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Tuesday, June 11, 2013

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.


Blaze said...

FATCA: Foreign Attack to Control All by IRS (Internatioal Robbery Society).

Why bother the banks with FATCA when IRS plans to have spy gear that can bug coffee trays and plants for tawdry tax tracking. Is this for real?!?

Tim said...

One scenario I begun to believe more and more is the real goal of the major EU governments is to find out where and how much money their citizens living in the United States have(in places like Silicon Valley, NYC, and Boston). Victoria has brought this up before and I have tended to not believed it but through the process of elimination it is becoming one of the more likely options as to what the true rationale of the powers that be in Europe. Of course this type of rationale requires the outmost secrecy as not to tip off anyone in the US as to their true intentions. Of course there is a lot of pain in the short term for the EU in complying with the one sided one way nature however in the minds of Hollande and Moscovici there is long term gain once the US delivers information some day on all the French citizens living in Silicon Valley and elsewhere.

There are a few buts about this though. One is the actually reciprocity proposal put out by the Obama Administration only seems to apply to French "residents" not French citizens living in the US. Of course this is just a proposal and perhaps Hollande & co. believe in time it will be refined to cover French citizens in the US like French girl in Seattle. However, in the long term this still seems like a very hard sell in the US domestic political space. I could the NY Times Editorial Board supporting it on principle however, I have a hard time seeing your typical conservative Republican Congressman going along with it.

Tim said...

The other comment I'll make is expats and the groups that represent them need to toughen up a little bit and not be so afraid of taking on their opponents especially when their opponents are unwilling to listen. I think many pro FATCA-ites see US expats as weak and unlikely to fight back especially in fear of being attacked as promoting tax evasion. Carl Levin for example is treated way too much with kid gloves by many expats.

Jeff said...

Unlikely that France will care about its citizens in the US. That's because France, like the rest of the first world except the US, taxes based on residence and source. Citizenship is irrelevant. If they live in the US they are pobably not French resdent and France won't tax them. It is only the US that pursues people who have not lived their for years for tax based on their passport.

Victoria FERAUGE said...

@Tim and Jeff, I sincerely think that there is interest in the assets of French citizens living abroad. There is admiration for the American citizenship-based taxation model not only among politicians but the general public as well. I've found that there is not much sympathy or appreciation for French expats especially the ones living in the U.S. There have been proposals to tax them and with Hollande there are sure to be more. FATCA would give the French government hard numbers on the size of the "catch" and make it much easier to argue that these people have a moral and fiscal duty to the homeland and the wherewithal to pay it. The only thing, in my view, that might prevent this is the fact that the French diaspora has real representation in Parliament.

Tim said...

The EU Commission has just put out another release on FATCA. It is very good because they are finally admitting something they have tried to avoid. Look at the following.

EU Member States, like other countries across the world, are negotiating bilateral agreements with the US related to its Foreign Account Tax Compliance Act (FATCA). The agreements provide a framework for automatic information exchange between US and foreign tax administrations on the income of US citizens ABROAD. Under the model agreement negotiated by certain EU Member States and the Commission with the USA (so-called Model 1), there should be reciprocity in this information exchange.

SwissPinoy said...

France could always create a special diaspora tax specifically for French and former French citizens living in the US. It would be hypocritical for the US to oppose such a targeted diaspora tax and France would be able to raise a lot of money from individuals who do not use French services.

Victoria FERAUGE said...

@Tim, did you see this one? It's a proposed EC Directive that was released yesterday or today. Would love to have your thoughts on it.

@SwissPinoy, I think they will do just that. I really do.

Christophe said...

I really hope France won't do that.
If they do, I am sure we'll see the start of citizenship renunciations, which are inexistent right now.
I wouldn't mind paying taxes to the French government as long as they provide free school for my kids and a hospital with the same prices that French people pay in France, in the city where I live in the US.

The threshold to get financial aid for schools does not correspond to the salaries we get here. I don't qualify, and it would cost me 12k per year per kid, which would be difficult to afford.
I had a minor emergency playing tennis a couple years back. The guy I was playing with called 911 and they dispatched EMS. I declined going to the hospital. They took my pulse and oxymetry.
Result: a bill for $800 ($50 of which was for the gloves they used). Something like that would be totally free in France, paid by taxes.

