Capitalism in #India: Ratan Tata’s legacy | The Economist

India should learn from the career of its most powerful businessman

Capitalism in India

Ratan Tata’s legacy

Dec 1st 2012 | from the print edition

IT IS easy to understand why Ratan Tata, who retires as chairman of Tata Sons on December 28th, is important. The conglomerate he runs is India’s largest private-sector concern, accounting for 7% of the stockmarket. It pays 3% of all India’s corporate tax and 5% of all its excise duty. You can live in a house, drive a car, make a phone call, season your food, insure yourself, wear a watch, walk in shoes, cool yourself with air-conditioning and stay in a hotel, all courtesy of Tata firms. Polite, elegant and reserved, Mr Tata has been the king of India’s corporate scene for the past two decades. Indians look up to him in much the same way that Italians once looked up to Gianni Agnelli at Fiat or Americans did to J.P. Morgan.
In some ways, though, the reverence for Mr Tata is odd. He is not a geekish entrepreneur, like the high-tech wizards in Bangalore. He is an old-style dynast—the fifth generation to run his 144-year-old firm. He took time to grow into the job: when he took the reins in 1991 he struggled to assert himself. Even today, critics accuse him of being regal and secretive—and snipe that the group’s most successful business, TCS, its technology arm, is the one he left most alone.
Nor can Tata be hailed as a financial paragon. After a wave of takeovers during the past decade, its return on capital is mediocre. The new boss, Cyrus Mistry, who comes from outside the family (Mr Tata has no children), may have to reorganise something of a ragbag conglomerate: alongside the stars like TCS or Jaguar Land Rover, a luxury carmaker, there is also a long trail of flabby and indebted businesses (see article).
And yet, for all that, Mr Tata’s career carries two powerful lessons for an introverted and corruption-obsessed India. First, that India has far more to gain than lose from the outside world. And second, that a company can be a force for progress.
The hereditary ruler as hero
Globalisation came easily to Mr Tata, who trained as an architect in America. Even today he would rather discuss car designs with young engineers than read management reviews. That education, and a streak of perfectionism, have served him well. He realised early on that as India’s economy opened in the 1990s its firms would have to raise their standards, benchmark themselves against the very best, and if necessary buy competitors. His foreign takeovers included Corus, a giant British steel firm, and Jaguar Land Rover. The first has been a financial disaster, the second a triumph. But both showed that Indian firms—and those from other emerging economies—deserve their place at the top table of global business.
Indians would love to claim that this lesson has been thoroughly learnt. Names like Mittal and Infosys are known all round the world. But India remains a country with too many protected industries, from shopping to coal mining and newspapers. Mr Tata himself was not always as keen to open up at home as he was to venture abroad. But for the most part he was a firm advocate of globalisation.
The other lesson from Mr Tata has to do with integrity. His group has not entirely avoided scandals. It faced a rogue trader in the early 2000s, and did not completely escape the furore over the bent award of telecoms licences in 2008. No doubt somewhere today, in this firm with $100 billion of sales, funny business is taking place. Rivals grumble that Tata’s current respectability masks a past spent toadying up to politicians in the years before and after India’s independence in 1947. But the fact is that Mr Tata, in public, and by widespread repute in private too, has stood against corruption. His attitude towards India’s political class has been one of polite distance. He has long attacked what he calls “vested interests”—code for crony capitalism, in which firms make profits by buying favours from officials and politicians.
Looking in the mirror
Crony capitalism has seldom seemed more of a threat to India. Back in the 1990s, the country’s leading firms—technology companies as well as Tata Sons—went to extraordinary lengths to be squeaky-clean. Family firms, which still control about 40% of India’s stockmarket profits, professionalised their management and listed their shares. But over the past decade things have gone backwards. The new money has been made in “rent-seeking” sectors, such as mining and infrastructure, with a lot of government involvement and little foreign competition; some mouth-wateringly large corruption scandals have occurred there. Too many family firms have lost interest in improving governance. Some, unwilling to relinquish control by issuing shares, have piled on debt, and now that they are in trouble, are bullying state-run banks to “extend and pretend”—roll over their loans rather than write them down. Such firms thus become state-supported zombies.
The Indian public is fed up. Anti-corruption agencies are newly vigilant. Business has become a hall of mirrors in which fingers point everywhere. Suspicion is so pervasive that even clean officials are terrified to prod along vital projects by clean companies for fear of being accused of favouritism.
The problems in parts of the private sector have thus become a macroeconomic issue. Investment by private companies has slumped—the main reason why economic growth has slowed from 10% to about 5.5%.
It is easy to blame all this on corrupt politicians. But somebody is paying the bribes. By standing out against graft so publicly and consistently, Mr Tata was ahead of his time. The irony is that by doing so he was preparing the way for the end of businesses such as his own. As India’s economy modernises and becomes more open and transparent, the rationale may disappear for sprawling, hereditary conglomerates, which use the bonds of kin to deal with a shortage of trust, and pool their managers and capital because the outside markets for these resources do not work well.
To that extent, Mr Tata may come to be seen as both the last of one breed of feudal corporate leaders—and the first of another more open bunch. Anybody who cares about India’s future, especially its billion consumers, should hope that the transition picks up speed again.

