Update: Blaze asked me to upload this letter from the Canadian Bankers Association to the United States (pdf) – Petros
Schubert and I wrote to Canadian Bankers Association two weeks ago concerning FATCA. We had a reply on Friday. CBA provided a copy of a comprehensive submission they made to IRS and Department of Treasury. They covered many of the issues we raised, but did not mention Canadian Charter of Rights and Freedoms:
Here is a pdf link to CBA’s submission. (I hope I’m posting this correctly so you can open it.)
100519 – Signed CBA Comments to US on FATCA Provisions (1).pdf
Here is CBA’s reply to Schubert and me:
Thank you for your e-mail. We certainly understand the concerns that you and your friend have with FATCA. However, you seem to be under the impression that Canadian banks are planning to willingly go along with the FATCA requirements and this is certainly not the case. In fact, the Canadian banking industry agrees with your concerns and we have been and will continue to fight to change the extraterritorial reach of FATCA and lessen the impact it will have on Canadian banks and their customers.We have information on our stance on FATCA and information for customers at the following links (here and here).Over the past two years, the CBA and the Canadian banks have raised our concerns with the IRS and the US Treasury Department and have also done so through our membership in the International Banking Federation. I have attached some of those letters for your review. We have also had discussions in Washington with IRS and US Treasury officials and Canadian Embassy officials. In Ottawa, we have raised concerns with officials from the Department of Finance, the Minister of Finance and the US Embassy. Finance Minister Jim Flaherty has supported our position and expressed his own concerns publicly and we appreciate the support from the Minister and his officials. And we are not alone in fighting this legislation. Governments and banking groups from around the world share your concerns and ours. You can find more documents here (http://www.deloitte.com).Draft FATCA regulations were released on February 8 and we are currently reviewing them with our members and will again make our views known to US officials as part of their consultations on the draft regulations. We are pleased the US Treasury Department has indicated that it is ready and willing to look at alternative paths to achieving the policy objectives of FATCA so we will continue to push for changes.I would like to address a few of the other points you and your friend raise in your letters. You are correct in stating that Canadian banks currently have no requirements, nor desire, to identify the citizenship of their customers. If they were required to identify US persons under FATCA, they would not be doing this willingly. However, they may have no choice as FATCA is currently written because the non-compliance would have a much larger impact on more of the financial institutions’ customers. The penalty for being unable to comply with these complex rules is very severe for both banks and their clients. The penalty includes a 30 per cent withholding tax on all U.S. source income flowing to the bank and its customers, and a 30 per cent withholding tax on the gross proceeds of the sale of U.S. securities by the bank and its customers. According to Statistics Canada, as of 2010 Canadian direct investment in the United States totalled nearly $250 billion.Finally, you have said that your credit union has taken a “Canadian nationalist stance” on this issue and will not be complying with FATCA. While it is free to make that choice, such a decision comes with considerable consequences for its clients. Any U.S.-source income paid to clients of the credit union from mutual funds or other investments will be subject to a 30 per cent withholding tax as will the proceeds from the sale of any such investments. If your credit union does not offer such services (for example, if the only services it provides are domestic deposit-taking and lending) then it may be able to make that choice without consequence because neither the credit union nor its customers have US earning. You might be best to clarify the situation with your credit union.I hope this information is helpful in explaining why Canadian banks would comply, however reluctantly, with FATCA if it became necessary and why Canada’s banking industry, with the support of the federal government, will continue to fight for changes to the FATCA legislation. If you have any questions, please let me know.Sincerely,Maura Drew-Lytle | Director, Media Relations and Communications | Directrice, Relations avec les médias et Communications
post originally published March 4, 2012
The banks are like some of us, dual citizens so to speak. They have operations in both Canada and the US and need to follow the laws in both countries.
“If they were required to identify US persons under FATCA, they would not be doing this willingly. However, they may have no choice as FATCA is currently written because the non-compliance would have a much larger impact on more of the financial institutions’ customers.”
What the above quote means to me is that “we will identify US persons, perhaps reluctantly as long as it will protect our profits”
What Canada needs to do is to tell the banks the law in Canada is that you can not ask! The banks may then have to decide if it might them be time to renounce US citizenship as well.
@Blaze, Thank you for posting this. The US Treasury Department does not have much liberty to make concessions because it is obligated by FATCA to enforce this law. It is a horrible law and, it is my firm conviciton that it must be repealed. But that can only happen if foreign governments, like Canada and several others, take the firm position that they will not allow the IRS to enforce it within their sovereign territories. FATCA, in my opinion and that of many others, is likely to result in a really catastrophic withdrawal of foreign investsments in the US which would do much more harm to the US economy far outweighing the additional tax revenue it generates.
