Cross-posted from the Flophouse. I finally got around to reviewing Robert Morris’ book on FATCA which I read before Christmas. Here’s what I think. Would be very interested in knowing your take on it as well.
At last a book about the beast, FATCA.
I read Robert Morris’ FATCA and the New Birth of American Empire in one sitting a few weeks ago and I just posted a review up on Amazon.
It’s not long and it’s not an expensive book but it is for you? The disclaimer at the beginning is very helpful because Morris clarifies that he is not speaking to Americans abroad in his essay. If you are one of these “US Persons” he has no advice to offer though he points out that what’s happening to them (us) is a darn shame. I immediately disagreed with him on two points however in that introduction: he says Americans living outside the U.S. have power (which is nonsense) and that media outlets are willing to shine the spotlight on our stories (yes, but only very recently and after much effort by folks like Marvin,Peter and Lynne).
“This essay will focus on everyone else.” So his words are meant for those not directly in the line of fire – all those who think they are safe and that this business does not concern them because they are not US citizens or don’t have connections to the United States.
Morris begins by admitting that at first glimpse the law might seem to be quite a fine thing for those committed to the fight against tax evasion: “FATCA requires foreign businesses to provide information on any US accounts they manage to the United States Internal Revenue Service (IRS). If those foreign banks and investment companies do not do this, they are subject to a 30% withholding tax.”
Good for them, some say. At last something that really goes after all those darn tax cheats – those who profit from America but who, when the time comes to pay the bill, illegally send their money offshore, leaving the poor fools at home to face higher taxes.
Ah, but the devil indeed is in the details and a closer reading of the law (and the 500+ pages of regulations AND all those intergovernmental agreements) is required to understand the full scope of this nasty little piece of extraterritorial legislation. If it were just Americans impacted then it would simply be an affair between Americans in the homeland, the America diaspora abroad and those Yanks who keep their precious persons at home but let their money do the migrating.
Morris argues that everyone in the world is impacted in ways that are hard to see from just a cursory reading. His claim is that FATCA is “imperialist, racist and protectionist” and his essay is the case for repeal on those grounds.
FATCA is U.S Imperialism: FATCA requires that foreign (that is, non-US) entities be strong-armed into acting as enforcers for the American government. Every US person (a US citizen, a Green Card holder or anyone with a connection to the United States) is a target and a potential source of revenue even if they don’t live or work in the U.S. and the money earned was earned entirely outside of the United States. You wouldn’t get more extra-territorial than that – we are talking about people, assets and bank accounts that do not live on U.S. soil. Up until FATCA these things were subject to the laws of the country where they were located. Getting a job, earning a living and opening a bank account in Country A meant obeying the laws of that country and paying taxes to that government. FATCA (and by extension citizenship-based taxation) turns that on its head: “The most important laws governing the economic activity of US citizens abroad are no longer the laws of the country that they live in.”
Furthermore, in order to implement the law in the 190+ countries of the world, foreign countries are being asked to change their own laws, charters and constitutions to make them FATCA-friendly. Hard to see how anyone could argue that this is not imperialism. “The level of instrusiveness is staggering. If a given country has a confidentiality law that forbids their banks from sharing this kind of information, then the law has to be changed. Put simply, with FATCA the United States is asserting the right to tell other countries what their laws should be.”
FATCA is Racist & Protectionist: 500+ pages of complex regulations in English. Small countries and emerging markets, Morris argues, are at a terrible disadvantage under FATCA. Developed countries already have experience with complex regulations but even they are groaning under the sheer cost of re-tooling their IT systems and modifying their procedures to comply. How are less-developed countries supposed to manage? This was, in fact, a point made at the European Parliament FATCA meeting last year (my report here) by Action Aid “who pointed out quite rightly that such systems and the information they contain must be made readily available to developing countries.”
I see no sign whatsoever that the Europeans or the Americans are taking this aspect seriously. FATCA is an affair of les grands and the little people and the little countries will simply have to adjust to this brave new world.
