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FATCA and Decision Management: Turn Compliance into a Competitive Differentiator!

Francis Friedlander, IBM

Pan-Europe BPM and Decision Management

Garry Gomersall, Cognizant

Head of BPM Competency (EMEA)

Session #2995

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The Foreign Account Tax Compliance Act

FATCA is a new US law aimed to prevent tax evasion by US citizens and US residents through use of offshore accounts

Foreign financial institutions (FFIs) outside the US may enter into an agreement with US tax authorities

Participating FFIs must

Identify US accounts, account holders and entities

Withhold on recalcitrant account holders.

Report to the IRS

FATCA becomes effective in 2013

Identification of US persons must be effective on July 1rst, 2013

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Your Challenges with FATCA

ApplyFATCAprocedures

Huge impact on workload

Upgrade the existing processes

Specific due diligence procedures

Need to automate

complex decisions

Cope with a business logic that is ...

Complex

Ambiguous

Ever changing

Need transparency and

agility

Keep a good relationship with your client

Negative presumption,

investigation

Reporting to the l’IRS

Withholding

Need to understand and

justify

Ensure compliance

FATCA compliance

Comply with local regulations

Comply with your best

practices

Need for transparency

and adaptability

Integrate in your IT landscape

Integrate in the existing

applications: Account opening,

payments, etc

Need for a service

oriented approach

WebSphere Operational Decision Management and IBM BPM are key enablers for achieving these challenges

WebSphere Operational Decision Management and IBM BPM are key enablers for achieving these challenges

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WebSphere Operational Decision Management Principles and Benefits

Deploy business services

U.S. ClientIdentificationIdentification

batchIdentificationbatch

Shared services

Platform agnostic

Consistency and traceability

AccountopeningAccountopening

Controlled access

Decoupled from the application logic

Agility

Externalize & centralize the business logic

Rule Repository

Bring the IT and the lines of business together Rule Designer Decision Center

One single view on rules

Test, simulation, versioning

Cooperative governance

Express the business logic as rules

Business language

1 business rule = 1 WODM rule

Transparency

if the account is required to be treated as a US accountthen for each individual holder the FFI should collect a Form W-9

if the account is required to be treated as a US accountthen for each individual holder the FFI should collect a Form W-9

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Where Do BPM and Decision Management Add Value?

Indicia, thresholds, etcIndividual and entity

Orchestrate due diligence processes and automate decisions

Eligibility and calculation

BPM and Decision Management

#1 priorityDecision Management

Screen the transactions! Decision Management

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FATCA Specs and the Rule Repository Have an Identical Structure

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if the account holder is a documented U.S. person and the account is a financial accountthen the account shall be treated as a U.S. account because "Notice 2010-60 Section III B2a2, page 26" ;

if the account holder is a documented U.S. person and the account is a financial accountthen the account shall be treated as a U.S. account because "Notice 2010-60 Section III B2a2, page 26" ;

From among accounts not addressed in step 1, all account holders already documented as U.S. persons for other U.S. tax purposes (e.g., for purposes of chapters 3 and 61 of the Code) will be treated as specified U.S. persons, and those account holders’ financial accounts will be treated as U.S. accounts.

From among accounts not addressed in step 1, all account holders already documented as U.S. persons for other U.S. tax purposes (e.g., for purposes of chapters 3 and 61 of the Code) will be treated as specified U.S. persons, and those account holders’ financial accounts will be treated as U.S. accounts.

From among accounts not addressed in step 1, all account holders already documented as U.S. persons for other U.S. tax purposes (e.g., for purposes of chapters 3 and 61 of the Code) will be treated as specified U.S. persons, and those account holders’ financial accounts will be treated as U.S. accounts.