from the print edition | Leaders

Capitalism in India: Ratan Tata’s legacy | The Economist

Gold investment should double on persisting economic woes - Coutts - GOLD ANALYSIS - Mineweb.com Mineweb

Gold investment should double on persisting economic woes - Coutts

Coutts, the private banking arm of RBS, says investors should double the amount of gold they hold as the value of paper currency diminishes along with the prospects for global economic growth.

Author: Rujun Shen
Posted: Wednesday , 10 Oct 2012 

SINGAPORE (Reuters)  - 

Investors should double the amount of gold they hold as the value of paper currency diminishes along with the prospects for global economic growth, said a senior executive at Coutts, the private banking arm of Britain's Royal Bank of Scotland.

Ideally, investors should aim to have 7 to 8 percent of their assets in gold, above the wealth management industry's average of 3 percent, Gary Dugan, Coutts' chief investment officer for Asia and Middle East, told Reuters.

"What's happening in precious metals is that they are becoming more mainstream," Dugan said, adding that ten years ago investors rarely held any gold in their portfolios.

"Some of the clients ask where gold prices are going, and I say don't even think about prices. It's a store of value."

PHYSICAL VS ETFS

Spot gold perched above $1,760 an ounce on Wednesday, down from an 11-month high of $1,795.69 struck last week on support from recent stimulus measures taken up by key central banks.

Dugan expected gold prices to rise towards $2,000 in the next several months, supported by short to medium-term factors including purchases by emerging-market central banks.

Gold's appeal is also likely to increase as the world economy has become more volatile and unstable after decades of usually steady growth, and there appears to be no swift solution to the structural problems emerging in the U.S. and European economies, Dugan said.

"We are going back to normality, and the normality is that precious metals are the core part of your portfolio," he added.

Coutts said its preferred method of gold investment is exchange-traded products, which provide low-cost and liquid ownership of physical metal secured in underground vaults.

But 15 to 20 percent of its clients prefer to hold their gold in a vault they trust, rather than putting money in gold-related financial instruments, as they have little trust in the financial system, Dugan said.

"One client literally took delivery in a van, because he did not trust any bank to store his gold for him," he said.

Holdings of gold ETPs reached a record high of 74.76 million ounces by Oct. 8, up 6 percent over the past two months.

(Additional reporting by Anshuman Daga in SINGAPORE; editing by Miral Fahmy)

read the article online here: Gold investment should double on persisting economic woes - Coutts - GOLD ANALYSIS - Mineweb.com Mineweb

Doug Casey on Profiting from Government Stupidity - Casey Research

Shortly after the conclusion of the Casey Research/Sprott, Inc. Navigating the Politicized Economy investor summit, Louis James sat down with Doug Casey to assess the conference and provide insights on how investors can win in today's distorted marketplace.

Here are some quotes from the interview.

On the USA and its military:

Americans love their military. It seems to be the only part of the government that at least has the façade of being competent and honest. Of course, it's actually not that competent – it's about as competent as a heavily armed version of the post office. And is it honest? Well, maybe the average soldier is, but once you get up to the supply-sergeant level, not very much; and once you get up to the Pentagon level, not at all.

