CCB Cross-Border Compliance Issues 3 — Questions and Answers
Question 1: Under the Foreign Account Tax Compliance Act (FATCA), what obligation does a foreign financial institution (FFI) have regarding US account holders?
- FFIs must refuse service to all US citizens
- FFIs must report US account holder information to the IRS or withhold 30% on certain US-source payments (Correct answer)
- FFIs must convert US accounts to non-interest-bearing accounts
- FFIs must obtain IRS pre-approval before opening any account
Correct answer: FFIs must report US account holder information to the IRS or withhold 30% on certain US-source payments
FATCA requires FFIs to identify and report US account holders' financial information to the IRS or face a 30% withholding tax on certain US-source income.
Question 2: A company operating in a country with strict data localization laws (e.g., Russia's Federal Law 242-FZ) must ensure that:
- All employee data is processed exclusively in the United States
- Personal data of Russian citizens is stored on servers physically located in Russia (Correct answer)
- The company obtains a special EU adequacy decision before processing data
- Data is encrypted using only government-approved algorithms globally
Correct answer: Personal data of Russian citizens is stored on servers physically located in Russia
Russia's Federal Law 242-FZ requires that personal data of Russian citizens be stored and initially processed on databases located within Russian territory.
Question 3: Which international standard provides a framework for anti-bribery management systems that organizations can implement to demonstrate cross-border compliance efforts?
- ISO 9001 (Quality Management)
- ISO 37001 (Anti-Bribery Management Systems) (Correct answer)
- ISO 27001 (Information Security Management)
- ISO 31000 (Risk Management)
Correct answer: ISO 37001 (Anti-Bribery Management Systems)
ISO 37001 is the international standard specifically designed for anti-bribery management systems and is recognized by enforcement authorities worldwide.
Question 4: A US company's foreign subsidiary in Country Y is subject to a local law that requires paying a 'facilitation fee' to customs officials to release goods. Under the FCPA, this payment:
- Is fully permitted as a facilitating payment exception under the FCPA
- May qualify for the narrow FCPA facilitating payments exception only if it expedites a routine governmental action (Correct answer)
- Is always illegal under FCPA with no exceptions
- Is legal if the subsidiary's CEO approves it in writing
Correct answer: May qualify for the narrow FCPA facilitating payments exception only if it expedites a routine governmental action
The FCPA provides a narrow exception for facilitating payments made to expedite routine, non-discretionary governmental actions, though this exception has been narrowly interpreted.
Question 5: The Common Reporting Standard (CRS) developed by the OECD requires participating jurisdictions to:
- Share military and defense procurement data between governments
- Automatically exchange financial account information between tax authorities of member countries (Correct answer)
- Harmonize corporate tax rates across all OECD member states
- Require companies to file a single global tax return
Correct answer: Automatically exchange financial account information between tax authorities of member countries
CRS is an OECD framework under which participating countries automatically exchange financial account information to combat global tax evasion.
Question 6: A supply chain compliance audit reveals that a third-party supplier in Southeast Asia uses forced labor. Under US law, which provision most directly prohibits importing goods made with forced labor?
- Foreign Corrupt Practices Act Section 30A
- Tariff Act of 1930, Section 307 (Correct answer)
- Trade Agreements Act of 1979
- Export Administration Regulations Part 736
Correct answer: Tariff Act of 1930, Section 307
Section 307 of the Tariff Act of 1930 prohibits importing goods manufactured wholly or in part with convict, forced, or indentured labor into the United States.
Question 7: When conducting cross-border due diligence on a target company in an emerging market, which red flag most directly indicates potential FCPA exposure?
- The target has more than 50% revenue from government contracts
- The target uses undisclosed third-party agents to win government contracts and cannot document their fees (Correct answer)
- The target's CFO is a foreign national
- The target operates in a country with a Transparency International CPI score below 50
Correct answer: The target uses undisclosed third-party agents to win government contracts and cannot document their fees
Undisclosed third-party agents receiving unaccounted fees to secure government contracts is a classic FCPA red flag indicating potential bribery through intermediaries.
CCB Cross-Border Compliance Issues 3
Under the Foreign Account Tax Compliance Act (FATCA), what obligation does a foreign financial institution (FFI) have regarding US account holders?