Under FATCA, any bank anywhere in the world serving US citizens will be required to report on US account holders and disclose their balances, receipts, and withdrawals to the US tax authorities or face a 30% withholding tax on financial assets held in the US by said bank.
Obviously, the goal is to increase tax compliance of American owned bank deposits abroad, but what it in effect does is attempting to regulate sovereign (banking) jurisdictions.
This does not sit well with many countries, though few have objected on moral grounds. Some countries, such as the Bahamas, simply lack the legal framework to comply. Under FATCA The United States Internal Revenue Service (IRS) shall conclude InterGovernmenal Agreements to facilitate automatic exchange of information with foreign tax authorities, but the Bahamas do not have tax authorities because they have no income tax.
Instead the Bahamas has to make a decision whether to take the individual route through foreign financial institution agreements (FFI) or comply on a collective basis. The IRS obviously prefers a collective approach, otherwise some banks might opt-out of FATCA.
Panama is facing a similar problem. Although we do have tax authorities here (as well as an income tax), Panama has nothing to gain with exchange of information because of its territorial tax system where all forms of foreign income are tax exempt. The Panamanian government already concluded many tax information exchange agreements but the regulatory framework is rudimentary at best. There are also many legal and constitutional questions regarding such agreements that remain unanswered. So far Panama has not exchanged any information based on these treaties but there are no guarantees it will remain that way.
In the end, the costs for the US economy will be higher than the gains. Especially American expats who already experience difficulties opening a bank account will find it impossible should FATCA be enacted. The gains will not justify the costs of compliance and the United States are risking financial isolation.
Still I would love to see a principled politician (oxymoron) stand up and say:”If the US government wishes to increase tax compliance, why not simply monitor all in and outgoing transactions and stay out of our business.”