairwoman CAPITO. Thank you. 

23 

You know what; I think we might be able to get to Mr. Canseco. 

We have 8 minutes left before votes. He will be our next questioner. 

Mr. CANSECO. Thank you very much, Madam Chairwoman. 

Thank you very much to all the panelists for being here today on 

this very, very important issue. 

Mr. Schwebel, my take on this rule is that smaller banks could 

be disproportionately affected by deposits that are pulled as a result of its implementation. Could you detail for us how IBC is 

uniquely positioned to serve foreign depositors and why depositors 

choose IBC over another bank in Texas or over other banks in the 

country? 

Mr. SCHWEBEL. Yes, Congressman. Thank you for your question. 

The issue is we have been since 1966 when we started in Laredo 

we have grown throughout Texas. And those relations that we have 

cultivated over the years have now become generational—even of 

increasing trade activity between our countries. And Texas has 

been a great beneficiary of that by virtue of our location. 

Those business relationships have become personal relationships 

as well which is what we seek. We seek those personal relationships as well from the businesses. 

Mr. CANSECO. In your reading of the IRS proposed rule, do you 

feel that the IRS appropriately took into account the potential economic ratifications of the rule? 

Mr. SCHWEBEL. Not at all. That is what we had been asking. 

Mr. CANSECO. Let me ask you this: Ms. Wilkins, here to your left, 

seems to brush off in her testimony the notion that foreign depositors could be put at risk in their home countries should this rule 

go into effect. Yet, you discussed in your testimony the great concern over safety many of your customers have over the proposed 

rule. 

In fact, you noted up to 30 percent of the calls you received are 

related to this rule. I would like to give you the chance to respond 

to Ms. Wilkins and to tell the panel what you hear from your customers and some of the safety concerns that could arise over the 

rule going into effect. 

Mr. SCHWEBEL. The calls we have been getting since this came 

back to life in January of this year started coming in right after 

the news releases started coming out in Mexico. 

Immediately, customers began visiting with us, calling us and 

telling us what was going on. And many of them been through this, 

you know; issues have come up 10 years ago. So those calls that 

we were getting—we are fielding those calls; we are documenting 

those calls; we are talking to our customers. 

And they are legitimately concerned that the security of their 

lives, and their families’ lives by just the release of this information 

and sharing it openly with their respective governments, could be 

in danger. And they are passionate about it. They are very concerned about it. Those are the views they are expressing to us. 

Mr. CANSECO. Thank you, Mr. Schwebel. 

Mr. Sanchez, the same question to you. 

Mr. SANCHEZ. Sir, I have personally talked to many of our customers in Florida who are nonresident aliens and they have affirmed what Mr. Schwebel just said. They are genuinely concerned 

24 

not only about the economic side that I mentioned earlier, which 

is what Ms. Wilkins keeps emphasizing. She leaves out the part 

where I said that these men and women who live in these countries 

in our hemisphere are very concerned about their own personal 

safety and that of their children. And that is why they have their 

monies here because of our privacy standards. 

They are concerned that if people back home found out they had 

these monies, their children, their families will be kidnapped. And 

I have talked to some who have in fact been kidnapped, all over 

the hemisphere, sir. So that is a valid concern. The United States 

will always be the beacon of hope for people from around the world 

not only for economic reasons but for personal safety reasons, sir. 

Mr. CANSECO. And there is empirical evidence that there is a lot 

of kidnapping, sequestrations, and others for people with money, is 

that correct, Mr. Sanchez? 

Mr. SANCHEZ. Yes, sir. 

Mr. CANSECO. Yes. Thank you. 

Mr. Schwebel, there is an often-cited study done by the Mercatus 

Center 7 years ago on a similar proposed rule that estimated up 

to $88 billion in deposits could flee the American banks as a result 

of it going into effect. 

You discussed in your testimony one of the great concerns I have, 

which is the multiplier effect that this rule could result in the 

flight of not just deposits but also investments that nonresident 

aliens make in America. 

Could you walk us through what we are talking about here and 

perhaps how it relates to family-linked accounts and different 

kinds of investments they may have with American banks? 

Mr. SCHWEBEL. Correct. I will tell you out of personal experience, 

Congressman, that is my daily livelihood. We deal with these families, these businessmen and women who invest in the United 

States, bring their deposits, are doing cross-border business. 

