FATCA: An Incomplete Map

FATCA, the Foreign Account Tax Compliance Act, a few words hastily inserted into the 2010 HIRE Act that was passed by the U.S. Congress, is a perfect example of what James C. Scott calls Authoritarian High Modernism, "a sweeping, rational engineering of all aspects of social life in order to improve the human condition."

All the state simplifications that we have examined have the character of maps.  That is, they are designed to summarize precisely those aspects of a complex world that are of immediate interest to the mapmaker and to ignore the rest...
In case after case, however, we have remarked on the apparent power of maps to transform as well as merely to summarize the facts that they portray.  This transformative power resides not in the map, of course, but rather in the power possessed by those who deploy the perspective of that particular map.

FATCA is an attempt to make a map with information of interest to tax authorities.  The original objective was to catch Americans who remove their money from the U.S. in order to escape local taxation by requiring foreign financial institutions to report on every bank, retirement or investment account abroad connected to a U.S. Person (a U.S. citizen, Green Card holder, immigrant or resident).   Sounds rational, even laudable, doesn't it?  Catch bad people doing something wrong and use their ill-gotten gains to fill the hole in the national budget.  Who could possibly argue with that?

Well, I'm here to argue and I will keep arguing because this is not about tax evasion, it is about something else entirely:  policy laundering, discrimination on the basis of national origin, and the creation of an automatic information exchange system that makes the 99% suffer while doing next to nothing to catch the small percentage of the 1% trying to evade their responsibilities.

What the architects of FATCA (and the governments that are willing to sign on to it) gravely underestimated was how FATCA would change the landscape even before it was even implemented.  It did not occur to them that there would be consequences for good people doing normal things.  Only difference between these people and homelanders (U.S. residents) is that they are doing them in another country.  Things like raising a family, working at a career one loves, going abroad to work with an NGO, saving for retirement or for a child's college tuition, buying that first home.  These adverse impacts have been well documented by American Citizens Abroad and the Association of Americans Resident Overseas.

Americans abroad are being shut out of basic banking services in the countries where they live and work.  American clients are "toxic" to banks that simply don't want the hassle of dealing with all that expensive paperwork.  Businessmen and women with U.S. connections are being told that they should seek elsewhere for business partners because they don't want to have to deal with the U.S. government reporting requirements for even very simple cross-border joint ventures.  U.S. Persons (not just U.S. citizens, mind you) are being stripped of their signature authority over company accounts and cast out of banks they have had a relationship with for years.  Non-U.S. spouses and partners are removing their American spouse's names from joint accounts or demanding that she/he renounce U.S. citizenship ("Your American citizenship or our family. Pick one.")

Those are just a few of the impacts and FATCA hasn't even been implemented yet.  What astonishes me is how many people react when this is pointed out to them.  "OK, there may be problems but how else are we to catch tax evaders?"  Well gee whiz, the U.S. government seemed to be rather successful at it (see the UBS saga) long before FATCA.  Others have said that we are making a mountain out of a molehill.  There aren't that many U.S. Persons abroad, they say, and these folks are just "temporarily" out of the country.  The stories are just stories and these are minor problems compared to the grand scheme which will benefit us all in the end.

Tell that to swisspinoy, one of the sacrificial lambs, over at Isaac Brock.  He is a U.S. military veteran living in Europe.  He fought for his country (and any homelander who thinks he made millions doing so and then decided to live in Switzerland with his ill gotten gains is delusional) but his country wouldn't help him when his local bank decided to pull his mortgage and just make life very difficult for him.  He has renounced.

Tell that to the people interviewed for this article in the Atlantic, The Unintended Consequences of Cracking Down on Tax Dodgers Abroad.  One lawyer had this to say:

"I know of one client whose parents live outside the US," he said. "They are in their 90s, and have a bank account in their home country. They added their son as a signatory because if they become incapacitated, they want him to have access to money to pay their bills. But their account has now been frozen because he's American. The bank wants the son to provide the last five years of his tax returns before it will unfreeze the account. He has had to hire a lawyer to sue the bank to let his parents access their own money."

Tell that to me as I sit here wondering how long my bank will continue to keep me, my French husband (not a U.S. citizen or Green Card holder) and our two daughters (EU citizens) as clients.

The unintended consequences of FATCA on regular people are many but in the race to create an American-style worldwide automatic information exchange system they are being dismissed as of no consequence.  This is the new landscape that FATCA made.  Evading the complexities may please the policy makers who are using their power to control the debate and to ignore the objections of the 6-7 million American citizens abroad and their families,  the  Green Card holders and immigrants, and the U.S. Persons who are not U.S. citizens but only have the most tenuous of connections to the United States.   But the problems aren't simply going to go away.  There will be lawsuits.  Maybe demonstrations.  And of course, there have been and will be more renunciations of U.S. citizenship and a growing number of "Secret Americans" who will cut all ties to America just to be able to keep their homes and retirement or just to keep their families together.

That governments seem to fear all this becoming public, and the lengths they are going to in order to keep this issue as far as possible from the democratic process, says a great deal.   Don't believe me?  Check out page 202 of Obama's 2014 budget here  (hat tip to Tim) and see how they plan to slip FATCA reciprocity (U.S. banks reporting to foreign governments) through right under the noses of the U.S. Congress.

And that's not acceptable.  One way or another the FATCA map must be revised to take into account the real world which I acknowledge is sometimes messy because it has real, live human beings in it.   But that's why we have something called "democracy," why we are citizens (not subjects) and why we have political processes in nation-states where (ostensibly) these things can be worked out and the worst effects mitigated.

As I was walking to the conference room at the European Parliament the other day, I talked with one of Sophie in't Veld's staff and tried to convey some of the desperation and fear some of us feel right now.  We may all have to renounce in the end, I said.  "You shouldn't have to," he replied.

Damn right.