In many jurisdictions such as the U.S., there are laws dictating when a financial institution must consider a customer’s financial account to be dormant. Each state in the U.S. has laws that govern when accounts are considered inactive and/or abandoned. However, what if you are applying FATCA in a jurisdiction without such clear laws or regulations?
FATCA Regulations
FATCA regulations provide tiered guidance in defining a dormant account for accounts that are not a cash value insurance contract or an annuity contract. To decide if an account should be labeled dormant, you first look to local laws and regulations. Does local law dictate when a Foreign Financial Institution (FFI) should label an account dormant?
If no, then you next look at the FFI’s internal written policies and procedures. Does this internal company document dictate when this FFI should label an account dormant?
If no, then you rely on FATCA regulations:
The account holder has not initiated a transaction with regard to the account or any other account held by the account holder with the FFI in the past 3 years; AND
The account holder has not communicated with the FFI that maintains such account regarding the account or any other account held by the account holder with the FFI in the past 6 years.
The FATCA regulations allow a dormant account to become active. The account will cease to be considered dormant when:
The account holder initiates a transaction with regard to the account or any other account held by the account holder with the FFI; OR
The account holder communicates with the FFI that maintains such account regarding the account or any other account held by the account holder with the FFI; OR
The account ceases to be a dormant account under local laws or regulations; OR
The account ceases to be a dormant account under the FFI's internal written policies and procedures.
Policies & Procedures
If your FFIs are in jurisdictions with robust financial laws and regulations, there should not be a need to establish a unique definition of dormant account in your written FATCA policies and procedures (P&Ps). However, if you have FFIs in a jurisdiction with laws/regulations that do not define a dormant (or inactive or abandoned) account, I recommend you establish a definition in your FATCA P&Ps.
You may track the FATCA regulations definition, use the definition from one of your largest markets or create other criteria that make sense for your operations. Adding the definition will ensure employees are consistent in their treatment of customer accounts. This is especially important in the event it is necessary to apply FATCA withholding rules to a dormant account.
For assistance, please contact me via my contact page or at elizabeth@elizabethmcmorrowlaw.com.