At the same time, what is happening is that they are—what they 

are doing is—that allows us, through that deposit—multiple effects, 

as Mr. Cardwell said, 7 to 9 times of that allows us to generate 

loans, small business, business mortgage loans, and other types of 

lending activity. The multiple effect of that deposit is great. 

By virtue of that deposit leaving the country, then the impact of 

that lending ability, of course, will diminish as well. So that is 

what we are talking about. It allows us in our particular part of 

the country—that Texas has been resilient in this. 

But if this money starts leaving as we believe it will as a result 

of this proposed rule, then the domino effect of that will be felt on 

the lending side. 

Mr. SANCHEZ. It will be the same for Florida, sir. 

Mr. CANSECO. Thank you. Thank you very much. My time is up. 

Thank you very much. 

Chairwoman CAPITO. Thank you. As I announced earlier, we 

have a series of three votes and the subcommittee will recess until 

the end of the last vote. So I expect we will be back here somewhere between 11:25 and 11:30. Thank you again for your willingness to stay, I am assuming, and we will resume the hearing then 

because I know we have further questions. 

So, this hearing will recess subject to the call of the Chair. 

25 

[recess] 

Chairwoman CAPITO. If I could ask the witnesses just to go 

ahead and take their seats, we will resume. I am not certain if 

Mrs. Maloney is going to be returning. I kind of have a feeling 

maybe, maybe not. I am not sure. We are going to go ahead and 

start. 

Is that okay? Yes. 

Thank you all for your patience. And I know Mr. Pearce is on his 

way back and will have some questions, so we will start with Mr. 

Posey for 5 minutes for questioning, and we will resume the committee. The committee is out of recess. 

Mr. POSEY. Thank you very much, Madam Chairwoman. 

Ms. Wilkins, I must take exception to your comment that those 

who oppose the proposed rules have a vested interest in facilitating 

tax cheating. I am not thrilled about your use of the word ‘‘corrupt’’ 

and all the people you are pointing fingers at in your written testimony, either. 

But your advocacy for the Government of Venezuela—and ultimately someday maybe Iran, North Korea, and Cuba and the like— 

startles me, quite frankly—most of us here are trying to put America first. I have known people in other countries who have deposited money in our banks, and they are not, in your words, ‘‘tax 

cheats, drug dealers, human traffickers’’ or criminals of any kind. 

I am shocked that you would denigrate them like that. 

What do you think would happen to an honest, hardworking family in Venezuela, for example, who fears the oppression and instability there and they have money in our banks? What do you think 

would happen if Chavez’s administration found out about it? What 

would happen to those people? People who love democracy and freedom anywhere could suffer greatly from the betrayal of their confidence. 

In response, Madam Chairwoman, to a question asked by a 

Member earlier, I have asked the Treasury Department for a costbenefit analysis of the proposed regulation since they proposed it 

earlier this year and they have never provided it to me. I think I 

know why, and it is probably because they have never done it. 

Common sense says you should know the facts before you leave, 

even though testimony here elsewhere might lead you to believe 

otherwise. Not only will it drive capital out of U.S. banks that 

would otherwise have been able to stimulate our economy, help our 

small businesses. 

Mr. Cardwell, in your testimony, including your remarks before 

the IRS on May 18th, you said that this regulation could place 

some Florida-regulated banks in jeopardy and it could perhaps lead 

to some banks failing. You are saying to this committee that Treasury overregulation if fully implemented could lead directly to bank 

failures, if I am correct. And if so, would you explain? 

Mr. CARDWELL. Yes, Congressman. What happens is that the 

withdrawal of the deposits will hit some banks a lot harder than 

others because they have a large proportion of them and, therefore, 

lose only 20 or 30 percent of the NRA—if only 20 to 30 percent, 

generally, of NRA deposits are withdrawn, but they constitute 40 

or 50 or 60 percent of the total deposits, then you get into a liquidity crisis. 

26 

What happens is that the banks don’t have enough cash in the 

vault to pay off all the people who ask for their money to leave. 

And when that happens as a regulator, when a bank cannot come 

up with the money, the FDIC and the banking regulators have to 

close it. And that is a bank failure and the bank is gone and it 

didn’t come back. 

That is the liquidity problem that you have as a bank—it is simply not liquid enough to be able to pay all the deposit as often 

when it can’t—the regulator has to take it over. That is what the 

mechanism is. 

