Banking & Financial Institutions

Banking lawyers represent domestic and international providers and consumers of debt financing. Their work embraces financial institution incorporation; corporate and private lending, financing and refinancing; cross-border and international banking transactions; financial leasing; loan syndications and participations; preparation of real and personal property security documents; trade finance; negotiable instruments; sovereign risk lending; gold and project loans; interbank transactions; credit card facilities, electronic banking, payment and clearing systems; and regulatory and corporate governance matters.


The incorporation of the US Foreign Account Tax Compliance Act into Canadian law proved to be very costly for large Canadian financial institutions and an expensive administrative nightmare for smaller ones. On June 19, 2014, Parliament passed the implementing legislation. Its main purpose is to track down Americans who are avoiding their obligations to pay US tax on their worldwide income. The law requires most Canadian financial institutions to report the financial activities of their American clients to the Canada Revenue Agency, who will then provide it to the IRS pursuant to existing agreements with the US.

The upshot is that FATCA projects have involved or likely will involve a significant internal restructuring for many organizations. Most have been or will be aimed at better aligning an institution’s tax function and its operating structure with the goal of improving communication between in-house counsel, the tax department, and the client relationship department and its managers. In-house tax professionals will have to start by familiarizing themselves with the Inter-Governmental Agreements, whose 47 pages are the foundation of the Canadian legislation. They will also have to achieve some degree of familiarity with the 500 pages that constitute the US Treasury’s regulations under FATCA. Still, most major financial institutions seemed to be prepared as they sought to get ahead of the curve of what has been expected for some time. But they did so at tremendous expense, spending tens if not hundreds of millions of dollars building systems to accommodate their FATCA responsibilities and to educate staff. Smaller institutions like credit unions, that may lack the necessary resources for compliance, were particularly vocal in their opposition to FATCA. The Board of Directors of Vancouver City Savings Credit Union, known as Vancity, for example, opposed FATCA’s introduction to Canada, citing the legislation’s “wide-reaching and potential negative effect on personal privacy and freedom, due process, financial well-being and national sovereignty.”

Included in the numerous challenges cited by these institutions was the difficulty of preserving client relationships in the face of the mandated request for further information from them. As well, most of these institutions have had to adjust IT systems to track and monitor FATCA-related information, change member application processes to cover the required information, educate all staff and provide extra-training for front-line staff. Perhaps the most difficult task is reconciling FATCA with Canadian privacy laws. Many credit unions have engaged third party consultants to formulate a strategy for complying with FATCA without breaching privacy laws. Then there is the dilemma of the institutions that have been caught off-guard, not realizing they might be caught by FATCA’s complicated provisions. Examples include some insurance companies, corporations that have a captive insurer, and portfolio and fund managers, especially pooled investment fund managers.

Non-compliance is not a realistic option as the Canadian legislation provides for significant penalties in such cases. Any hope for relief lies in US Senator Rand Paul’s efforts to introduce legislation that will repeal FATCA. He has already promised to filibuster any FATCA-related tax treaties over privacy and due process concerns.

As well, FATCA opponents, including the Canadian-based Alliance for Defence of Canadian Sovereignty, are supporting a court challenge to US citizenship laws, which they say arbitrarily impose US citizenship in a wide variety of circumstances, including on “border babies” serendipitously born to Canadian or other foreign parents in a US hospital. The argument is that the US does not have the right to impose US citizenship on Canadians without their consent.

In Canada, affected taxpayers sought an injunction that would have prevented the automatic exchange of information between Canada and the US pursuant to FATCA and the US–Canada Intergovernmental Agreement (IGA). Both the Federal Court and the Court of Appeal refused to grant the injunction, but the rulings did not deal with the constitutionality of the IGA or the Canadian implementing legislation. A trial on the constitutionality issue is scheduled for late 2016. Until that time, it appears that the exchange of information will take place as planned.