On the current bond bubble:

They've driven interest rates to basically zero levels – actually negative levels in some European countries, which is pretty unbelievable. I learn something new every day; I thought that negative interest rates were almost cosmically impossible, but I've learned different in recent months. This is creating huge distortions in the way people react and so forth. And of course, the biggest one of all is the bond market, which is going to collapse at some point. The time to have bought bonds was in the early '80s, when they were yielding 12, even 15%. Now they are yielding 0%, and everybody's buying them. It's unbelievable.

And the future bubble in Gold and Silver: 

I'd say it's a certain gold bubble. Looking at the bright side of the government doing all these stupid things, they will create other bubbles. It seems inevitable to me that gold and silver are going to be among them, because they are the only financial assets – and that's what they are, financial assets – that are not simultaneously somebody else's liability.This is totally untrue of bonds. Bonds are a triple threat to your welfare. You've got the interest-rate threat. Interest rates could only go up at this point since they're at zero. You've got the credit-risk threat. Will they be able to pay back the dollars, or euros, or yen, or whatever that they are in? And you've got the currency threat. Will the yen or dollars or euros or whatever be worth anything, even if they pay them back to you? I don't see why, but everybody's buying bonds. Institutions are buying them, the average guy is buying them – trying to reach for 2% in yield when real inflation is probably running 5-6% per year. Who knows what it really is – the US is becoming like Argentina, where they disguise these numbers and don't admit the reality.

The whole interview can be seen here: Doug Casey on Profiting from Government Stupidity - Casey Research

Interest on the US National #Debt now takes 9% of federal revenue

Richard Russell had this to say on his Daily Letter:

"Speaking of the debt, interest on the national debt now takes 9% of every dollar of federal revenue. By 2040, interest will take up 58% of every dollar of federal revenue. By 2060, interest will take up 100% or ALL of federal revenue.

"The magic of compounding. By 2040, the government will annually devote four times as much in interest as it will to education, R&D and infrastructure combined."

The Pivot to #Africa - By Rosa Brooks | Foreign Policy

Africom's activities might cause heartburn for those committed to viewing U.S. military power strictly through a war-fighting lens. Consider this snapshot of recent activities undertaken by or with the assistance of Africom:

• Construction of school classrooms in Chad
• Research on the "Association of Sexual Violence and Human Rights Violations With Physical and Mental Health in Territories of the Eastern Democratic Republic of the Congo"
• Cattle vaccination in Uganda, designed to provide healthy cattle to internally displaced civilians returning to their homes
• Activities to combat drug trafficking through the West Africa Cooperative Security Initiative
• Construction of closed wells with solar-powered pumps in Senegal
• Establishment of an East African Malaria Task Force to combat "one of the biggest killers on the continent: the mosquito"
• Development of a news and information website aimed at local audiences in the Maghreb region, featuring "analysis, interviews and commentary by paid Magharebia correspondents"
• Construction of a maternal- and pediatric-care ward at a Ugandan hospital
• Collaboration with Botswana's military to "promote Botswana's national program of education, HIV screening and male circumcision surgeries"
• Cooperation with the Sierra Leone Maritime Wing and Fisheries Ministry that "result[ed] in the apprehension of an illegally operating fishing vessel"

The Pivot to Africa

Circumcision, mosquito killing, and other strange doings of Africom.

