James George Jatras
January 4, 2013
Proponents of the “Foreign Account Tax Compliance Act (FATCA) – a/k/a “the worst law most Americans have never heard of” – fell short at the end of 2012 on two key indices, further puncturing its air of presumptive inevitability:
- The Treasury Department had predicted that 17 countries (already a shamelessly padded list, with inclusion in that number of three tiny British Crown Dependencies) would finalize intergovernmental agreements (IGAs) with the United States to impose FATCA on themselves by December 31. The actual result at year’s end? Signed IGAs with the UK, Denmark, Ireland, and Mexico. Switzerland and Spain reportedly also have “initialed” agreements, whatever that means.
- The Department had also expected to finalize the draft regulations applicable to foreign financial institutions (FFIs) by year’s end – but that didn’t happen either.
Oh, to be sure, we can expect that sometime in the next few days or weeks the Department will announce another IGA or that they finally have the final regulatory language all worked out. At that point, we can expect the compliance vendors – for whom FATCA promises to be a goldmine – to turn up the volume of their chorus on the need for FFIs to pony up for very expensive and (at this point unnecessary) services. But that won’t change the increasingly evident fact that FATCA is in trouble as more people, both in the U.S. and elsewhere, take notice that FATCA is sheer idiocy and does almost nothing to police actual tax evasion while imposing crippling costs on, and violating the personal privacy of, innocent institutions and persons. As I observed in a recent interview with George Prior on iExpats.com: “FATCA is a law that doesn’t achieve its purpose but does manage to hurt the U.S. and global economy, and consumers worldwide, in almost any way conceivable. If that’s not the ‘worst law ever,’ what is?” (See full text of interview andlink below for additional analysis.)
Of particular note is the “fact-finding forum” in Toronto, Ontario, on December 15, 2012, hosted by the Progressive Canadian Party and its distinguished chairman, the Honourable Sinclair Stevens, and featuring presentations by Allison Christians, Professor of Law at McGill University, Abby Deshman of the Canadian Civil Liberties Association, and others (including me, on how FATCA can be defeated). (Commendably, the full video and transcripts have been posted by the Isaac Brock Society.) Make no mistake, CANADA is key, with other countries watching to see if Ottawa knuckles under to a unilateral, extraterritorial demand from Washington to impose billions of dollars of FATCA compliance costs on Canadian consumers and to violate the human rights guaranteed by the “True North strong and free” to citizens and residents. As Canadian media are now beginning to notice, and the comments by ordinary Canadians are showing, the “massive new layer of bureaucracy” Washington threatens to impose on our close friend and ally – backed up with the threat of sanctions – has “little to do with tax fairness or cutting the [U.S.] deficit.”
This year is likely to shape up as make or break for FATCA. With a little support for the anti-FATCA campaign – at a tiny fraction of what the compliance vendors are demanding – 2013 can be the year that FATCA collapses under the weight of its own flaws, before its worst ravages can take effect.
Now that would be a happy new year!
Interview: James Jatras, Lawyer and Anti-FATCA Lobbyist
by George Prior : December 28, 2012
James Jatras, a former US Diplomat and US Senate staffer, who now runs a legal firm in Washington D.C which specialises in foreign affairs and human rights, has launched a worldwide campaign for the US Treasury to repeal its controversial Foreign Account Tax Compliance Act (FATCA).
In an exclusive interview with iExpats.com he shares why he believes FATCA is adversely affecting US expatriates and the global economy.
What is the government’s primary motivation for FATCA?
FATCA (the “Foreign Account Tax Compliance Act”) is a U.S. law enacted in 2010 and awaiting implementation. It would require every foreign [non-U.S.] financial institution (FFI) in the world to contract directly with the IRS to supply detailed information on the accounts of U.S. persons.
Estimates for implementing the information-collection measures demanded by FATCA run into hundreds of millions of dollars each for a large financial institution and in aggregate up to $1 trillion worldwide.
Any FFI (not just banks but pension funds, insurance companies, stock and investment firms, and so forth) failing to comply would be hit with a 30 per cent withholding penalty on the “recalcitrant” FFI’s U.S.-derived revenues.
