This is a re-post of a mass emailing by James Jatras of RepealFATCA.com which was sent out over the weekend. If it was mentioned on IBS, I might have missed it. Thought it should get headline billing here, so it is picked up by other FATCA watchers.
More Trouble for FATCA in Canada, China, Hong Kong – and what amounts to a declaration of war from Moscow!
Recently the politics of the United States and of the Republican Party got a badly needed shake-up by an old-fashioned filibuster on the floor of the U.S. Senate by Kentucky Senator Rand Paul, instantly vaulting him into a top presidential contender status for 2016. (Also of note, Senator Paul is a prominent critic of FATCA, the “Foreign Account Tax Compliance Act,” and has bogged down amendments to a U.S.-Switzerland tax convention on constitutional grounds raising some of the same issues as FATCA.)
Amazingly, it turns out that for some in Washington, constitutionalism, the rule of law, the value of citizenship, and national sovereignty are more than just words.
Shifting our attention to our Friendly Neighbor to the North, is there a “Rand Paul Moment” brewing in Canada, where the rights of up to a million Canadian citizens and the economic and sovereign interests of that country are threatened by a financial “drone strike” by the U.S. Treasury Department?
As detailed by Don Whiteley in the Vancouver Sun (“Compliance with U.S. tax law may violate Charter of Rights”), the “clandestine negotiations” being conducted by the government of Prime Minister Stephen Harper and the Finance Department of Minister Jim Flaherty with American officials stand to violate the most cherished human rights protections of citizens of the “True North strong and free!,” according to a letter from a noted constitutional scholar, Peter Hogg, former Dean of Osgoode Hall Law School:
FATCA compliance costs for the world’s financial institutions are astronomical, and Canada’s banks are hoping that the federal government will negotiate an intergovernmental agreement (IGA) with the Americans that would allow them to report data on U.S. citizens to Canada Revenue Agency, which in turn would send it to the IRS. The U.S., to facilitate this approach, has written a Model Agreement to be used as a template for these bilateral tax agreements.
But a major obstacle to all this is Canada’s Charter of Rights and Freedoms, which prohibits (Section 15.1) discrimination based on several criteria, including “national or ethnic origin.” Constitutional expert Peter Hogg has pointed this out in a five-page letter to the Finance Department, which is co-ordinating the IGA negotiations with the US.
“In my opinion, the procedures mandate by the Model IGA are discriminatory in a way that would not withstand Charter scrutiny,” Hogg says in his letter. “These procedures effectively treat individuals differently, and adversely, based on an immutable personal characteristic, specifically citizenship. If Parliament were to enact legislation authorizing and permitting this type of differential and adverse treatment, the legislation would contravene the equality protections in section 15 of the Charter.”
Hogg’s letter goes on to point out that Section 1 of the Charter allows governments to impose reasonable limits to Charter provisions, but then argues “… any argument attempting to use Sec. 1 to justify limitations on the equality rights would be extremely weak. The objective of ensuring compliance with U.S. tax laws is probably not important enough to justify breaches of the Canadian Charter, and even if it was … the measures contemplated (by the U.S.) are grossly disproportionate to the objective.”
There are about one million people in Canada — the vast majority Canadian citizens — who have connections to the U.S. in one way or another. Some are “accidental” Americans — born in Canada to parents who are (or were) U.S. citizens; Americans who left the U.S. decades ago and thought they automatically renounced their U.S. citizenship when they became Canadians; and border babies — people born to Canadian parents in the U.S. who came home as infants.
To be sure, Prime Minister Harper, Minister Flaherty, and especially Canadian Bankers Association president Terry Campbell have been critical of FATCA but have settled on an IGA with the U.S. as the least-bad option: a way (perhaps) to save some compliance money, but at the expense of Canada’s sovereignty, and of the pocketbooks of Canadian citizens and consumers. But if Professor Hogg is right, the IGA option simply might not be open to Ottawa, especially if not only the Opposition New Democratic Party, Greens, and Progressive Canadians, but MPs of Harper’s and Flaherty’s own ruling Conservative Party draw a lesson from Rand Paul and take to the floor of the Commons against FATCA and an IGA with the U.S.
“Should Canada decide not to sign an IGA, the banks will be left to their own devices and will have to make their own deals with the IRS — a vastly more complicated and expensive process.”
But, again, if Professor Hogg is right, in the absence of an IGA, Canadian banks won’t have the option of making their own deals with the IRS, because directly supplying the information demanded under FATCA would itself constitute a violation of the very same Canadian laws.
The upshot? It remains to be seen if a fever of adherence to the rule of law will break out in Canada. But if it does, officials in Ottawa may find themselves faced with a politician’s (and banker’s) worst nightmare: having to do the right thing.
Instead of capitulating to Washington’s demands, Ottawa would be forced to find the courage to look American Treasury officials in the eye and inform them of countermeasures – including WTO and NAFTA remedies, as well as lawsuits in American courts – they can expect if the U.S. Treasury were foolish enough to take the unwise, not to mention illegal (under international customary law and trade agreements), step of trying to expropriate 30% or Canadian institutions’ lawful income in reprisal for FATCA “recalcitrance.”