BY ROSA BROOKS | AUGUST 16, 2012

"A squirrel dying in front of your house may be more relevant to your interests right now than people dying in Africa," Facebook founder Mark Zuckerberg is said to have remarked. For most Americans occupying the now-now-now world of Facebook, this probably feels apt. And until just over a decade ago, Zuckerberg's statement might equally have applied to Pentagon strategists. A 1995 strategy document from the Defense Department was hardly less blunt: "[U]ltimately we see very little traditional strategic interest in Africa."
That began to change in 1998, when U.S. embassies in Kenya and Tanzania were bombed by al Qaeda, and the 9/11 attacks accelerated the change. If terrorism thrives in failed states and ungoverned spaces, it was time to rethink the U.S. approach to Africa, which boasts more than its fair share of basket-case states. By 2006, Africa had been bumped up to "high priority" in the U.S. National Security Strategy: "our security depends upon partnering with Africans to strengthen fragile and failing states and bring ungoverned areas under … control."
As the Pentagon struggles to adapt to a world in which security threats come from increasingly diffuse sources -- and the role of the military is consequently less and less clear-cut -- Africa has become a key laboratory for experimentation and change.
In 2007, the United States created a new geographic combatant command to cover Africa. Africa Command, or Africom, was in part an effort to rationalize a previously incoherent administrative division of labor, in which responsibility for Africa had been divided among three other commands. But it was also a bold experiment: a new kind of command, designed to reflect the Pentagon's emerging understanding of the more complex security environment.
In 2005, Defense Secretary Donald Rumsfeld had signed Directive 3000.05, which declared that "stability operations" would be a core military mission with "priority comparable to combat operations." From its inception, Africom was structured with stability operations, including conflict prevention, in mind. Unlike other combatant commands, Africom was expressly designed to take a "whole-of-government" approach, with senior civilian officials from the State Department, the U.S. Agency for International Development, and other agencies fully integrated into the command's decision-making structure.
This would, in theory, enable conflict prevention in Africa to be addressed holistically, rather than through a traditionally narrow military lens. With its integration of civilian and military power, Africom would not draw sharp or arbitrary distinctions between defense, development, and diplomacy; all three would go hand in hand. And this, President George W. Bush declared, would help "bring peace and security to the people of Africa and promote our common goals of development, health, education, democracy, and economic growth."

The resulting range of Africom's activities might cause heartburn for those committed to viewing U.S. military power strictly through a war-fighting lens. Consider this snapshot of recent activities undertaken by or with the assistance of Africom:

• Construction of school classrooms in Chad
• Research on the "Association of Sexual Violence and Human Rights Violations With Physical and Mental Health in Territories of the Eastern Democratic Republic of the Congo"
• Cattle vaccination in Uganda, designed to provide healthy cattle to internally displaced civilians returning to their homes
• Activities to combat drug trafficking through the West Africa Cooperative Security Initiative
• Construction of closed wells with solar-powered pumps in Senegal
• Establishment of an East African Malaria Task Force to combat "one of the biggest killers on the continent: the mosquito"
• Development of a news and information website aimed at local audiences in the Maghreb region, featuring "analysis, interviews and commentary by paid Magharebia correspondents"
• Construction of a maternal- and pediatric-care ward at a Ugandan hospital
• Collaboration with Botswana's military to "promote Botswana's national program of education, HIV screening and male circumcision surgeries"
• Cooperation with the Sierra Leone Maritime Wing and Fisheries Ministry that "result[ed] in the apprehension of an illegally operating fishing vessel"

Most of these activities sound laudable. Few would strike the average American as "military" in nature.
Of course, Africom also conducts or facilitates a wide range of more traditional military activities, including various counterterrorism programs run through Operation Enduring Freedom- -Trans Sahara and a range of efforts to help capture Lord’s Resistance Army leaders in Central and East Africa. In 2011, Africom coordinated its first large-scale military operation when President Obama approved Operation Odyssey Dawn, which aimed to enforce the UN-sanctioned no-fly zone in Libya and eliminate the Libyan government’s ability to threaten civilians.
Whether Africom represents a viable new model for the future of the U.S. military naturally depends on your point of view. To some, the Africom approach is downright dangerous. Military traditionalists are apt to view it with suspicion -- as a dangerous slide away from the military's core competencies and the very apotheosis of "mission creep." Many civilian observers are equally skeptical, viewing Africom as further evidence of the militarization of U.S. foreign policy -- and of the devaluing and evisceration of civilian capacity. "The Pentagon is muscling in everywhere," complained former State Department official Thomas Schweich in a Washington Post op-ed: "[W]hy exactly do we need a military command [in Africa] running civilian reconstruction, if not to usurp the efforts led by well-respected U.S. embassies and aid officials?"