Bottom line, even if the salaries are higher, we need that extra money for the services that are not provided at the same price that they are in France. Same for retirement. We build our retirement here and most do not count on social security, where in France, "private" retirement plans are not that encouraged and most people rely on the equivalent of social security.

@Swisspinoy is completely right. This whole thing is about paying taxes for services you don't receive. Where is the fairness?

@Victoria said: "I've found that there is not much sympathy or appreciation for French expats especially the ones living in the U.S"

I agree. Some people told me "Je suis un privilegie", for having the opportunity to make a decent living in the US. All they see is the material stuff. Salary, my 'huge' house of... 2100sf, and my 'huge' car (I drive a Fusion).
The funny thing is that is that by US standards, my salary is no way big, my house is small for a family of 4, and my Fusion is a "standard size" car. All is relative. People are very materialistic. That's how we're judged by homelanders.
I wonder what they would say if god forbid, I become really sick and get bankrupt because of it.
The answer would probably be that I should not complain because I chose to live in the US.

Tim said...


I had not seen the actual text yet but I did see the press release the EU Commission put out. Our goal so to speak should be to "kill" or badly maim this legislation. Look the EU Commission is flat out saying this is policy laundering. At the very least the should make public the 2,000 plus pages of documents on FATCA.

Rosy the Riveter said...

Just found an interesting article printed in the Huff Post 3 days ago : Should Lex Americana Be Universal? FATCA Turns Foreign Banks Into Tax Informants. Interesting that it's finally getting broader attention.

Victoria FERAUGE said...

@Rosy. Thank you!

Yep this is a good one and I'm really pleased to see it in a major American news source.

Anonymous said...

This recent interview is a window into the US intent re those deemed 'US taxable persons' living and/ or born outside the US. It explains one mechanism of FATCA very clearly. A must read interview:

”….Yates: Well, we all knew the reason for section 6038D. Section 6038D was enacted in order to put the kind of foreign bank account reporting required by Form 90-22.1, Foreign Bank Account Report (FBAR), under Title 26, the Internal Revenue Code. FBAR reporting is required pursuant Title 31, the Bank Secrecy Act. Because of this, IRS could not initiate an audit of a taxpayer based solely on an FBAR filing. The taxpayer being examined had to have an underlying Title 26 issue. Only with a Title 26 issue could IRS use account information found on an FBAR in furtherance of an audit or exam of the taxpayer. Hence, Congress gave IRS section 6038D, Title 26 of the Internal Revenue Code. In short, Congress gave IRS its own FBAR….”


Anonymous said...

This latest from Canada.

We will counter with resistance via a legal Charter and Constitutional challenge, with or without the support of our elected 'representatives' in Canada.

We are given NO opportunity to have a public conversation about this. It is being imposed without the consent or awareness of the majority of those affected and 'governed' - by both the US and our home country - where we also have non-US citizenship or are permanent residents.

We are given no option but to renounce/relinquish - for those who can manage that without being utterly obliterated by the IRS via punitive and confiscatory FBAR and now FATCA and other draconian asset reporting penalties levied on our already once taxed legal assets - entirely generated outside the US. Others who cannot manage this will be forced into hiding.


Victoria FERAUGE said...

@Badger, Thanks so much for the links. I heard that the Canadian government is saying that it will only make the FATCA discussion public AFTER everything has been decided and signed. Is that true?

Anonymous said...

Yes Victoria, that is what we have read.

Democracy in action apparently - on both the part of the US - who asserts ownership of people with no US residence, and zero economic relationship with the US. Also apparently Canada, and Canadian financial institutions care so little for their fellow citizens, permanent residents and accountholders, that they won't have the FATCA conversation in public. What is the Canadian government and the Canadian Bankers Association-FATCA-collaborators afraid of?


Anonymous said...

Here is what the Canadian Globe and Mail article said:
..."There has been little debate on the issue so far, partly because no details on the talks between Canada and the U.S. have been released. However, Ottawa is promising to make the deal public once it is signed...."


Victoria FERAUGE said...

@badger, Oh yes they seem to be petrified that if people knew about FATCA there would be an uproar. Just goes to show you how "policy laundering" does work if one wants to slip something through without going through the democratic process.

Allie said...

This is cool!