Meanwhile, in the rest of the world . . .
Turning from Canada, a must-have country for Treasury to force into the FATCA corral, other countries essential to a worldwide FATCA regime are looking even more doubtful.
As a first in the mainstream international media, Reuters financial reporter Patrick Temple-West has picked-up on and expanded on a story commented on earlier by Nigel Green, CEO of deVere Group: China (the world’s second largest economy after the U.S.), along with Hong Kong (a “Special Administrative Region” of China, and a top financial center), are also unlikely to sign IGAs or permit institutions to submit to the IRS’s diktat. Writes Temple-West:
The success of a broad U.S. crackdown on offshore tax dodging will be determined in part by China’s cooperation, but talks with Chinese officials are making little headway, former U.S. Treasury Department officials and tax professionals said.
FATCA requires foreign financial institutions to tell the United States about Americans’ offshore financial holdings.
One obstacle in the Chinese talks is likely that China wants, in return, more tax information than U.S. officials are willing to share about Chinese citizens who have assets in the United States, accountants and tax lawyers said.
China – the world’s second-largest economy – is seen by some tax experts as an important participant if the U.S. Foreign Accounts Tax Compliance Act, or FATCA, is to work effectively, especially in Asia. [ . . . ]
China is seen as a critical part of the FATCA puzzle not only due to the country’s own global economic prominence, but also because of its sway over Hong Kong, a major money center.
The Hong Kong Association of Banks said in a statement: “FATCA is an issue highly relevant to Hong Kong … We have been and will closely follow relevant developments, in discussion with the Hong Kong Government.”
The Financial Services and the Treasury Bureau of Hong Kong did not respond to questions.
It was unclear whether Hong Kong may be able to negotiate an IGA on its own with the United States. Hong Kong became part of China in 1997, but retained its own currency and local government. [ . . . ]
Foreign countries have pushed, with limited success, for reciprocal information sharing, but generally IGAs have not allowed an equal two-way sharing of taxpayer information.
With IGA negotiations in mind, the Obama administration is considering asking Congress for the power to require more disclosure by U.S. banks of information about foreign clients’ accounts to those clients’ home governments.
The IRS this year started giving some foreign governments information about interest payments earned by their citizens in U.S. bank accounts. This has already raised privacy concerns.
Adding to prospects of a BRICS-based opposition to FATCA, it now appears that Russia has broken off IGA talks with the U.S. and will forbid its institutions to comply. Writing in iExpats.com, Lisa Smith reports (“FATCA Hits The Buffers In Russia”):
Now Russia has stepped up to say implementing FATCA is illegal in the country as the rules are contrary to Russian and international laws.
The Russian Foreign Ministry has also declared that the country’s financial institutions would break local laws if they enter into any agreement with the IRS.
The Bank of Russia has backed up the Foreign Ministry’s stance and said that FATCA undermines the principle of equality among sovereign states.
One of the reasons why is [that there is] no similar agreement for US-based financial institutions to reveal the details of its foreign clients to other governments.
This is somewhat surprising, as Russia has earlier indicated not only its willingness to work with Washington on FATCA compliance but to help round up support from the other BRICS countries (notably China and India). In addition, recently President Vladimir Putin called for legislation prohibiting Russian officials from being allowed to hold foreign bank accounts at all, to hinder hiding corrupt assets abroad, and probably would have liked to have reached an equitable deal with Washington. But when it became clear that FATCA is not a bilateral cooperative agreement, no matter how the IGA is dressed up, but a unilateral imposition by Washington on the rest of the world, Moscow correctly concluded that sovereignty and the rule of law must prevail.
Indeed, what appears to be a detailed analysis and commentary by В.Ю. КАТАСОНОВ, проф., д.э.н., председатель Русского экономического общества им. С.Ф. Шарапова (V.Yu. Katasonov, prof., PhD, chairman of the “Sharapov” Russian Economic Society) posted on the Russian Ministry of Foreign Affairs website (on the BRICS page, no less!) reads as Moscow’s declaration of war on FATCA – prepare to be blown away (even in Google auto-translate English!).
Britain, Switzerland: Time for Second Thoughts?
If China (and Hong Kong) and Russia stay firm in putting their independence and sovereignty first, and especially if even Canada willy-nilly does likewise, it’s not too soon to state that FATCA already has been exposed as a failure. The question then would be;
First, how much damage is the U.S. Treasury Department willing to inflict on the United States and on the global financial system in a vain attempt to vindicate this badly misguided approach to tax enforcement?
Secondly, will countries that already have “drunk the FATCA Kool-Aid,” starting with the United Kingdom (the first country to sign a “reciprocal” Model 1 IGA) and Switzerland (the first to sign a “nonreciprocal” Model 2 IGA), realize they’d been “had” and stop action on ratifying the agreement?