Such views are understandable but shortsighted. The Pentagon is right to see poverty, underdevelopment, disease, repression, human rights abuses, and conflict as likely drivers of future security threats to the United States. And if the Defense Department's job is to protect the United States, that mission must surely include preventing threats.
In some imaginary utopia, the military might work hand in hand with capable, well-resourced civilian agencies, neatly dividing up roles and leaving the "civilian" tasks to the civilians. But that's not the world we live in. Yes, the civilian sector has been eviscerated by two decades of underresourcing and has consequently struggled to attract and retain personnel with key skills. But given today's political climate, this situation is unlikely to change -- at least not in the foreseeable future. Congress shows zero interest in substantially boosting the foreign affairs budget. That's a crying shame, but it is what it is.
Inevitably, this means that the Defense Department will have to step into the breach. How could it responsibly refrain? As a State Department inspector general's report commented in 2009, Africom's role was "resented and challenged" by the State Department's Bureau of African Affairs, but the military was essentially "stepping into a void created by a lack of resources for traditional development" and other "civilian" tasks.
More importantly, the lines between "civilian" and "military" tasks have never been as clear as we like to pretend, and today they're blurrier than ever. Instead of wasting time in a fruitless effort to draw imaginary lines between civilian and military roles, the United States should focus instead on doing what needs to be done -- and doing it responsibly, transparently, and well.
That's where the country has been falling badly short. Africom has been justly criticized for failing to live up to its lofty goals. A clumsy early rollout also left Africom struggling to allay African suspicions that the United States intended to "recolonize" Africa, and for a variety of reasons (shortage of qualified and interested personnel, inadequate career incentives, a slow-moving personnel system), many civilian slots within Africom were never filled. Those that were filled weren't always put to good use, and Africom continues to struggle to coordinate its efforts with civilian agencies.
The Defense Department is a relative amateur when it comes to development and related activities, and often it shows. Lack of cultural awareness has plagued programming: The distribution of used clothes in Djibouti during Ramadan offended Muslim sensibilities, for instance, and Africom has also been criticized for failing to take local clan relationships into account when distributing assistance.

Poor management is also a serious problem. Africom's first commander, General William “Kip” Ward, is currently under investigation for alleged misuse of funds. A 2011 Government Accountability Office report on DOD humanitarian activities found systemic management and accountability problems across the Defense Department, concluding grimly that, while there have been some improvements over the years, "DOD does not have complete information on the full range of humanitarian assistance projects it conducts.… DOD does not know … when a project is going to be implemented, when it is in progress, or when and if it has been completed.… DOD does not know how much it has spent.… DOD is not consistently evaluating its projects, and therefore it cannot determine whether its humanitarian assistance efforts are meeting their intended goals, having positive effects, or represent an efficient use of resources."
These problems are not unique to Africom. As other combatant commands have similarly expanded their activities into traditionally civilian domains, they have struggled with similar problems and criticism.
In a sense, we currently inhabit the worst of all possible worlds: The military is increasingly taking on traditionally civilian jobs but doing them clumsily and often halfheartedly, without investing fully in developing the skills necessary for success. Meanwhile, civilian agencies mostly just grumble from the sidelines, waiting for that happy day when Congress gets serious about rebuilding civilian capacity. (I think Samuel Beckett wrote a play about that.) And few people, inside or outside the Pentagon, are taking seriously the need to think in new ways about what "whole-of-government" or a holistic approach to security might truly mean.
The blurring of civilian and military roles is inevitable, but the failure to grapple effectively with this blurring of roles is not. To address threats (and seize opportunities) in this globalized, blurry, chaotic world, we will need to develop new competencies, flexible new structures, and creative new accountability mechanisms. Most critically, we'll need to let go of our comfortable old assumptions about roles and missions.

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JIM WATSON/AFP/Getty Images

 

Rosa Brooks is a law professor at Georgetown University and a Schwartz senior fellow at the New America Foundation. She served as a counselor to the U.S. defense undersecretary for policy from 2009 to 2011 and previously served as a senior advisor at the U.S. State Department. Her weekly column runs every Thursday and is accompanied by a blog, By Other Means.