@True North: That was the very paragraph which jumped out at me. I have not yet replied, but Schubert has. I’ve also forwarded it to the Charter lawyer I hope to consult.
@Roger: That withdrawal of funds has already begun. It will only increase in the future.
@Everybody: I don’t think my link to the CBA submission worked. I’ve asked Petros for help in correcting it.
@Blaze
Interesting response from the CBA. I am happy they didn’t cite reputational risk or any crap like that you sometimes hear in the context of UBS or Wegelin. As of right now I don’t believe Canadian banks can “fully” comply with FATCA due to conflicts with Canadian law something which the CBA mentions several times in their submission.
My sense is we just got a peek of what is happening behind closed doors and there does appear to be a fairly extensive lobbying effoct going on and is such I am happy that the CBA gave us a peak. The key is to get this more out in the public domain and have be debated among MP’s instead of the public service. I would forward this email from the CBA in any future correspodence you have with MP’s especially NDP ones that aren’t known to be friends of the Canadian Bankers Association.
I am curious whether it was you someone else that was going to have a conversation with the CEO of their local credit union regarding FATCA.
RE: $250 billion of Canadian customers of CBA in investment in the United States: FATCA will result in the dismantling of the global economy. Perhaps this was the goal. I have moved all my investments to Canada. Furthermore, I am actively shorting the US investments (i.e., “US dollar carry trade”, I borrow US dollars to buy Canadian investments).
Don’t be the last one to get out. The last ones out before the door slam shuts will get the lowest price for their investments.
There have been some recent posts on Isaac Brock that suggest that the 30% witholding from recalcitrant account holders would pertain to the entire balance in an account. It was my understanding that this only pertained to US-source income. So, if the foreign account only contained proceeds of foreign salary or foreign investments, the 30% witholding would not apply (according to FATCA). However, it is possible that some banks may interpret the 30% more globally. Imagine finding that your account is closed and that your last salary has been docked 30% and you cannot pay your bills.
This brings up the points (again) of possible suit under civil and criminal non-discrimination statutes in the foreign country (for account closure), data protection violations, suit for obstruction of property or illegal misappropriation/conversion of the client’s funds to pay the 30%, or similar causes of action (depending upon the local laws in the foreign jurisdiction). Everyone should be making a list of these possible causes of action and trying to scope them out before 2013, especially if one wishes not to comply. Anonymous calls to banks and local tax authorities might be one way (mask your phone number– most phone systems have a prefix code to dial). Discussions with local lawyers might also be a solution (tell them that you want to stick to your position that double-taxation and reporting is unconstitutional, against international principles, etc. and that you are looking for local legal means to block the application of FATCA.
I have been trying to obtain information as to how individual banks in Europe might be planning to interpret FATCA, and the only somewhat complete paper I have found on this comes from the State Bank of Bern (BCBE): http://www.bekb.ch/en/informationen_zu_fatca.pdf. This bank has stated on its website since well over a year that they will open no accounts with US Citizens. I am not sure what happens in the case of dual-nationals.
@Everyone
As Blaze has mentioned, I’ve replied to CBA at some length. I don’t want to post my reply to them until I hear back what they have to say in return, because I raised some very pointed legal questions with them.
One of the questions pertains to Article 15 of the Charter, which prohibits discrimination on the basis of national or ethnic origin — and the kind of action they are proposing. CBA says that, if push comes to shove, they will toss some customers under a bus to “protect” the majority of their customers, based on place of birth (which is certainly all it can be based on, in cases like those of Blaze and others who relinquished their US nationality in the 1970s or early 1980s when becoming a foreign citizen was an automatic loss of US nationality unless you could talk them out of taking it away from you). That would be exactly the sort of thing Article 15 was written to prevent.
Another issue I raised was their continual reference to “US persons” when almost all the so-called US persons we and they are talking about happen to be Canadian residents and mostly also Canadian citizens. Who have protections both under Article 15 and, in the case of Canadian citizens, under Article XXVI A 8(a) of the Canada-US Tax Treaty, as publicly verified in writing by Minister James Flaherty. That treaty BTW also prohibits either country from any information sharing with the other country in a manner inconsistent with the country’s laws and normal administrative practices. Which sounds to me like any account-information sharing would contravene the treaty — and as I recall, that prohibition is NOT limited to citizens but extends to all residents of the country in question. But I’m not a lawyer, and the treaty is a bit hard to read … however I think I have that correct.
