The handling of account information for nonresident aliens has attracted a good deal of attention lately in border states like Texas and California, but banks in states with significant Latin American populations – like Massachusetts – would do well to pay close attention.

“The greatest concentration is in border states, but Massachusetts and Connecticut have strong ties to Latin America through family,” said Robert Davis, executive vice president at the American Bankers Association (ABA). “Family members might well go to the bank [their] family uses in that state.”

In a recent statement, the ABA warned that a new final rule drafted by the U.S. Internal Revenue Service puts the personal information of nonresident aliens at risk in their home countries. The rule, which falls under the IRS nonresident alien deposit interest regulation, goes into effect Jan. 1, 2013. It requires nonresident aliens holding interest-bearing accounts in the United States to file an information return (form 1042-S) that could be shared with tax and central bank officials in other countries.

The rule requires banks to report foreign depositor information annually, and the U.S. Department of the Treasury has agreed to share that information with the governments of 80 approved countries with which the United States has bilateral exchange agreements.

Time Sensitive

But that’s not to say things would necessarily change for local banks. The filing requirements and paperwork involved in opening accounts for nonresident aliens would remain as clunky and tedious as ever.

“The process is cumbersome, and naturally so,” Peter Alden, president and CEO of Worcester-based Bay State Savings Bank, told Banker & Tradesman. “Bank staff may not see that every day.”

“We have to make sure the money we receive is legitimate,” Alden continued. “We’ve been trained, and we have to be extra, extra diligent. It can make it seem more difficult for somebody to open an account… It’s the new world we’re operating in, but it shouldn’t be a lot more onerous for a nonresident alien than it is for an ordinary citizen.”

But it is, according to Berin S. Romagnolo, an immigration and employment attorney at Boston-based law firm Posternak Blankstein & Lund.

If the problem is security back home, it’ll be joined by the red tape here, Romagnolo said. And it’s equally difficult for a wealthy tourist looking for a place to open an account as it is for foreign investors with an eye toward doing business here.

In that regard, the way banks and the federal government treat nonresident aliens is sorely lacking, Romagnolo said.

Nonresident aliens do not carry green cards, or visas, and are not issued social security numbers. They are taxed based on the amount of time they spend here and only on money they make while here.

“If you come as a tourist or foreign investor or a spouse, they often have problems,” Romagnolo said. “They’re here to scope out where investment opportunities are, but visa waiver countries don’t stamp passports, so they go to a bank, and they have nothing to show. They’re here with tons of money and they can’t find a bank to unload that money. Social security takes months to issue a social security number, and by then, they may have moved on.”

Being Proactive

What has the ABA worried is the fact that certain Latin American countries with which American banks would exchange information on nonresident aliens are less than secure, both politically and socially. In countries like Mexico and Venezuela, wealthy citizens are targeted by kidnappers for ransom, for example.

“Nonresident aliens keep money in U.S. banks because of security threats to depositors and their families,” Davis said. “There are significant criminal elements (in certain countries) looking for targets for kidnappings, etc. in certain Latin American countries.”

Hispanics make up about 10 percent of Massachusetts’ population, according to 2010 U.S. Census Bureau records. That makes it a likely place to find accounts opened by nonresident aliens, Davis said.

Latin American countries on the list of countries with which the United States has bilateral exchange agreements include Costa Rica, The Dominican Republic, Honduras, Mexico, Panama, Peru and Venezuela.

Davis said there’s virtually nothing the ABA can do to change the rule handed down by the IRS. But he said the group would like Treasury to provide some “differentiation” between countries that have bi-lateral exchange agreements with the United States, so that banks and the government can be more aware of potential hazards.

“Let’s not wait until there are problems,” Davis said.

If there are problems, they’ll likely be problems for the federal government. All a local bank can do is follow the rules.

“We have experienced nothing unusual,” Richard Gavegnano, chairman and CEO of East Boston Savings Bank, told Banker & Tradesman. “We apply the same regulatory customer ID process. The bank has to ensure that nonresident aliens have a W-8 beneficiary form … We have had no issues or difficulties with these types of accounts.”