But Morris makes the point quite well, I think:
“FATCA creates a catch-22. Banks from emerging markets can only become large modern financial institutions by competing in international markets. FATCA, however, requires these banks to be large modern financial institutions before they can compete in international markets…The developed countries did not have to put up with these burdens while they were developing, it is unjust to force others to take them.”
“Now that the benefits of economic growth are finally spreading to non-white (or non-Japanese) areas of the world, the US government is ensuring that a vital part of every country’s economy, the banking sector, is reserved for the already developing countries. This protectionist measure may not be racist in intention, but it certainly is in effect.”
As for those intergovernmental agreements (IGA’s) one could see them as special deals the US is making with its “friends” – the other developed nations. One has only to look at the French IGA to see how the burden has been lightened for this and other European countries. “The rich and established countries are being given a lighter, easier path to dealing with FATCA.” Will African, South American or Asian banks get the same deal? We shall see.
FATCA begets GATCA (a term coined by Marvin van Horn). The idea of a worldwide information financial information system has been around for quite awhile. There are other systems in place or in progress that more or less do what FATCA does. The EU, in particular, has what it calls AEOI (automatic exchange of information) and they are expanding it. It is more mature than FATCA (which has yet to be implemented) and the Europeans have chosen a more step-by-step approach. The OECD has also been working on it and has this fine article about how they view the matter.
But they all have the same ultimate objective: to be a model for the rest of the world. I have speculated more than once that the Americans looked at all of this and greatly feared that they would be subject to a system made in the EU and so they decided to float their own system as a counter-offer (if not an outright attempt to do in these efforts in favor of something more favorable to the US). Is this a race to define the model? The story is just beginning and I think there will be much negotiation to come as these competing models bump up against each other and their merits and demerits become clearer. In any case, I would make the point that the idea behind FATCA was not something dreamed up by the United States, but rather something that has been around for awhile now.
Morris touches on the international nature of these efforts: “With FATCA we will set up an international tax regime that will be subject to the interests of those with the most power. For the next few decades, the United States will be the most powerful interest. As all systems do, it will consolidate, and get more powerful. As this process continues, the system created will look more and more like a worldwide empire. The evolution will outlast US dominance.”
This is where I would part company with Morris. I am simply not convinced that the final system (and I believe there will be one) will be FATCA. It’s not just that there are competing models out there but also the Americans have not exactly shined in their implementation efforts. They have struggled to produce the regulations to make the law a reality. The signing of IGA’s has been at a snail’s pace and each one is different depending on how well each country was able to negotiate. That doesn’t look terribly efficient nor does it scream “model for the rest of the world.”
There is also the uncertainty around reciprocity. Americans abroad may not be powerful but Americans banks in the United States are. That foreign banks are subject to FATCA is fine by them – in fact, it gives American banks a competitive advantage. But the suggestion that they might also be required to turn over information to other countries, well, that does not sit well and they have friends in Congress who will help.
Lastly, the agency that has been tasked with actually setting up the infrastructure and administration for FATCA on the US side is one that is not loved and has a very tight budget: the U.S. Internal Revenue Service. On top of last year’s scandals, low morale and even further attempts to cut their budget, they have been handed Obamacare (the new US national healthcare system). Oh what a gift…. Reports from the US seem to say that it is not going well.
The Taxpayer Advocate Service (led by the remarkable Nina Olson) has already warned Congress that the IRS today is not funded sufficiently well to adequately serve taxpayers in the homeland, much less those abroad. And now they want to add the rest of the world into the mix, responsibility for a model international tax reporting scheme, while cutting their budget?
Ce n’est pas sérieux.
The NTA is a toothless tiger. If lawmakers aren’t going to take her recommendations seriously, they should save the taxpayer money and eliminate her office.
Many thanks for the history on Hemp and DuPont. I had not known of that connection.
If true, it’s curious how this may play out in the overall pot legalization debate, if at all. I believe DuPont’s product it wanted to protect was rayon, and I have no idea how important rayon is to DuPont when hemp based clothing seems seems to have surged in popularity.
And the lady in the FATCA video was hilarious:
“Because we have 15 F*#ing aircraft carriers, thats why.”