And I saw a significant number—I gave them in my testimony— 

they are in there—of banks in Florida. And I am sure there are 

ones in Texas and California and, frankly, they are anywhere 

where in other States, in New York and others, where you have 

substantial ethnic minorities because this is where—they are the 

ones that tend to have a higher proportion of the NRA deposits. 

And so, I believe that this is an issue that affects not only the 

States that are here today but other States as well. 

Mr. POSEY. Thank you. 

Mr. Sanchez, would you like to weigh in on that? 

Mr. SANCHEZ. Yes, Congressman Posey. I think that folks like 

Ms. Wilkins—and I am sure she is well-intentioned and she is very 

intelligent. But I would like her to meet with real people outside 

Washington, D.C., who have a compelling story; who are seeking 

the safety of their families; who are worried about the bureaucracies and their governments and their countries. 

And sadly, I wish it wasn’t that way, Mr. Posey, in South America in our hemisphere. But as Chairwoman Capito asked, the two 

countries we do have a treaty with are Mexico and Hugo Chavez’s 

Venezuela. 

And from a personal perspective, Mr. Posey, I can tell you, I wish 

you had met my father when he was alive. He lost everything in 

Cuba because one day, Fidel Castro changed the currency from the 

Cuban peso which was exchanged in the world markets to the new 

Cuban peso and everything was wiped out. Everything was wiped 

out in Cuba. My father, my mother had built a home, in 1957— 

they lost that. I think others and the government took it over. 

I think Ms. Wilkins needs to see stories like that, that realities 

are still happening in our hemisphere. And other South Americans 

learn from the Cuban experience: ‘‘That will not happen to me.’’ 

That is why a lot more of these NRA deposits are deposited in Florida than in other States, sir. 

Mr. POSEY. Wouldn’t your father have been a lot better off if you 

had the assurance of the U.S. Treasury that nobody would tell 

him? 

Mr. SANCHEZ. Yes, sir. Of course, right. 

Mr. POSEY. Thank you, Madam Chairwoman. I yield back. 

Chairwoman CAPITO. Mrs. Maloney has additional questions. 

Mrs. MALONEY. I would like to ask Gary Schwebel, can you 

elaborate on what you view will be the burden to your bank of complying with the proposed IRS rule? 

Mr. SCHWEBEL. Sure. Thank you for your question. A process has 

been explained as we review the procedure and having to report 

personal accounts. Right now, all the reporting is just by total NRA 

27 

nonresident alien accounts. That is divided by personal or even 

business accounts as our requirements have right now. 

But we would have to definitely generate some new systems, look 

at all not just on the technology side. But also, we would have to 

go back and understand really what information are you going to 

need, what the service is going to need? 

Mrs. MALONEY. What new infrastructure do you think you would 

need? 

Mr. SCHWEBEL. Definitely, it is going to require us to get some 

newer technology in reporting in order to meet the demand of all 

these accounts. We have thousands of account holders who are 

NRAs so what is it—if you are going to need more specific information—that are just providing a name and an address of someone, 

what is that going to be—what good will that do to you if you have 

people—in our particular case, Mexico—with the same name and 

the same address? 

There has to be something that you have to be able to link it to, 

and that is what still is even not clear from the service to tell us 

what good does it do just getting a name of someone if you are not 

going to be able to share it and to be able to really go back and 

check? 

Mrs. MALONEY. Okay. 

I would like to ask Thomas Cardwell, as a former regulator, I 

know you share the concerns of the Florida Bankers Association 

that the proposed rule will inhibit banks from access to foreign capital. The concern is that nonresidents will take their deposits to 

other countries that they believe can protect their confidential information. 

I understand that our Federal regulators are comfortable with 

the IRS and what they are doing with this rule. Can you explain 

where there might be a disconnect of the concern of the Florida 

Bankers and not the concern apparently of the regulators with 

whom we interact daily on any concerns with banking? 

Mr. CARDWELL. Right. As the IRS does not appear to have looked 

carefully at what the effect will be on actual independent individual institutions, and they think in a broad scope this really isn’t 

going to be heavy on banks. It is not the problem of banks in general. 

What we found is that when we look at the individual institutions that we regulated, and gave what I would call a type of stress 

test to what would happen if these types of deposits flowed out, 

that is where we saw the problems. 

As far as the Federal regulators are concerned about looking at 

this as well, it is interesting to note that I did talk to them about 

this. They have evidence of some concern. They had concern back 

in 2000 and one when this came before and opposed this and to be 

frank about it all of the data, as Gerry was saying, as to how they 

report it in there—it isn’t really clear even to them of what the effect would be. 

