Australian banks need to get busy if they are going to make use of the grandfathering provisions contained in the US Foreign Account Tax Compliance Act, according to a senior tax lawyer.FATCA's grandfathering rules mean some deals will be outside the scope of the new law when it comes into force in 2014. There will be no withholding tax requirements on payments under obligations entered into before January 1 next year, as long as all material terms are settled.Stephen Fiamma, a partner in the US tax practice of Allen & Overy, said Australian banks were "a bit behind the timeline".FATCA is an anti-tax avoidance regime aimed at stopping tax abuses by US citizens holding overseas bank and investment accounts. Foreign financial institutions that own US assets or hold US assets for the benefit of others will have to report on the activities of any of their US clients to the US Internal Revenue Service.The sanction for non-compliance is a 30 per cent US withholding tax on any "FATCA withholdable payment", including gross proceeds directly or indirectly attributable to US assets.Fiamma said FATCA was still a work in progress. Banks reporting to the IRS may breach client agreements and local privacy laws. Inter-governmental agreements aimed at overcoming such problems are still being negotiated.Withholding requirements will take effect progressively throughout 2014 and 2015. However, agreements entered into before these dates may be subject to withholding rules."That is why banks need to be taking account of FATCA now," Fiamma said.