She came across like Susan Rice used to at the UN. That’s Susan Rice, the one who pushed for the UN Resolution condemning Eritrea for CBT, among other things.
@nervous Investor and @bubblebustin
I love hemp made clothes…they last almost forever….I bought 2 shirts here in Canada in 2001. I still wear them regularly. Hemp can be used for insulation.
the reason it is not legal in the USA is because of the Oligarchy government of the all powerful and all exceptional USA. Corporations are persons and US corporations want to have it all … The most profits and no competition.
Speaking of clothing, guess who bought Canada Goose?
That is sad news that Bain bought a Canadian company. We know what Bain does…profit from the companies they buy then get rid of the employees and move the company out of the country.
I am taking a break today from home remodel projects (the tiler didn’t show up) and thought I would catch up on some of my reading. I saw your blog, and made a comment there (last I looked it was in moderation) and won’t repeat it here…
I thought IBS readers might be interested in this story my wife heard yesterday on NRP. It has an oblique reference to a “new law” which is of course FATCA.
I am posting this comment, which probably will go into moderation and who knows if it sees the light of day. There are only 2 comments on the story so far, so maybe they will notice a 3rd. And, maybe NOT! I left out links to increase possibility of visibility.
Dear NPR friends and reporters. Thanks for this story, but you have barely scratched the surface of developments in the offshore jihad.
I am not sure why it is so hard for you to say the word FATCA, related to this so called “new law”.
FATCA is the worst law that most Americans know nothing about, no matter its good intentions.
They know nothing because the media are either unaware, or have decided NOT to report on it, even 4 years after it was enacted into law when it was slipped into the Hire Act in 2010. So, it is hardly NEW.
This law is the typical Congressional over reaction to homeland Americans hiding funds overseas. It is the equivalent of the Patriot Act response to 9/11 and has repercussions never discussed on NPR for some reason.
It is perfect topic for Planet Money to explore and educate, but they ignore(?) it. I can not phantom why. Too boring, or too esoteric for the NPR listener? That can’t be it, as they report on QE2, Basil III and Frank-Dodd.
The UBS revelations have unleashed a global round of Americans via FATCA, be they accidental Americans, dual citizens, or greencard holders living around the world. It is evolving into a global GATCA. Expatriation numbers are soaring as Americans abroad give up U.S. citizenship as a result. Sons of FATCA are being created. Global automatic exchanges of financial and tax data (TIEAs) are one of the major trends of our time. It is BIG DATA on steroids without much discussion of the risks and costs.
This is wind in the sails of the OECD push for a global tax regime. Google: “Globalists Exploit New U.S. Tax Law for World Taxation Regime.” Some of the article characterizations might be a bit hyperbolic for the sensitive NPR listerner ears, but basically the narrative is EXACTLY right.
The negative consequences and collateral damage of FATCA and cost to the global economy is extensive. It is widely reported, discussed, debated in the foreign media, but do a FATCA search on NPR, PBS, NBC, ABC or CBS and you get NOTHING!
On Fox you get the response, “Did you mean: “fatwa” ? That is kind of amusing, as in many ways you can characterize the 544 pages of regulations is a ‘fatwa’ against Americans living abroad!
Now FATCA is evolving into a global GATCA and is blowing back onto the mainland in the form of a domestic DATCA. This is running into Congressional resistance as those that knew they were voting for FATCA never intended this result!
Open your eyes and start googling and reporting NPR, please.
It is NOT good for democracy to have these types of policies imposed by stealth. You might support them, or be agnostic, but for an informed public, we need reporting. We need open debate so people have a choice in how much Control they are willing to allow our government to have.
If you liked NSA spying, then you are going to love FATCA.
I loved your video. When I first saw it, it had only 35 views, and I spread it as far and wide as I could. It was popular on Linkedin too. I see now, that it is up to ~5800 views. Your use of humor probably has been more effective than my thousands of comments and posts on FATCA. Thanks for doing it. It will become a classic, I am sure.
If there is someone reading here who has NOT seen it…
I will embed below. Can’t hurt to see it again.