James George Jatras
Visit www.RepealFATCA.com for more information on “the worst law most Americans have never heard of”
This is a great article – one of the best. We should find a way to make James Jatras a Canadian citizen quickly to facilitate his quick exit from the U.S.
I have another idea:
James Jatras: Would you be interested in turning your lobbying efforts and considerable talent to getting rid of citizenship-based taxation?
Swiss news reported yesterday that the US wants access to the data of not just 13 banks, but rather 80 to 90 out of the 300. This reaches a whole new dimension. Nobody is willing to state what exactly is expected from these 80-90 banks. One fears that this could cause a revolt in Switzerland.
These are some points taken from:
A poll today found that 86% of the Swiss population believes that bank data needs to be protected from foreign powers. This is down from 91% in 2011. 72% were against weakening banking secrecy for local customers. 65% are against reciprocity. 43% were very positive about Swiss banks. 84% were positive about their own bank. Local banks (which rejected US clients) were above average and international banks (which accept US clients) below average.
Putting more pressure on the Swiss government:
Swiss Abroad slams gov’t for hasty tax deals that don’t consider country’s expats
It will be interesting to see what happens in the bond market when US debt holders in non-IGA countries begin to dump their US bonds in time to avoid the 30% withholding tax on US source payments.
I love this part;
….”It remains to be seen if a fever of adherence to the rule of law will break out in Canada. But if it does, officials in Ottawa may find themselves faced with a politician’s (and banker’s) worst nightmare: having to do the right thing.
Instead of capitulating to Washington’s demands, Ottawa would be forced to find the courage to look American Treasury officials in the eye and inform them of countermeasures – including WTO and NAFTA remedies, as well as lawsuits in American courts – they can expect if the U.S. Treasury were foolish enough to take the unwise, not to mention illegal (under international customary law and trade agreements), step of trying to expropriate 30% or Canadian institutions’ lawful income in reprisal for FATCA “recalcitrance.””
Canada can fight the US for years about ‘shakes and shingles’, but not about the savings of Canadian families?
I agree with USCitizen 100%. Perhaps some of us long-term US transplants have lost our edge. Jim would be a great mover and shaker here!
This is truly awful. Do you really think the Swiss people would revolt? I am presuming that the higher number of banks targeted is a result of data mining of the info they’ve already received from their investigations. They are always threatening with that fact. Wish I’d kept up my German so I could read your linked material directly. Not able to understand much from them directly.
Don’t give up just yet. I am beginning to believe that while it may not present as a “fever,” some of the recent awareness raised by Peter Hogg and the article by Jeff Mukadi (specifically, the Foreign Extraterritorial Measures Act) is going to result in some hoopla and perhaps nations will start insisting on reciprocity which will likely put an end to all of this nonsense. Because we all know USFI’s WILL raise a ruckus if they are required to do what the US is inflicting on the rest of the world.
I don’t think governments anywhere are truly dedicated to serving their people and Canada is no exception. It just presents a better face, at least generally. All one has to do is look at the treatment of First Nations in order to judge whether Canada is “better” than other govs.
Fascinating article. The Swiss are starting to learn that the US is a bully. It wants to keep its shell corporations and tax-haven status for LatAm money while enforcing FATCA on the rest of the world. The fact that Wegelin was punished under the US system even though it does not have a US base is a spectre of things to come if these 80-90 banks you mention give up their info. The Swiss signing FATCA has not appeased the US; they have merely shown them what dumb idiots they (the Swiss) are.
Switzerland should tear up FATCA and put a stop to this nonsense now. The referendum might be the solution…
Daily Caller has an Andrew Quinlan piece…
FATCA and US fiscal imperialism threaten to sink global economy
Read more: http://dailycaller.com/2013/03/19/fatca-and-us-fiscal-imperialism-threaten-to-sink-global-economy/#ixzz2O1kNSXu9
@nobledreamer, re; “I don’t think governments anywhere are truly dedicated to serving their people and Canada is no exception. It just presents a better face, at least generally. All one has to do is look at the treatment of First Nations in order to judge whether Canada is “better” than other govs.”
I’ve always felt that complacency or smugness about Canada and the Canadian government is dangerous, because there are plenty of issues to be addressed here at home. Canada isn’t immune to the worst impulses shared by all other communities of humans and hierarchies.
Take our domestic, and international mining activities for example http://www.miningwatch.ca/categories/company-country-issue/issue/human-rights http://www.thestar.com/news/canada/2012/11 http://www.cbc.ca/news/world/story/2013/04/02/f-mining-protests-canada-abroad.html http://www.cbc.ca/news/canada/story/2013/03/27/f-cida-dfait-merger.html
One reason I regret the need to renounce US citizenship – as a dual citizen, it feels good and proper to try and exercise your right and duty to hold both governments to account. And the US and Canada are so entwined, that it is good and useful to compare and contrast them from the perspective of a citizen of both countries. It broadens the horizons I think – especially when what one country wants conflicts with the other.