Bermuda’s top US diplomat yesterday denied America was using Big Brother tactics to clamp down on tax dodgers.

US Consul General Robert Settje said that the Foreign Account Tax Compliance Act (FATCA) treaty signed with Bermuda — which requires annual reporting of US citizens’ bank accounts on the Island to the US tax collector — was aimed at addressing international concerns on tax fraud.

Mr Settje said: “The world at large is concerned about tax evasion in general and our partners are well aware of that issue and willing to cooperate with us.

“There are some who might view it as being intrusive but because it is at a government to government level and each government that decides whether it’s willing to go along with the decision has determined it’s not so intrusive they shouldn’t go forward.”

The treaty signing brings the Island in line with a US law designed to obtain information on accounts held by US taxpayers in other countries.

It binds foreign financial institutions to identify and annually report key information about US account holders to the US Internal Revenue Service (IRS).

Institutions outside the US that fail to comply with treaty obligations will become subject to a 30 percent withholding tax on certain US source payments like interest payments.

Bermuda has chosen to have financial institutions on the Island to report direct to the IRS, rather than through the Bermuda Government.

Finance Minister Bob Richards, who signed the agreement on behalf of Government, said: “We are a tiny island and when our neighbour next to us asks us something we are already committed to provide — tax transparency — we do. What FATCA does is standardise the way it’s done and automates it.”

“We have got to do what we have to do to remain in business for our Bermudian people and to remain competitive in the global marketplace.

“Most of our business comes from the United States so our relationship with them is critical — more critical than with any other country.”

Earlier, Mr Richards said the new agreement built on existing tax information exchange agreements and the mutual legal assistance treaty already in force between the two countries, as well as the 1986 tax agreement which helped to kick-start Bermuda’s role as a major offshore jurisdiction and tourism centre.

He stressed: “It’s every country’s sovereign right to design or adjust its tax collecting system. Bermuda’s responsibility as a responsible and respected international financial centre in the global financial system is to respect that right — just as we expect others to respect our tax system, a system that is over 100 years old.”

And he added: “This historic agreement builds upon a rich history of cooperation and friendship Bermuda has had with the United States from the beginning.”

Mr Settje said that the agreement did not reflect US concerns over Bermuda’s financial and regulatory affairs.

He added: “Clearly, Bermuda is what we might refer to as a low-tax jurisdiction, a different tax jurisdiction. But we in the US understand Bermuda is not a tax haven in the sense that is normally used.”

And Mr Settje said that similar agreements had been signed with several other countries, including the UK, Switzerland and Spain — some of them bilateral.

And he added: “In no way is it meant to ride roughshod over the rights of other nations.”

The Association of Bermuda Insurers and Reinsurers (ABIR) was happy with the agreement.

“I would like to applaud both the governments of Bermuda and the United States for working together to improve international tax compliance and ultimately strengthen the economies of both nations,” said ABIR president Bradley Kading. “As the largest supplier of catastrophe reinsurance to US insurers, Bermuda has a strong relationship with the United States that has only been reinforced through this agreement.”

He added that over the last 12 years alone, Bermuda’s insurers and reinsurers have contributed an estimated $35 billion in catastrophe claims payments to their US clients.