It must also be understood that FATCA was not negotiated as a cooperative international partnership among equals, such as the WTO [World Trade Organistaion]. Instead, it was enacted unilaterally by the U.S. which now demands extraterritorial enforcement, often in violation of other countries’ laws (on data protection, for example), with the 30 percent withholding provision in effect a threat of sanctions.
Shamefully, some governments, starting with the UK, have indicated that their response to this threat is capitulation in the form of an IGA (intergovernmental agreement), whereby the non-U.S. IGA “partner” agrees to enforce FATCA on behalf of the U.S. – at the “partner’s” own cost, of course.
Like the U.S. experiment in prohibiting alcohol, FATCA displays a fatal disconnect between its stated purpose – catching “tax cheats” – and its actual operation – penalizing everyone and anyone else. In fact, FATCA does almost nothing to identify real, conscious tax evaders but instead creates a massively invasive and expensive global burden. Some actual “tax cheats” may incidentally be tripped up, but FATCA will likely waste more money to administer than it would “recover” in hidden revenue. One wonders if the real reasons behind FATCA are for the IRS to put everybody in a financial fishbowl, after all information is power, and in the process reduce foreign governments and FFIs to deputies of the U.S. government.
Why have you branded FATCA the ‘worst law ever’?
I have called FATCA the “worst law most Americans have never heard of” for two reasons. First, probably not one American in a thousand knows what FATCA is. Even many Senators and Congressmen who voted for FATCA, buried as a “revenue offset” in an essentially unrelated bill, are not familiar with it.
That fact alone shows that the widespread sentiment – fed by tax lawyers, accountants, software companies and other compliance purveyors with a pecuniary interest in FATCA – that “FATCA is here to stay” is at best grossly premature. As Nigel Green, chief executive of deVere Group has put it, “The U.S government owes it to Americans to give public, in-depth justifications on why it remains committed to this highly controversial piece of legislation.”
Indeed, if and when FATCA receives the kind of scrutiny in the United States it should have received before enactment, it is unlikely to survive. From my eye as an experienced legislative specialist, FATCA’s breathtaking defects present what military planners call a “target-rich environment.” These include not only the disconnect between FATCA’s stated purpose and actual impact, but many other unintended consequences that will ‘bite’ Americans. These include: damage to the U.S. economy and the loss of American jobs, higher consumer costs for Americans, the compromise of Americans’ financial data, the fact that FATCA won’t even achieve its intended purpose, and a host of other unintended economic damage to the U.S, such as the violation of trade agreements (discrimination between U.S. institutions and FFIs, or between FFIs in IGA countries and non-IGA countries) and the negative impact on “niche” constituencies, such as politically powerful immigrant communities in the U.S., notably from Latin America and Asia.
In short, FATCA opens a Pandora’s Box of issues all pointing to the law’s basic dysfunctionality.
To sum up, FATCA is a law that doesn’t achieve its purpose but does manage to hurt the U.S. and global economy, and consumers worldwide, in almost any way conceivable. If that’s not the “worst law ever,” what is?
Specifically, how will American expats be adversely affected by FATCA?
The immediate way expats will be damaged, and, indeed, already are being damaged, according to numerous news reports, is their increasingly leprous status in the eyes of FFIs, who see accounts from Americans as more trouble that they’re worth. Perhaps symbolic of FATCA’s overall dysfunction, there is a sick absurdity to this, in that FFIs dropping American business actually are not affording themselves much protection. If and when FATCA goes into effect, it won’t be enough for an FFI to certify it has no U.S. accounts because it has a policy of refusing Americans’ business. The IRS’s answer, in effect, would be: “How do you know? What ‘best practices’ have you put into place to ensure your account-holders don’t include any U.S. persons?” These FFIs would still be required to put into place the array of expensive data collection and reporting measures to IRS’s satisfaction.
I, and others, have likened the plight of American expats to that of a “canary in the FATCA coalmine.” They indeed certainly are already in the line of fire, because while FFIs’ compliance deadline has been backed off from January 2013 to January 2014 – and maybe will be pushed back further now that it appears that Treasury will miss its latest target for finalizing regulations on FFIs – individual Americans’ requirement to file Form 8938 already went into effect with their year 2011 tax return. So for FFIs, FATCA is still a sword of Damocles. For expats, FATCA is a current, onerous reality.
