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Thursday, August 21, 2014

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!


P. Moore said...

I suspect if this lawsuit is even partially successful, things will get VERY messy for the USG and other governments because it will likely motivate others to follow. FATCA along with the super fines the US is imposing on foreign banks and others for not kowtowing to US policies, along with tit-for-tat sanctions between Russia & the US, along any number of 'my way or the highway' actions of the USG is all adding up to a helluva lot of resentment around the world. I cannot possibly see how all this will end well.

Anonymous said...

This is going to end in the demise of the $US as the reserve currency. And FATCA only plays a small role in that.
Banks and governments around the world are started to get mad at the US for imposing massing fines on some banks for not even breaking their local laws - their crime being using the $US as the currency for transactions.
I don't understand why they don't realize that. Don't they realize they're shooting themselves in the foot... That's pretty sad.

Skeptical Canadian said...

The reason for the Canadian lawsuit is clear – and the cause is just. For the 1st in history, Canada passed a law that selectively disadvantaged some Canadians based upon place of birth. On July 1, 2014, a new social stratum -- consisting of untold thousands of Canadians now defined as “US tax residents abiding in Canada" -- was created by the Canadian FATCA IGA. No matter how thoroughly those affected had identified themselves as Canadians, they were now reclassified as “US persons” and consigned to new and reduced lives as 2nd class citizens in their own country.

Unknown said...

It's at times like these that I truly appreciate my Canadian heritage. Yes, I don't agree with everything our government does, but at least it's not big brother. I wasn't aware of the bank account thing, but I have heard about the IRS wanting to know everything about non-American spouses if they are married to a Yankee. What crap! Peeps have a right to their privacy...

Anonymous said...

Good post. Will repost.

Anonymous said...

I'm no longer a US citizen, but as a Canadian I'm not about to let the US take over Canada and by proxy subvert Canadian values, our laws, our Charter of Rights and Freedoms, our Constitution and the wellbeing and security of my fellow citizens, taxpayers, voters and legal residents.

That is why I have donated and support this crucial legal challenge.

Somebody has to draw the line in the sand - it should have been our own elected officials and Parliament, but since the Harper Conservatives abused their majority, and abrogated their fiduciary duty and duty of care for the Canadian people, it falls to the people in a democracy to hold them to account.

All good Canadians should do so even if they have no personal connection to this fight.

All concerned US persons, their family, their countrymen, their friends, and fellows should contribute to this fight even if it takes place in Canada. The principles are the same.

Put a stake in the heart of FATCA applied extraterritorially via US extortion of the entire globe. Support and fund the ADCS Alliance for the Defence of Canadian Sovereignty's legal challenge!

If the US wins this one via extortion and might makes right, what is next, who is next?

Better to nip it in the bud and poke the US in the eye now rather than later.

Thank you for giving this a wider audience.

Your readers should note that the US consulates in Canada are also mentioning an upcoming huge increase in the fee to renounce (from the current 450. US to over 2,000. closer to 3,000.), as well as a line up to renounce/relinquish/obtain CLNs that has people in Toronto (as of August) forced to wait until end of January 2015 for their expatriation appointment.

Justice delayed or obstructed is justice denied.


Anonymous said...

New! The legal challenge being brought by the ADCS Alliance for the Defense of Canadian Sovereignty /

now has a website in French as well L’Alliance pour la défense de la souveraineté canadienne, l’ADSC, :



Joe said...

The worst President created this worst law ever. Hillary needs to kill this law if she wants to win some votes.

Anonymous said...

Would that it be so but I suspect she will tighten, rather than loosen the screws. I see no indication that FATCA will ever be repealed. Any attempts to repeal this law have fallen on deaf congressional ears and there are far more motions to enhance the law than to repeal it. Expats, without representation and being a relatively small population, are easy targets and unable to defend themselves. The only realistic course of action is to return or renounce. Regrettable but true.