I know that for example, and just before I left in July, the FDIC 

was making inquiries of banks to get information because even 

they didn’t really know how it would affect them. So the mechanism is pretty clear and the real issue is, how much of it are we 

going to have? 

28 

Mrs. MALONEY. And Mr. Sanchez, the story about your father 

and the changing of the currency. When he lost his home, was it 

because they changed the currency and he didn’t have the money 

to pay off the home, or did the Castro government just come in and 

take everybody’s property? 

And even if you had the money to pay it off in the new currency—could you tell us more about that story? 

Mr. SANCHEZ. Yes, Congresswoman Maloney. The government 

confiscated my parents’ home— 

Mrs. MALONEY. They just came in and took it? 

Mr. SANCHEZ. And took it, right, in Havana. And, all Cubans lost 

whatever monies they had. I think that was the opening why many 

of these NRA deposits since then have been deposited. 

Obviously, we have had this record in the United States, it is 

1922, of not taxing NRA deposits specifically from South America 

in our hemisphere which is where my emphasis today. 

The Cuban experience, I think, was a wake-up call to everybody 

in the hemisphere that, that will not happen to me. So my parents— 

Mrs. MALONEY. Was there any warning when they went in and 

just changed the currency like that? 

Mr. SANCHEZ. No, there was not. Ernesto Che Guevara was the 

‘‘fed’’ chairman, I guess you can say at that time, and you know 

how qualified he was to head that up, ma’am. And he changed the 

currency and everyone was totally wiped out. 

Obviously, the kidnapping issue wasn’t prevalent in Cuba before 

then and at that time and it is an issue now in our hemisphere. 

And that, along with the economic collapses of the economies down 

there, are the two main reasons why folks from our hemisphere 

have their money deposited in an American bank. 

And my point to Treasury was, how many Americans have accounts down there? Not many, if any at all, ma’am. 

Mrs. MALONEY. Thank you. 

Mr. SANCHEZ. Thank you. 

Chairwoman CAPITO. Mr. Pearce for 5 minutes for questions. 

Thanks for your patience, Mr. Pearce. 

Mr. PEARCE. Thank you, Madam Chairwoman. 

Ms. Wilkins, we were kind of engaged in a discussion here earlier, where there was about a trillion dollars that more or less may 

be involved in you said in only a small fraction of that trillion 

would actually be something that would be subject to reporting. 

What percent can we quantify that, if anyone has a number? 

Ms. WILKINS. Unfortunately, we don’t, no. The way it is reported 

to the Federal Reserve is just whether or not it is another government or another bank. And then everything is sort of— 

Mr. PEARCE. Would you guess it would be 10 percent? 

Ms. WILKINS. I don’t have any idea— 

Mr. PEARCE. Mr. Sanchez, do you have an idea of some amount? 

Mr. SANCHEZ. As to how much of that trillion, sir, is— 

Mr. PEARCE. Would be reported? Ms. Wilkins said that a very 

small fraction would be reported of the trillion. And so, she is saying it is not such a big deal, and I was just trying to quantify how 

much of the trillion. 

Mr. Schwebel? 

29 

Mr. SCHWEBEL. Congressman, what we have done—in the research that we have done, my bank is an example. It is very significant, as I stated earlier. 

Our NRA deposits, the majority of those NRA deposits are personal accounts, which are the ones that this proposal is affecting. 

So if we have a 10 percent stress test, let us say—would leave the 

bank—and, like I said, we are fielding calls from our—but the idea 

that the 10 percent stress test on those deposits—we are talking 

about over $200 million that we would actually believe would leave 

the bank, and the multiples of that potential money to lending. 

Mr. PEARCE. Okay, I get it. Thanks. 

Ms. Wilkins, there is the thing that was recently uncovered in 

Florida where people are filling out—they are going out and getting 

dead people’s tax or their Social Security numbers and filing for refunds. 

The IRS promised that if you file for a dead person, then you can get $9,500, and if it is under $10,000, you get it back in 2 weeks. 

And so, people have been walking through the door and filling out 

fraudulent returns. And the IRS refuses to share the returns with 

the FBI. 

Has your association taken a position with respect to the IRS 

sharing information with the FBI on these fraudulent returns? 