Should US expats be doing anything now to protect themselves from the, in your opinion, potentially negative impact of FATCA?
Since the Form 8938 requirement is current, expats have to protect themselves first of all by timely submission. Beyond that, it seems to me that they have to make a distinction between tactical thinking (issues, like citizenship-based taxation) that specifically concerns expats, and strategic thinking (like FATCA as a whole, which hurts everyone but expats first of all).
The temptation would be for expats to focus on the tactical issues to the exclusion of the strategic issues. I think that’s a mistake. To start with, Americans living outside the U.S. don’t have a big footprint in American politics (most U.S. politicians would be hard pressed to distinguish “expatriates” from “ex-patriots”) and have no concentrated voting strength in any particular state or district.
Issues specific to expats (like a desirable switch to residence-based taxation) are more likely to be solved in the context of a larger, strategic fix that would entail FATCA repeal. In short, an approach that seeks a narrow “carve-out” for expat specific problems is counterproductive. While superficially appearing more difficult, the “bigger solution” of getting rid of FATCA may actually be more achievable because the defects as I’ve identified them have longer political ‘legs’ than expats’ particular concerns.
To that end, expats can offer unique leverage in helping to mobilize interests to get rid of FATCA. At the top of the list I would suggest that where American expats have access to foreign government officials, management of FFIs, and foreign media, they convey a strong message: First (to foreign governments), don’t sign IGAs with the U.S. to administer FATCA for the IRS, don’t allow domestic FFIs to comply with FATCA, and tell Treasury you’re prepared to respond with WTO and other remedies if IRS tries to apply sanctions for recalcitrance (notably the 30 per cdnt withholding). Second (to management of FFIs), stop pressing your government to sign IGAs, and stop wasting money and effort on preparation to comply with FATCA regulations that aren’t even final yet – instead, put your money and time into getting rid of FATCA by supporting a repeal campaign in the U.S. Third, use any means to get these messages into foreign media.
If FATCA is not repealed before January 2014, what should they do in the New Year of 2014?
As the baseball player Yogi Berra once supposedly said, “It’s tough to make predictions, especially about the future.” A lot can happen between now and January 2014. Even if FATCA is not repealed by then, based on past (non)performance the possibility exists of further delay in implementation of regulations on FFIs. Indeed, forcing such a delay would be a key proximate objective in a repeal campaign strategy. The more holes punched in FATCA’s supposed “inevitability,” the more opportunity to soften it up for repeal.
It has been reported that the US government is to miss its end-of-year deadline to publish final rules for FATCA. What these targets are, how does missing these targets impact on FATCA’s implementation, and what, in your opinion, needs to happen as a result?
It appears that this latest delay in finalizing regulations on FFIs is directly connected to the slow pace in getting other countries to sign IGAs.
Let’s look at the record. The draft regulations were supposed to have been released by December 31, 2011. Instead, they were released over two months late, on February 8, 2012, not coincidently the same date that a joint statement with five EU countries was released for “FATCA partnership” with the U.S.
Then, in October, Treasury announced a delay of one year (from January 2013 to January 2014) for important compliance issues for FFIs. Then, in November Treasury released a bald-facedly padded list claiming fifty (!) countries were close to signing IGAs with the U.S., including 16 (among them the other four EU countries besides the UK, plus three tiny British Crown Dependencies) with which IGA’s would be finalized by December 31, 2012. The measly achievement so far: signed IGAs with the UK, Denmark, Ireland, and Mexico. Switzerland and Spain reportedly also have “initialed” agreements, whatever that means.
This performance is pretty pathetic in comparison to what Treasury needs to accomplish. Even some of FATCA’s proponents concede that FATCA as enacted is unworkable, and that non-U.S. government cooperation in the form of IGA’s is essential: in short, no IGAs, no FATCA. It should be noted that already China is presumed a No on FATCA compliance (on sovereignty grounds and the claim, rejected by the U.S., that partial government ownership of institutions means they are FATCA-exempt sovereign entities), and compliance of Russia, Brazil, and India is questionable. If a BRICS-led bloc in opposition to FATCA were to arise, Washington would have a problem of the first order.