I read the article and there is no comment like the one you put on this post. There is your very short different comment….Looks like your long comment won’t see the light of day…If it does please let us know. I have copied , saved and printed your comment . It is so concise and explains FATCA perfectly and how the media is reporting so miserably on it.
I have never figured out the rhyme nor reason behind NPR’s moderation policy. I leave out any links incase that impacts its. I have asked NRP reporters that do a story, what happens with comments, and even they don’t seem to know. My guess is, it is assigned to some low lever intern (free labor) and is probably only worked 8 hours a day, 5 days a week, along with other projects. I have seen days go by, and then suddenly a comment show up I thought was lost forever. I just wished the comments were sent to the reporters. I should try to find their email address, but generally speaking, I have found them, as a group, VERY UNRESPONSIVE! So it goes. If it doesn’t show by tomorrow, I may post it again, and hope it is a different intern in charge! 🙂
Correction. Low level, not low lever! But then you knew that, I hope!
No, Just Me. Low lever is probably right. That’s the lever under the desk the NPR intern pulls to put your great comments into the limbo file. I do hope your longer comment does get posted eventually though because it is, at the very least, negligent for NPR to not even put a name on the “new law”. As you said, it’s FATCA. Are they trying to make it difficult for someone whose curiosity might be piqued to find more informed, less biased information?
@NorthernStar and Em…
I just checked this morning, and it is NOT THERE, so I out foxed them… I re-posted as a reply to William Coulthard, as they do not moderate those! I give up on NPR.
You are a genius. It worked!
@ Just Me
Good out foxing. That’s a technique to be kept in mind. I think bubblebustin got her longer comment into the CNN article using a split it up and put it in replies maneuver. (And perhaps it helped to not change the author’s title.) Anyway it’s good to know these things. I learned the remove the links and try again technique from you. I wish I could be prolific like you and other Brockers but I have the mental equivalent of slow, stubby typing fingers. (I’m an average touch typist but my fingers need faster input.) I’m so grateful that you and other Brockers can shoot out comments faster than a speeding bullet. Please don’t give up on NPR because even if they never cover FATCA/CBT properly your comments will be there to guide readers to the other side. And speaking of the other side …
@Joe Blow @Just Me Thank you so much for the kind words!
@bubblebustin “That would involve some serious realization and effort on their part, but right now the electorate seems more content in fighting with each other and supporting US dominance in the world.”
Sadly, you are probably right. For the US to prove you wrong people need to start advocating other options. So much of media comment, even in progressive outlets, operates on the assumption that the US will always be able to do it wants. When people mention the prospect of the US not being absolutely dominant, it is always presented as some horrific future event. We need to start articulating a different vision.
@Polly I think there is more reason to be optimistic. You identify a lot of problems to be worked on. Some of them, like FATCA and our appalling treatment of people at our borders, are real scandals. Others like manufacturing woes, are kind of blown out of proportion. Manufacturing continues to grow and become more sophisticated in the US. The car industry is actually fairly healthy right now. Manufacturing just doesn’t employ anybody anymore, which is a different sort of problem. The worst problems you identify are easy to change. They are mostly government policies that can be rectified.
If you guys are interested I have set up a mailing list for my future writings.
Thanks again for reading!
Your video is making its rounds South of the border:
@ From the Wilderness Wow nifty! Thanks for letting me know.
@ All I’ve made one of my older essays free on the Kindle this week in case you guys want to see what else I’ve produced:
gave me all 3
Now I have a driver for figuring out how to use the kindle I bought
I can not find a place on the Amazon page to buy your free essay, perhaps because it is free.
I found it at http://www.amazon.com/Robert-Morris/e/B006DS0Q2U/ref=ntt_athr_dp_pel_1 but not on amazon.ca, free with Amazon Prime. Thanks, Robert Morris.
Thanks, in order to get it I have join Amazon Prime. True,it is a free 30 or 60 day subscription , then one must pay $79 a year. I really want to stick to not buying American now or even trying American. I will stick to Amazon.ca
Here is the free link for Canada.
It is free now in most markets, and until Saturday you do not need to join Prime to get it for free.
If you have Prime all 3 of my essays are free all the time.
I just ordered it. Thanks so much.