The Pivot to Africa - By Rosa Brooks | Foreign Policy

(BN) U.S. Millionaires Told Go Away as Tax Evasion Rule Looms

U.S. Millionaires Told Go Away as Tax Evasion Rule Looms

Bloomberg News 

U.S. Millionaires Told Go Away as Tax Evasion Rule Looms

Go away, American millionaires.

That's what some of the world's largest wealth-management firms are saying ahead of Washington's implementation of the Foreign Account Tax Compliance Act, known as Fatca, which seeks to prevent tax evasion by Americans with offshore accounts. HSBC Holdings Plc (HSBA), Deutsche Bank AG, Bank of Singapore Ltd. and DBS Group Holdings Ltd. (DBS) all say they have turned away business.

"I don't open U.S. accounts, period," said Su Shan Tan, head of private banking at Singapore-based DBS, Southeast Asia's largest lender, who described regulatory attitudes toward U.S. clients as "Draconian."

The 2010 law, to be phased in starting Jan. 1, 2013, requires financial institutions based outside the U.S. to obtain and report information about income and interest payments accrued to the accounts of American clients. It means additional compliance costs for banks and fewer investment options and advisers for all U.S. citizens living abroad, which could affect their ability to generate returns.

"In the long run, if Americans have less and less opportunities to invest overseas, it would be a disadvantage," Marc Faber, the fund manager and publisher of the Gloom, Boom and Doom report, said last month in Singapore.

The almost 400 pages of proposed rules issued by the U.S. Internal Revenue Service in February create "unnecessary burdens and costs," the Institute of International Bankers and the European Banking Federation said in an April 30 letter to the IRS, one of more than 200 submitted to the agency. The IRS plans to hold a hearing May 15 and could amend how and when some aspects of the rules are implemented. It can't rescind the law.

Bank Transparency

The government needs to be tougher on offshore tax crimes than it has been, said U.S. Representative Richard Neal, a Massachusetts Democrat and one of the original sponsors of the legislation. Fatca, introduced after Zurich-based UBS AG (UBSN) said in 2009 that it aided tax evasion by Americans and agreed to pay $780 million to avoid prosecution, is already helping to improve banking transparency, he said.

"People should know, and the IRS should know, what money is being held offshore and for what purpose," Neal said. "I don't think there's anything unreasonable about that."

UBS, the world's biggest non-U.S. private bank according to London-based industry tracker Scorpio Partnership Ltd., said in 2008 it would discontinue offshore accounts for U.S. citizens. The firm now refers them to its wealth-management offices in the U.S., or to its Swiss Financial Advisers unit, which complies with U.S. and Swiss regulations, said Serge Steiner, a spokesman for UBS. The company continues to provide Americans outside the U.S. with services other than securities investments, including consumer and commercial loans, foreign-currency spot trading and precious-metals transactions, he said.

'Too Complex'

Investments in products offered by third parties that non- U.S. citizens can purchase through UBS or other banks also may be restricted.

"Most of the hedge funds I know in Asia won't take American clients," said Faber.

Bank of Singapore, the private-banking arm of Oversea- Chinese Banking Corp. (OCBC), ranked strongest in the world for the last two years by Bloomberg Markets magazine, has turned away millions of dollars from Americans because it doesn't want to deal with the regulatory hassle, according to Chief Executive Officer Renato de Guzman. The bank had $32 billion under management as of the beginning of the year.

"It's too complex, too challenging," de Guzman, who at 61 has more than 35 years of banking experience, said in an interview in Singapore in March. "You probably should have a dedicated team to handle them or to understand what can be done or what cannot be done."

Rejecting Americans

At industry meetings he attends in Singapore, not accepting U.S. clients is "quite a prevailing sentiment," de Guzman said. There are 18 private banks operating in Singapore, including units run by UBS, Credit Suisse Group AG, Deutsche Bank (DBK) and HSBC, he said.

"We have enough business in Asia, so we don't want to make our lives too difficult," de Guzman said.

Asia has the world's fastest-growing number of people with more than $1 million in investable assets, according to a report last year by Bank of America Corp. (BAC) and Capgemini SA. Its number of millionaires climbed 9.7 percent in 2010 to 3.3 million people, higher than the 8.6 percent growth in North America. The combined wealth of Asian millionaires increased to $10.8 trillion, topping Europe for the first time, the report said.