To another point raised earlier: the CBA documentation, and all other documentation I’ve seen about FATCA to date, makes it very clear that the 30% withholding of your financial transitions ONLY will apply to US-source transactions. Check the CBA website and read it carefully. I won’t pretend I’ve read all the latest FATCA bumpf from IRS, but scanning it I noticed only reference to US-source transactions. Transactions based solely in Canada they have NO jurisidiction over, and any “withholding” of such transactions would, I think, constitute theft and should be dealt with legally as such. But the banks aren’t stupid and won’t do that. US-source transactions arguably can be “intercepted” because they originated in the US, where IRS does have jurisdiction. IRS has zero jurisdiction in Canada, and everything in the Canada-US tax treaty makes that clear (just as CRA has no jurisdiction in the US — “enforcements” only occur through the other country’s tax agency and only pursuant to and limited by the terms of the tax treaty).
@Schubert1975
I, too read it, that the 30% applies to U.S. source transactions. And it would be for all of the FFI’s U.S. transactions, not just those of “U.S. persons”. If the investments were sold, 30% would be withheld. Any interest, dividends – 30% withheld. Certainly easy to understand where customers of the financial institution might be “up in arms” over all of that!
Purpose of Canadian Human Rights Act quoted
2. The purpose of this Act is to extend the laws in Canada to give effect, within the purview of matters coming within the legislative authority of Parliament, to the principle that all individuals should have an opportunity equal with other individuals to make for themselves the lives that they are able and wish to have and to have their needs accommodated, consistent with their duties and obligations as members of society, without being hindered in or prevented from doing so by discriminatory practices based on race, national or ethnic origin, colour, religion, age, sex, sexual orientation, marital status, family status, disability or conviction for an offence for which a pardon has been granted.
Similar to what the Australian Bankers Association was describing in Australia.
Further follow-up — TO DATE I have not forwarded CBA’s comments to Blaze and me to Flaherty or my MP. I reserve the right to do that, with suitable comments by me, depending on how they reply to the reply I mention in my previous post.
This is in the spirit of the first post on this thread by True North, which I completely agree with. We need to keep pressuring CBA and all our politicians on this. “Eternal vigilance is the price of freedom” and all that.
I copied to CBA an email I sent earlier this month to Flaherty, my MP, and the NDP critics, concerning that July 1980 form letter that Mr. Ladybug received (see separate thread on this website; I forwarded a copy of that form letter to Flaherty and the other MPs). I mention in that email that the form letter proves the contention of many relinquishers that they lost their US nationality automatically when they took foreign citizenship, and raises some thorny and (I suggested) eminently litigable issues if someone like a bank chooses to ignore the implications. I concluded with my strongly worded opinion that my government must ensure that Canadian financial institutions do not provide financial account information on Canadian citizens to ANY foreign government. Caving into FATCA or anything like it would set a precedent that could threaten the financial information and privacy of every naturalized Canadian citizen no matter what their national origin, as well as undermining Canadian sovereignty and mocking the meaning of citizenship on our own soil. Who in Canadian politics wants to face the political and economic blowback from that precedent if it were followed?
I await CBA’s reply to my correspondence with great interest.
@tiger
The thirty percent number is not as outrageous is it seems. A friend of a friend is a flight attendant for Westjet and she from what I heard gets thirty percent of her salary(which isn’t high)withheld in her paycheck by the IRS for the time she spends prorated flying in US airspace
@schubert
I agree it would set a huge precedent in many ethnic communities whose members are not on good terms with their origin countries. Think Tamils or Sikh’s or many Chinese Canadians.
Giving in to the US on FATCA would show the world that the Canadian government is weak and can’t protect it’s tax payers against a foreign government.
This would be the beginning of an avalanche of violations against other Canadians by their countries of origin. If you won’t protect former Americans, you won’t protect anyone.
@Everyone
I believe the Charter would come into effect if the Government of Canada passed a law essentially legitimizing the application of FATCA. In terms of private sector compliance you are talking much more about PIPEDA, Access to Basic Banking, and the Human Rights Codes. If the government passed legislation to try to allow a FATCA exemption to these laws then you would have Charter implications.
I don’t really think it’s even worth the time to argue about the legality and implications of the FATCA. You have the WORLD and the USA. The US does whatever it pleases. Some may call it extraterritorial. That’s just the US.
The US says that it wants to know everything that is going on in a “US Persons” bank account, even though the person likely owes nothing. just because the person was born in the US or holds “US Citizenship”. They think we actually derive some sort of benefit from having their crappy little citizenship….
