[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


 
                    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

                               ----------
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
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

                   Larry C. Lavender, Chief of Staff
       Subcommittee on Financial Institutions and Consumer Credit

             SHELLEY MOORE CAPITO, West Virginia, Chairman

JAMES B. RENACCI, Ohio, Vice         CAROLYN B. MALONEY, New York, 
    Chairman                             Ranking Member
EDWARD R. ROYCE, California          LUIS V. GUTIERREZ, Illinois
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JEB HENSARLING, Texas                RUBEN HINOJOSA, Texas
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
THADDEUS G. McCOTTER, Michigan       JOE BACA, California
KEVIN McCARTHY, California           BRAD MILLER, North Carolina
STEVAN PEARCE, New Mexico            DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         GREGORY W. MEEKS, New York
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             JOHN C. CARNEY, Jr., Delaware
FRANCISCO ``QUICO'' CANSECO, Texas
MICHAEL G. GRIMM, New York
STEPHEN LEE FINCHER, Tennessee



























                            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
    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


                    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.
    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. 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 1\1/2\ 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.
    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.''
    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 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 immigration; 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.
    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.
    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 
accounts 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 
cross-border trade. In 2010, Hispanic Business Magazine ranked 
IBC as the number one Hispanic-owned financial institution in 
the Nation.
    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.
    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 information 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.
    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.
    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 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.
    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 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 happening. 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 cooperate 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 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--
    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.
    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 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.
    [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 
cost-benefit 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.
    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 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?
    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?
    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.
    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.
    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.]
























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                            October 27, 2011

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