Canada is also a significant point of building resistance, with the government of Prime Minister Stephen Harper ambivalent about rushing to sign an IGA before Parliament has had a chance to address it.
In short, it appears that because IGAs with key countries are failing to materialize, Washington now has kicked the can down on the road on finalizing the regulations. Other delays of unilateral implementation may follow, opening a further window for a repeal effort in Congress.
Thanks for posting this, I wonder if you could change the link to the Globe and Mail to one of these two because it will allow for the comments to be accessed (which are far better than the article).
Here is the comment link:
Superb article! Just superb!
Ok, they are both there now!
@USCitizenAbroad — thanks!
@Just Me: thanks for posting this on IBS and especially thanks for posting the link with the comments on McKenna’s article. Wow — a real outpouring! I think there were only one or two pro-FATCA comments. As real live Canadians get a load of this, they don’t like it. Back to the Reagan quote, to get politicians to see the light, you have to make them feel the heat. I don’t see how either the government or the opposition can afford to ignore this. (BTW, I don’t know how many of those commenting on McKenna were Brockers, but it looks like there are lots of “Brockers-in-spirit” out there!)
Good publicity for Jim Jatras. Spread the word.
It will be interesting to hear of his further efforts—is he able to approach specific lawmakers yet?
Expats are at risk, but so is another very important constituency: immigrants to the US and US-based dual citizens having accounts in their country of origin. In some ways they are at more risk than expatriates.
and Congress, the Fuhrer, and the public are even less concerned about them than they are of emigrants.
Yes, you are very right, and therein is one of the Biggest untold stories of our FWHAT? forms of FATCA and FBAR. Immigrants within U.S. Borders have less options when coming to grips with their compliance problems. IJs story is but one, and even though he escaped without penalty payment, the cost of going through the recommended OVDP process was a significant LCU penalty.
I often have the fantasy of millions of Greencard holders walking silently down jet-ways and leaving their GCs in seat back pockets as the FATCA discovery finally percolates through the immigrant communities consciousness. Of course, they will be replaced by the millions still applying without real knowledge of the Penalty Club they are joining. Right now there is no way to really gauge impacts from FATCA / FBAR knowledge on this group, and obviously no journalist that has an interest.
Pingback: What a FATCA IGA “would” mean for non-compliant U.S. citizens abroad « Freedom from the tyranny of U.S. citizenship-based taxation for U.S. and dual citizens outside the U.S.
Bloomberg has a FATCA article dated today with an IGA status report:
According to Quyen Huynh on Dec 12, an attorney-adviser in Treasury’s Office of International Tax Counsel: “We’re sticking to the effective date” of June 30, 2014 for FATCA’s rollout.
Note to Bob Stack and Quyen Huynh: There are around 190 countries in the world and you’ve only signed IGAs with 12 after two years of trying. That’s less than 10%. There hasn’t been exactly the ground-swell of enthusiasm for FATCA that you spoke of last summer. GFL!
Thanks for the update @Innocente.
I note that according to Treasury, the impetus for IGAs is coming from private entities – NOT other governments. Yet taxation and other agreements are usually considered the province of sovereign and autonomous GOVERNMENTS rather than private businesses. Are we to be ruled by banks now? Apparently BANKS decide what laws will be applied to the accountholders who actually OWN the assets the banks merely hold.
The article says; …”…“Financial institutions are looking at that and telling their jurisdictions we need to get this done,” said Manal Corwin, national leader of the international tax practice at KPMG LLP and a former Treasury official whose duties included focusing on the foreign accounts law, known as FATCA. “I think it has the impact of pushing this forward.” …”…
I note that the Bloomberg piece is based only on quotes from the FATCAnatics in the US government who of course have a vested interest in putting their own spin on it. It basically makes Bloomberg a mouthpiece of the Treasury department and the IRS. There was no other side quoted or noted.
Not journalism, but a free advertisement and propaganda piece.