Singapore is Asia's largest wealth-management center, with $512 billion in offshore assets in 2010, data compiled by the Boston Consulting Group show. Bank of America is the world's No. 1 wealth manager, with $1.9 trillion under management, followed by Morgan Stanley and UBS, with $1.6 trillion, according to Scorpio.

HSBC, Deutsche Bank

HSBC decided last July that it would no longer offer wealth-management services to Americans from locations outside their home country after tax authorities stepped up a probe of the London-based bank's U.S. clients.

Americans would be "better served" by private bankers in the U.S., Goh Kong Aik, a spokesman for the firm in Singapore, said in an e-mail. He declined to say whether those who already have private-banking accounts abroad will be allowed to remain customers, except that they would be helped through an undefined "transition process."

Deutsche Bank said it terminated securities accounts held abroad by people with U.S. residency as of mid-2011. The action didn't include checking or savings accounts and didn't affect citizens living outside the U.S. The Frankfurt-based bank said "only a small number of customers" were affected.

Spokesmen for Credit Suisse, France's BNP Paribas SA (BNP) and Amsterdam-based ABN Amro Bank NV, also among the top 10 non-U.S. global wealth managers, said their banks are studying the issue and haven't decided what to do with American account holders.

Collateral Damage

"Bank accounts, investment accounts, mortgages and insurance policies are being refused to American clients, and those with accounts are seeing them closed or have been threatened with closure," Marylouise Serrato, executive director of American Citizens Abroad, a Geneva-based organization, wrote in an e-mail.

U.S. citizens who live in countries that aren't served by U.S. banks may find themselves unable to bank at all, and implementation of the law in its current form could cause collateral damage to American businesses abroad, she said.

"Americans either will not be allowed to enter into international partnerships or live and work overseas, and will be replaced by foreign nationals who do not have these limitations," Serrato wrote. "The extensive reporting requirements of Fatca will be destructive to those who wish to do business internationally as well as to those Americans who are legitimately living and working overseas."

'Turned Away'

That view is shared by Richard L. Weisman, Hong Kong-based head of law firm Baker & McKenzie LLP's global tax practice.

"U.S. expatriates already face severe U.S. tax rules related to their non-U.S. income and investments," Weisman said. "Fatca will increase the extent to which they are turned away by non-U.S. financial institutions."

Tan of DBS said she refers Americans seeking private- banking services to U.S. institutions with operations in Singapore such as Citigroup Inc. (C), Bank of America, Morgan Stanley, Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co., which are able to open securities accounts for Americans because they're regulated by U.S. authorities. Such accounts allow purchases of investment products without restricting Americans to cash and time-deposit accounts.

While that may be easy for Americans in Singapore, those who live elsewhere face obstacles. Before Fatca, U.S. citizens in Bangkok or Manila could find investment opportunities through non-U.S. banks such as HSBC. Now their only option is to fly to cities where U.S. firms operate.

Limited Choices

If Americans choose to bank with a non-U.S. firm such as HSBC, their investment choices are limited. At the HSBC branch in the bank's Asia regional headquarters in Hong Kong, Americans can hold only savings deposits. They're prohibited from opening accounts to trade local stocks or buy products available to non- U.S. customers, including 45 equity funds investing in China or other geographies and industries. There's only one comparable emerging-markets equity option available on HSBC's U.S.-based investors' website.

Financial institutions that choose not to accept American customers still must determine whether new or existing clients are so-called U.S. persons in order to comply with Fatca, according to Michael Brevetta, director of U.S. tax consulting at PricewaterhouseCoopers LLP in Singapore.

The definition includes citizens, green-card holders and non-Americans deemed U.S. residents by being present in the country for at least 183 days over a three-year period, which makes them subject to U.S. tax on their worldwide income, according to the IRS.

Compliance Costs

The compliance costs for banks, asset managers and insurance companies "could stretch into the billions of dollars," Brevetta said. Private-banking firms in Hong Kong and Singapore already have operating costs between 88 percent and 90 percent of their revenue, compared with 70 percent at Swiss banks, PricewaterhouseCoopers estimated in a September report.

