FATCA Lawsuit Filed in the Federal Court of Canada

And here we go, folks.

On August 11, 2014 the eggs to be broken in the making of the FATCA omelet refused to crack.

In early August the first lawsuit against the extra-territorial American law FATCA was filed in the federal court of Canada (statement of claims here and press release here)

For those of you who are still a bit confused about the fuss over FATCA,  allow me to give you a quick recap.   The Foreign Account Tax Compliance Act is an American law that was voted in 2010 by the U.S. Congress as part of the HIRE Act. It requires foreign banks to report the account information of all U.S. persons (U.S. citizens and Green Card holders) to the American IRS and imposes draconian fines on foreign entities for non-compliance.

Touted as one of the latest and greatest solutions to tax evasion, it got off to a rocky start in 2011 and the U.S. government quickly understood that it wasn't going to work as written.   So the U.S. Treasury Department came up with a rather creative solution, the Intergovernmental Agreement (the IGA), in which the U.S. bargained with other countries over the terms of FATCA information exchange.  I use the word "creative" because no one, not even international tax experts and U.S. lawmakers, is 100% sure what these agreements are exactly and if they are legal under U.S. law.  Moreover, in every IGA is list of non-reportable account types which means that it's leakier than a sieve and horrendously complicated to implement.  An example, if you are an American in France your PEA will most likely be reported but your Livret A won't ever be.

However, the IGA's made FATCA more palatable and countries started to negotiate and sign up, enticed by the idea of reciprocity - US banks reporting account information to Mexico, France and other countries around the world.  The Canadian IGA was signed in February of 2014.

Amid all this government to government negotiation and request for comments from the financial industry around the world, one group of stakeholders in FATCA was completely left out of the equation:  the people who were actually going to be affected by this legislation.  Ah, but we don't have to listen to criminals, right?  Not so fast, folks.  This law is so broad and so rife with unintended consequences that the FATCA rain falls on the just and the unjust alike.

Imagine the utter shock of a US Person who is tax compliant in both the US and the country of residence being informed that they can no longer have a checking, savings or retirement account because of FATCA. Or, even better, some poor individual being told by his or her bank that he is not just a taxpaying citizen of his country but is also in fact a US citizen and as a result he loses his rights under local law because, in this brave new world of information exchange, US status trumps all other statuses, including other citizenships.   A Frenchman in France who is deemed to have a connection to the US under FATCA is suddenly something less than a full citizen in his own country - he has been stripped of certain rights with the full agreement of his government.

And here we finally come to the Canadian lawsuit.  The plaintiffs claim that FATCA as it is being implemented in Canada violates the Canadian Charter of Rights and Freedoms which among other things, shields Canadian citizens from unreasonable search and seizures and assures equal protection/non-discrimination in the application of the law. Ginny and Gwen, two very courageous women, are "Accidental Americans".   They were born in the US but have lived in Canada most of their lives and they not willing to be reduced to semi-citizenship in Canada.  They are Canadian, they live in Canada, and US status should make no difference whatsoever in what rights they have under Canadian law.  Period.

If you wish to argue otherwise, please think hard about the implications of that.  Could a law made in Mexico that violates the rights of Mexican-Americans under the US Constitution be nevertheless applied to them with the blessing (nay, the full participation and enforcement) of the US government?   And it is all the more troubling when one sees all the situations where individuals do contest the attribution of citizenship  without their consent by a country they don't live in and don't consider themselves to have duties and responsibilities to. All dual citizens everywhere in the world should pay close attention to how this shakes out.

If any of you out there are interested in supporting this cause there are a couple of ways you can help.  Ginny and Gwen have really gone out on a limb here by going public and they could use your moral support.  You can send them a note here.   Another, of course, is through a donation which you can make here.

Bon courage, mes amies!