Financial Services: USA PATRIOT Act Regulatory Push Threatens Economies of Small and Developing Countries

Author:Mr Nigel Morris-Cotterill
Profession:Silkscreen Consulting

The term "Regulatory push" has been coined by Silkscreen Consulting to describe the phenomenon of regulators in one country forcing their style of regulation onto financial services businesses in another country.

Amongst countries of a similar size, wealth and state of regulatory development, this is not a significant problem. However, where the regulation is imposed onto a small or developing country there is a grave risk of serious damage to the economic wellbeing of the more vulnerable.

The effects of regulatory push has been demonstrated in a slightly oblique way for some time. The USA, in particular, has entered into many Mutual Legal Assistance Treaties (known as MLATs) with all manner of countries. These treaties permit enforcement agencies in each country to co-operate without, in some cases, the more common formalities of, say, court orders. In effect, the MLAT says that the enforcement agency receiving the request will treat the investigation as its own. However, to avail themselves of the benefits of the treaty (which will speed, ease and render less costly an otherwise difficult cross-border investigation) there are formalities that have to be met.

There is frequent criticism by enforcement agencies in the US that certain countries do not assist as readily as they might. All too often, the finger points at so called "tax havens" and there is a pejorative implication - occasionally spilling over into open allegation - that the reason for the supposed lack of co-operation is that it is not in the interest of the "tax haven" to have its customers under detailed investigation.

However, on examination, the point is much more subtle - and demonstrates that this allegation is playing politics more than based in substance.

The number of requests received by so called tax havens is substantial. But they have a small population and a the cost of maintaining a large department to deal with international requests is simply too high. So long as requests are properly formatted, then there is duty to respond within the timescales agreed in the MLAT. However, where there are errors or omissions in the forms, then the recipient is entitled (indeed, under many MLATs must) reject them. What the countries making the requests wants is that the receiving country simply telephones them and tells them what is wrong and how to fix it. What the receiving country says is that they do not have the resources to correct sloppy work by the requesting country...

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