Penalties for not complying will be stiff. Non-U.S. firms that don't make required disclosures will be subject to 30 percent withholding of certain dividends, interest or proceeds from the sale of assets they or their customers receive from U.S. sources, according to Baker & McKenzie's Weisman, who has conducted workshops and seminars on the proposed rules for current and potential clients in Hong Kong and Singapore.

"Overwhelmingly, financial institutions outside the U.S. don't like it, for obvious reasons," Weisman said, calling the withholding tax a "stick" the U.S. is wielding. "The U.S. is outsourcing a tax-compliance function, which is enormously expensive."

Renouncing Citizenship

Americans who don't comply with Fatca are deemed "recalcitrant," and income they receive from U.S. sources also is subject to a 30 percent withholding tax, said Jason Choi, a Singapore-based tax lawyer with Latham & Watkins LLP.

Renouncing citizenship is an option chosen by increasing numbers of Americans. A record 1,780 gave up their U.S. passports last year compared with 235 in 2008, the IRS reported.

Royal Bank of Canada (RY), the sixth-biggest wealth manager with $435 billion under management as of the beginning of 2011, said it sees an opportunity as competition is exiting, including in emerging markets, where it manages $60 billion.

"We are one of the few wealth managers to hold a Securities and Exchange Commission license offering U.S.- compliant investment advice in Switzerland and London and see an opportunity in accepting tax-compliant U.S. persons as clients outside of the U.S.," said Barend Janssens, the Singapore-based head of the bank's wealth-management unit for emerging markets.

Tax Evasion

Coutts, the wealth division of U.K. government-owned Royal Bank of Scotland Group Plc, plans to comply with Fatca and to continue accepting tax-compliant U.S. persons, according to Tim Winter, associate director of the U.S. Competence Centre at Coutts. The London-based bank has invested since July 2010 in a "global program of work established to support the implementation of Fatca," he said in an e-mail.

The Swiss government has been in talks for more than a year with U.S. authorities, who, after obtaining data on about 4,700 UBS clients, are now investigating 11 other firms, including Zurich-based Credit Suisse (CSGN) and Julius Baer Group Ltd., for alleged assistance in U.S. tax evasion.

Credit Suisse continues to "work hard" to resolve the probe, CEO Brady Dougan said in an interview April 25. Julius Baer exited its U.S. private-client business between 2009 and 2011, said Jan Vonder Muehll, a bank spokesman in Zurich.

Wegelin Forfeiture

Wegelin & Co., a Swiss private bank established in 1741, became the first Swiss lender to face criminal charges in the U.S. crackdown on offshore firms suspected of abetting tax evasion. It had to sell its assets in January to Switzerland's Raiffeisen Group to save its non-U.S. business before the U.S. indicted the firm in February. The St. Gallen-based private bank helped Americans hide more than $1.2 billion in assets and evade taxes, wooing clients spurned by UBS, according to an indictment filed in federal court in New York.

U.S. District Judge Laura Taylor Swain ordered Wegelin to forfeit $16 million on April 24, allowing the U.S. government to take the amount from Wegelin's U.S. account, held at UBS in Stamford, Connecticut. Albena Bjoerck, a spokeswoman for Wegelin, declined to comment.

Spokesmen for Citigroup, Bank of America, Morgan Stanley, Goldman Sachs and JPMorgan all declined to comment on how Fatca is affecting their business, with some citing company policies not to discuss government regulation. Standard Chartered Plc (STAN), France's Societe Generale SA, Barclays Plc (BARC) and Hong Kong-based Hang Seng Bank Ltd., which all have wealth-management businesses, also declined to comment.

'Pain for Americans'

The restrictions on products available to Americans may not matter to a savvy investor, according to Hugh Young, who helps manage $70 billion in Asian equities in Singapore for Aberdeen Asset Management Plc.

"The financial institutions can restrict you from some of the best products, but you have others of the best," he said.

Still, the limitations create complications that act as an investment deterrent, said Philip Marcovici, a retired U.S. tax lawyer who advises wealthy families and governments.

"It's a pain for Americans to invest in markets outside of the U.S.," he said.

To contact the reporter on this story: Sanat Vallikappen in Singapore at vallikappen@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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