From among accounts not addressed in step 1, all account holders already documented as U.S. persons for other U.S. tax purposes (e.g., for purposes of chapters 3 and 61 of the Code) will be treated as specified U.S. persons, and those account holders’ financial accounts will be treated as U.S. accounts.

if the account holder is a documented U.S. personthen the account holder shall be treated as a specified U.S. person because "Notice 2010-60 Section III B2a2, page 26" ;

if the account holder is a documented U.S. personthen the account holder shall be treated as a specified U.S. person because "Notice 2010-60 Section III B2a2, page 26" ;

Understand and explain to the customer

Each FATCA rule becomes a WODM rule, expressed in a natural and declarative language

Specification from the IRSSpecification from the IRS WebSphere Operational Decision Management RuleWebSphere Operational Decision Management Rule

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The contextual filtering of the vocabulary guides rule authoring

The bottom-up construction of rules based on a FATCA vocabulary ensures consistency

Translate this vocabulary to any of the 15 supported languages, and you will be able to see and change the rules in these languages

The FATCA Dictionary

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Demonstration – Identification of U.S. Clients

U.S. Client

Other than U.S. Client

Potentially U.S. Client

New account opening processNew account opening process

Core banking applicationCore banking application

client &account data

client &account data

identificationengine

identificationrules

identification service

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Demo – Updating the Rules

U.S. indicia include: (1) identification of an account holder as a U.S. person; (2) a U.S. place of birth; (3) a U.S. address; (4) a U.S. telephone number (5) standing instructions to transfer funds to an account maintained in the United States; (6) a power of attorney or signatory authority granted to a person with a U.S. address; or (7) a U.S. “in-care-of” or “hold mail” address that is the sole address the FFI has identified for the account holder.

2011: Rule Analyst wrote indicia rule compliant with previous specs

2012: FATCA expert updates rule to add indicia introduced in new specification (Feb. 8, 2012)

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Turn FATCA into a Competitive Advantage

Inform your clients they have to prove they are not U.S. persons

Inform your clients they have to prove they are not U.S. persons

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if the transaction is a passthru payment to a recalcitrant holderthen withold 30% because "Notice 2010-60 Section III B2a2, page 26"

if the transaction is a passthru payment to a recalcitrant holderthen withold 30% because "Notice 2010-60 Section III B2a2, page 26"

Turn FATCA into a Competitive Advantage

Take advantage of WODM traceability and justify youractions

Take advantage of WODM traceability and justify youractions

Take advantage of WODM simulation to predict and plan your due diligence effort

Take advantage of WODM simulation to predict and plan your due diligence effort

if the client is a US expatriatethen propose an EXPAT appointment

if the client is a US expatriatethen propose an EXPAT appointment

Turn the facts FATCA processes tell you about your client into insight and into cross-sell opportunities

Turn the facts FATCA processes tell you about your client into insight and into cross-sell opportunities

Germany Spain

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BPM Framework for Risk & Compliancebased on IBM Business Process Manager

BPM Framework for Risk & Compliancebased on IBM Business Process Manager

Decision Framework for Risk & Compliancebased on WebSphere Operational Decision Management

Decision Framework for Risk & Compliancebased on WebSphere Operational Decision Management

RulesetsRulesets

Front-End ApplicationsFront-End ApplicationsRisk & Compliance ApplicationsRisk & Compliance Applications

Customer Classifications

Customer Classifications

PortfolioHealthcheck

PortfolioHealthcheck . . .. . .

Backend Banking SystemsBackend Banking Systems

Current AccountsCurrent Accounts Loans & MortgagesLoans & MortgagesDepositsDepositsTrading AccountsTrading Accounts Customer DBCustomer DB

Customer Onboarding

Customer Onboarding

Account Opening

Account Opening . . .. . .

CustomerClassification

CustomerClassification

OperationAuthorization

OperationAuthorization

KYC obligationsKYC obligations Risk AssessmentRisk Assessment

AMLAML

FATCA screening

FATCA screening

MiFIDMiFID

FATCA withholding

FATCA withholding

Basel II & Basel III

Basel II & Basel III

Other FATCAs

Other FATCAs

Process DefinitionsProcess Definitions

Customer OnboardingProcesses

Customer OnboardingProcesses

Account Opening Processes

Account Opening Processes

FATCADocumentation Processes

FATCADocumentation Processes

MiFID ProcessesMiFID Processes

Other Generic Processes

Other Generic Processes

. . .. . .

Reference Datamodel

Take Advantage of FATCA to Build a Resilient and Extensible Risk and Compliance Architecture

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Our Unique Value Proposition

Packaged approaches

Solution built withIBM BPM and WODM

FATCA asa commodity

An agile,tansparent,and managedFATCA

FATCA Due Diligence

Comply!

TimeKYC, AMLOther FATCAs

Compliance Architecture

Leverage!

Turn FATCAinto an advantage

Smart FATCA

Differentiate!

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Thank You!