So just renounce and be free of that place. Seriously, I have NEVER heard of ONE person on the internet that REGRETTED renouncing US Citizenship. Do you know anyone who has regretted it? I seriously doubt it.
@Schubert1975
I read the email you sent to Flaherty and others re Mr. Ladybug’s 1980 letter from DOS. Hopefully, someone in their offices reads the letters being sent and gets the point – why did some people get the CLN and others did not? Was it that some consulates were lax, lazy, or perhaps short staffed? Whatever the reason, I think those of us who did not receive that CLN have a better and better case. I thank you for sending the letter to Mr. Flaherty etal.
Let’s hope that the banks don’t have to choose between their customers and money. If it’s the latter, you may hear that the banks are lobbying the feds to change Canada’s laws. After all, the US has said that “countries may have to change their laws to implement FATCA”. Time will tell how stupid the US government really is.
SAMPLE CASE FOR ILLUSTRATION & DISCUSSION
Meet Peggy and Sue: sisters and Canadian citizens. They both live in a small Ontario city, work for the same Canadian employer, and bank and invest at the same major Canadian bank down the street.
However, Peggy was born in Michigan while their parents were graduate students. She moved to Canada as a teen, became a Canadian Citizen, and has not lived or worked in the US since. She was aware she could lose US citizenship by intentionally becoming a Canadian, but did so anyway. As far as Peggy’s concerned, her ethnic origin as a US person is an accident of birth: Canada is her home, and she’s as Canadian as sister Sue.
Our sisters live, work and invest in Canada. They don’t hold US stocks, and never bought a Florida condo. Now they each have almost identical RRSP’s, TFSAs and Canadian mutual funds. They opened these accounts 20+ years ago, and their bank has no record of Peggy’s US birthplace or Sue’s Canadian birthplace.
Suppose their bank now asks “where were you born”? An odd question after a twenty-year relationship – and they both say so!
Bank says that if Peggy is born in a certain foreign country, it will now serve her in a significantly different and adverse manner then her sister. So both sisters refuse to provide the information, and tell their bank that it’s actions seem like discrimination based on “nationality, origin or place of birth”.
What happens next?
i always ask people what I get from US citizenship that I wouldn’t get if I wasn’t taxed. That usually shuts their elitist mouths up (or they shove another Twinkie in it ). Pay a premium for US citizenship? I don’t think so.
@Tiger
The case gets even better. Read carefully the wording from the Act, quoted near the beginning of the letter Mr. Ladybug got from the Calgary Consulate (see thread on this website called July 25 1980 letter); that’s the wording of Section 349 as it was pre-1986, and it doesn’t say a thing about volition or intent to relinquish, it says if you become a “foreign” citizen you SHALL lose your US nationality, no ifs ands or buts. They were being “nice” by giving you the chance to argue you shouldn’t lose your nationality, once they found out you’d committed the vile deed of becoming a citizen of another country, but it doesn’t say anywhere in the pre-1986 act (or even in the current version) that you have to make a case to them that you were voluntary and did intend to relinquish — you have to make the contrary case, if you want to, and good luck with that, from what I’ve heard the office responsible for adjudicating these matters was very hard-nosed on this subject.
State’s own procedures manual confirms this pre-1986 lack of any reference to volition or intent in the wording of Section 349; see this PDF file http://www.state.gov/documents/organization/109065.pdf
and scroll down to the bottom of page 7 through top of page 8.
Deckard1138 also managed to find a PDF of the pre-1986 Act somewhere (maybe he can post the link, I don’t have it), and I’ve reviewed the PDF and confirmed myself this in fact is how the act was worded before 1986 — you SHALL (at the time that version of the Act was in effect) lose your US nationality by becoming a foreign national. Just as quoted in the 1980 letter that Mr Ladybug got.
Seems to me that for pre-1986 Canadian naturalizations, getting a CLN for that should be a slam dunk. I don’t see how DOS would have a leg to stand on in court if they denied a CLN to you, unless after becoming Canadian you did something unfortunate/stupid like apply for a US passport (they can check that), vote in a US election (not sure if they can check that but I wouldn’t want to gamble they can’t), or file tax returns to the IRS (they can check that I’d think, and yes filing tax returns to the IRS is interpreted as an acceptance or assertion of US citizenship, especially if you don’t reside in the US and don’t have any US source income that is taxable even if you don’t reside there).
I’m no lawyer and this is not legal advice, but I’m 95% confident that a lawyer would confirm my interpretation as stated above. To be save, get that State document referenced above and also download that July 1980 letter from the other thread, and take them to your lawyer.