Ms. WILKINS. Not on that particular instance, but we think there 

is a huge problem in the IRS confidentially rules that don’t allow 

the IRS to share information with bank regulators, for example, 

with the FCC, with law enforcement. We would love to see that— 

Mr. PEARCE. If you would take a look at that and see I would 

like to have your stated position on what the IRS is saying that 

they are not to give any of the documentation there because obviously it is a scam and it is—about 100 have been uncovered, and 

they say only 10 percent. So that is a billion dollars in Tampa Bay 

alone; just the one town. 

And so— 

Ms. WILKINS. Unfortunately, I think the IRS feels that they can’t 

legally share the information. That the internal revenue— 

Mr. PEARCE. What do you think? 

Ms. WILKINS. I think that is how the law is written. I think it 

needs to be changed. 

Mr. PEARCE. So the law is written so that our government is— 

that our government is rewriting the law to where they can share 

with foreign governments but our government is not rewriting a 

law where they can share with the FBI internally— 

Ms. WILKINS. Well, the tax treaties are law, and tax treaties say 

that we can share information. 

Mr. PEARCE. I understand. I am just saying that I see a moral 

complication there. 

Ms. WILKINS. I think it is very unfortunate that the IRS— 

Mr. PEARCE. I would appreciate your written statement on that. 

Ms. WILKINS. You got it. 

Mr. PEARCE. Did you all take a position a year or 2 years ago— 

there are 100,000 Federal employees who didn’t pay their taxes. 

Have you all taken a position on that? It is a very visible thing, 

100,000 people. It is almost a billion dollars in taxes that weren’t 

paid by Federal employees. 

30 

Did you all take a position on that? 

Ms. WILKINS. I don’t think we took a position on that particular 

issue but we— 

Mr. PEARCE. Would you take a position on that right now? 

Ms. WILKINS. Absolutely. We think everybody should pay their 

taxes. 

Mr. PEARCE. Does that include Mr. Geithner? Did you all take a 

position on Mr. Geithner? 

Ms. WILKINS. We think everybody should pay their taxes, and we 

think this rule will help— 

Mr. PEARCE. So would you come and testify to that effect, that 

Mr. Geithner should have paid his taxes? Would you state that ensuring compliance for other taxpayers and restoring Americans’ 

faith when they activated the tax system would apply to Mr. 

Geithner? 

Ms. WILKINS. Absolutely. 

Mr. PEARCE. Okay. And I appreciate that. 

I would note that when you say that no small part of the budget 

crisis originates in this area, that according to your numbers, $100 

billion is probably involved. That is your statement on the report. 

That would be 60 percent of the current deficit. 

Yet, when you referred to the amount that is actually going to 

be investigated, you call that a small fraction. You were saying 

that a small fraction of that trillion dollars would actually be involved. So a small fraction of something around 2 or 3 or 5 percent 

if you would work the numbers and what of interest it would be 

but then you would declare no small part as though at some point, 

your numbers ought to kind of be a little bit more correlated. 

Ms. WILKINS. There are two different issues: I think the debt crisis we are seeing in Europe, to a large extent, has to do with tax 

evasion; and what happened in Greece is because of the widespread 

acceptance of tax evasion that is in their culture. 

Mr. PEARCE. But we are talking about what you said about our 

budget crisis, and that is 6 percent according to your numbers and 

the last deficit was $1.5 trillion, and you used the number $100 billion that is 6 percent. 

I am just saying that you use one measuring stick in one part 

of your report and different measuring sticks—so just from up 

here, those discrepancies look large. And I see my time has expired. 

Thank you, Madam Chairwoman. 

Chairwoman CAPITO. Thank you, Mr. Pearce. 

That concludes our hearing. The Chair notes that some members 

may have additional questions for this panel which they may wish 

to submit in writing. Without objection, the hearing record will remain open for 30 days for members to submit written questions to 

these witnesses and to place their responses in the record. 

Additionally, I would like to ask that these statements be entered into the record: the American Bankers Association; the Conference of State Bank Supervisors; the Credit Union National Association; the Florida International Bankers Association; the Institute of International Bankers; the Texas Department of Banking; 

and the Independent Community of Bankers of America. 

31 

I would like to thank you all for your patience in waiting through 

our votes. I appreciate your efforts, your information, and your passion. 

And with that, I will say the hearing is adjourned. 

[Whereupon, at 12:01 p.m., the hearing was adjourned.] 

(33) 

A P P E N D I X 

October 27, 2011 

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