Here’s another trend that could result in longer lines at consulates for American emigrants & their descendants seeking to give up U.S. citizenship. For the past several months, China has been conducting a large-scale search for “naked officials” — those whose immediate family members all reside abroad — by making all public employees fill out self-reports about their families’ possession of foreign citizenship and/or permanent residence.

Now they’re moving on to stage two: getting the officials to bring their family members back home and give up their foreign status, and punishing those who refuse. No time to do a complete translation, but here’s some excerpts from yesterday’s extremely lengthy New Beijing News report:

As we previously discussed here, mainland Chinese are the world’s most enthusiastic users of the U.S. EB-5 investor permanent residency programme — possibly as many as 1 out of every 29 HNWIs (3.4%) in mainland China bought an EB-5 green card between 2009 and 2013, compared to 1 in 86 South Korean HNWIs (1.1%), 1 in 163 Taiwanese HNWIs (0.61%), and 1 in 2,520 HNWIs from the rest of the world (0.039%).

Some commentators attribute mainland China’s enthusiasm for EB-5s to factors such as air & food pollution, social instability, poor infrastructure, and similar quality-of-life issues. Yet HNWIs in other lower-income countries which share those problems go for EB-5s at tiny fractions of the Chinese rate — fewer than one in a thousand Indian, Indonesian, and Latin American/Caribbean HNWIs obtained EB-5 green cards in the past five years.

In reality, what apparently drove many rich Chinese officials to acquire EB-5s for themselves and/or their loved ones was the idea that they could hide their family members and shadily-earned assets abroad in the U.S., and then — if push came to shove — fool Washington into protecting them from corruption crackdowns in China such as this one by making false claims to credible immigration officials that “Red China” is targeting them for political reasons. In contrast, HNWIs from India, Thailand, and other developing countries which have less antagonistic relations with Washington, generally realise that the U.S. judiciary and public would be less sympathetic to such attempts to shield themselves from similar crackdowns in their respective homelands.

How to get information: by asking for it

The IRS could learn something from how the Communist Party is getting this information: by simply asking people for it directly in a clear, comprehensible, and well-publicised manner. Beijing no doubt understands that not everyone will give honest answers on all this paperwork; however, they have not tried to use that as an excuse to force foreign banks and governments to get the information for them.

In contrast, when the IRS wants to know how much money you have in your local retirement or medical savings plans, first they make up incomprehensible terminology like “foreign grantor trust” which an ordinary person would never associate with a government-created-and-approved savings plan in the country where you actually live, then they refuse to give enough guidance for even an actual international tax lawyer to decide whether your savings plan really is a foreign grantor trust, and then they give you a six-page form to fill out, with thirteen pages of instructions, fifty-six questions written in a dialect of officialese with a vague resemblance to English, and a fifty-four hour annual time burden for you or your accountant or lawyer who charges by the hour.

And, for their pièce de résistance, the relevant departments don’t actually bother telling you about this form, but instead just put a vague note in small print in new passports about how you must pay taxes. Then when they unsurprisingly get a compliance rate of about zero percent, they complain that people are evading taxes by “hiding assets offshore”, and push pliable members of Congress to invade foreign countries to help them find all these alleged hidden trillions.

Why investigate officials with overseas relatives?

Aside from obvious concerns over corruption and outright theft of government assets — with the proceeds hidden in overseas real estate — China has other reasons to investigate officials with family members abroad: people with foreign connections may be vulnerable to blackmail by foreign governments. This is precisely why the U.S. government pays such close attention to “foreign preference” and dual citizenship when issuing security clearances.

What neither China nor the U.S. seem to have realised yet is that FATCA and FATCA reciprocity increase the chance of such blackmail: each country is telling its geopolitical rival to set up an information dragnet and compile a massive database about local financial assets owned by foreigners and/or non-residents. Neither such database existed before — and any attempt at creating it purely as a domestic initiative, without international pressure, would have been rightly viewed with extreme suspicion.

And once such a database does get created, it is available not just to the foreign government which requested its creation, but to the local government which created it in the first place. In fact, the local government has more access to that database, since they have the power to censor or modify certain inconvenient entries before forwarding it to the “partner” government — or to decline to censor or modify those entries if the subject of those entries doesn’t cooperate with the government in some other way.

A crackdown on all multinational families, or just government officials?

The big question, of course, remains: is China really going to get any FATCA reciprocity out of the U.S. to aid in its investigations of corrupt officials? This is certainly the spin that the mainland media have been putting on Beijing’s gross surrender of national sovereignty. However, the far more likely outcome can be seen by spending five minutes reading FinCEN’s “DATCA” regulations and finding the obvious loopholes: Treasury has no intention of offering genuine reciprocity even if Congress continues to look the other way and allow them to. More broadly, the U.S. enjoys all the foreign money being laundered into its real estate markets too much to give serious thought to aiding foreign corruption crackdowns.

On the flip side, the latest crackdown on corrupt officials notwithstanding, there are signs that Beijing is not particularly interested in ruining the lives of ordinary families with overseas-born kids — witness the recent six-month suspended sentence for a Shenyang man who bought fake Beijing registration papers for his U.S. citizen daughter (Article 280 of the PRC Criminal Code allows a custodial sentence of up to seven years).

So if they’re barely punishing Chinese citizens & their families for identity fraud against the local government, do you seriously think they’ll punish any Chinese citizens for lying to banks about their tax compliance status under foreign law? Beijing’s compliance with FATCA is likely to be precisely as honest and effective as Washington’s reciprocity, and if Washington keeps following its present path, that means data exchanges on both sides will be carried out only to the extent necessary to save face for everyone.

At most, maybe China’s State Administration of Taxation will take the opportunity to dob in some American expat workers at foreign corporations in order to keep the IRS happy. Of course, if the loss of key employees to IRS “offshore crusades” means that those foreign corporations compete less effectively against domestic Chinese companies, then that’s just an additional bonus for Beijing — and one more example to add to the long and successful history in Chinese statecraft of “using foreigners to control foreigners” (以夷制夷)