@schubert, et. al.: This is all consistent with what US Consulate told me in 1973. By becoming a Canadian citizen, I was “permanently and irrevocably” renouncing my US citizenship.
They insisted I would change my mind later and warned I would not be able to reverse it. Instead, they are the ones who changed their minds.
They didn’t give me the form they should have. Now, IRS wants to be able to penalize me a significant portion of my life savings (all accumulated since I “permanently and irrevocably” renounced) because I didn’t fill out a form.
They’re the cheats, not us.
I’m not going anywhere near a Consulate to get a CLN. Their past practices tell me they can’t be trusted.
And further to my last post in response to Tiger, and has been noted several times on other threads, the current IRS interpretation of the dating of your expatriation as of when you tell State about it, not when it happened, and hence are subject to Form 8854 and possible exit taxation, is NOT valid if your expatriation took place before February 6, 1994, the date the Form 8854 and related exit taxation changes took effect. Anyone who took out foreign citizenship prior to 1986 obviously falls under the exclusion for expatriations prior to February 6, 1994. But again, verify this with a lawyer to be safe, since different cases may have different complications. However if you’ve never exercised or asserted US nationality since becoming Canadian (prior to 1986 certainly and likely any time prior to 1994), I am at least 95% confident that you don’t owe the IRS any taxes, penalties or returns. But do check this with a cross-border-qualified tax lawyer to be safe, and be sure to explain in detail your own situation (reference to all items under Questions 12 and 13 on DOS Form 4079).
And this, dear friends, is why I think CBA and their member banks might find themselves in deep hot water if they start reporting financial account information to IRS for persons who became Canadians prior to 1986. As I’ve taken pains to point out to them in my personal reply to their reply to the email from Blaze and me. But let’s wait and see how they reply to my reply to their reply before going down that road any further.
But as others have noted repeatedly, the safest protection from FATCA and any future US outrages is to get the CLN. The only sane reason not to is if you really do want to keep dual citizenship with the US, and God have mercy on you because the US won’t as far as I can see, if you insist on doing that and living outside the country. But each to his/her own tastes and choices, I guess.
Yes by getting a CLN it is likely that DOS will eventually “out” you to IRS. As I’ve indicated above, there are factors that may protect you (like the date of your expatriation) but it’s really important you discuss this with a cross-border tax lawyer (ideally one in Canada who is also aware of the Canada-US Tax Treaty and its protections for you, I’m not sure how aware US-based lawyers are about that or about the stance that Flaherty and CRA have taken on this). That’s another bit of grist for the mill, how important is it for you to cross the US border if the IRS and/or Homeland Security disagree with these interpretations and decide to make life miserable for anyone who crosses under them and can’t afford a good lawyer … Only you can decide that balance.
@Blaze Saw your previous post after I posted my last. I’m not disagreeing with your lack of trust in US officialdom (or politicians). I don’t trust the buggers any further than I can spit at them. If you’re willing to stay on this side of the border, and can manage to avoid having trouble with your financial institution under FATCA by whatever means (including litigation if necessary), then you may well be able to manage without a CLN. It’s all a question of comfort levels with various risks, I guess. And I am the last person to pass judgment on someone else’s risk assessment and tolerance, that always depends on personal and family situation, preferences and priorities. Good luck and God bless, to all of us.
schubert1975, Blaze: Excellent comments, both of you, and very informative. We’ve decided to go the CLN route because in the long run it will provide concrete proof for our banks that we are no longer US persons and haven’t been since 1974. The more I read about the rules of the day back in 1974, the more confident I am that DOS will issue the CLN.
Schubert, I agree that the IRS may well ignore DOS relinquishment dates and try to make a case for tax returns based on the notification date. But that would only be a problem if we get arrested at the border. And I suspect that the IRS lawyers, when they look at the facts of the relinquishment, might not recommend putting all of that in front of a judge — not even a US judge. They might find themselves on the wrong end of a precedent-setting ruling that would deprive them of their ability to threaten and intimidate ex-pats like us. Nothing worse than that for a bully.
But, for all of us who refuse to deal with the IRS in any way shape or form, the major issue is crossing the border. And I guess that’s a personal decision based on your willingness to roll the dice, and your appetite for becoming a martyr to the cause.
I would like to think some day, reason and common sense will enter US politics and put an end to this misery. But as long as nasty people like Carl Levin are in elected office, I won’t hold my breath waiting for it.
Why would you not have your money in a credit union to begin with? I would not trust the chartered banks in Canada for one moment not to turn you in! If you have your funds in a credit union and do not visit the USA, you can rest free and await further developments!