Continued from Part I

The Crash of 2008 and the 2010 Hiring Incentives to Restore Employment (HIRE) Act

In 2008 the world endured the most disastrous economic event since the great depression. It was largely caused by foolish banking practices (subprime mortgage lending resulting in the collapse of the real estate market, etc.) in the United States. At the same time America had an influx of veterans returning from service in Iraq and Afghanistan and many were ending up unemployed and homeless. In response to this crisis, in 2010 President Obama signed into law the “Hiring Incentives to Restore Employment (HIRE) Act” which, on its surface, appeared to be a necessary and humanitarian piece of legislation. However, within its pages, and largely unnoticed, unread or ill-considered by Congress, was a section relating to the matter of how the provisions of HIRE were going to be paid for. This section was, and is, called:

The Foreign Account Tax Compliance Act (FATCA)

FATCA was inspired by the US government’s “takedown” of the Swiss bank “UBS” and was supposed to enable the US government to recoup money it was losing to overseas tax havens. However, in addition to catching big fish living in the US who have actually hidden money offshore, by virtue of CBT (citizenship-based taxation) it has trawled in all “Americans” of every ilk who are just normal, middle class folk living their lives in countries outside the United States. Called “the worst law that most Americans have never heard of” by Washington, D.C. lawyer James Jatras, FATCA is, indeed, one of the most arrogant and immoral pieces of legislation to ever emanate from the US capitol. In a nutshell (the actual regulations comprise 577 pages) FATCA requires every financial institution (FI) on the planet, to seek out any of its clientele who may be considered “US Persons” and to submit their names, account numbers and account balances directly to the United States Internal Revenue Service (IRS). It is not even required for these “US Persons” to be notified. But if the person is notified and will not give her permission for the transfer of information her account will be deemed “recalcitrant” and will be closed.

“US Persons” may be any of the following:

• US citizens, i.e. those with a US birthplace or naturalization or those with an American citizen parent who lived for at least 5 years in the United States, 2 of them over the age of 14
• green card holders including those with an expired green card that was never formally canceled
• those with a US mailing address (Canadians who spend their winters in Arizona or Florida need to be careful here)
• those with standing instructions to have money forwarded to an account in the United States (see above)
• those with deposits from US sources

The circumstances in the above list are known as US indicia.

Accounts of under $50,000 are supposed to be safe from scrutiny but this is by no means guaranteed. According to the FAQ page on the website of auditing firm Deloitte, “We understand that a number of FFIs are not going to use the $50,000 de minimis exception due to difficulties in changing multiple systems to calculate the value of its depository accounts.”

The financial industry feels it has no choice but to comply because the US is wielding a threatening stick in the form of 30% withholding of all US source payments to non-compliant FIs.

The hunt for US Persons began on July 1, 2014.

Intergovernmental Agreements (IGAs)

The intrusive measures necessary for FIs to comply with this legislation would make it necessary to break the privacy laws of the countries in which the FIs are located. The US Treasury Department recognized the difficult position that the FIs were in so it came up with a plan which would allow banks to submit the necessary information to the governments of their respective countries which would, in turn, submit the information to the IRS themselves. The banks would still have to collect the information but at least they would not be breaking the law by doing so. Governments who signed on to this Treasury Department offer, called an Intergovernmental Agreement (IGA), would need to be willing to adjust their countries’ laws accordingly.

In the IGAs the US Treasury assures signatory nations that the United States understands the importance of providing them with reciprocal data on their own taxpayers and that it will do its best to do that. However, such reciprocal data-sharing has not been authorized by Congress and is never likely to be. In fact, as I write, a lawsuit over the issue filed against the Treasury Department by the bankers’ associations of the states of Texas and Florida is before the courts.

As it stands at present, FATCA is a one way street with information flowing to the US from all other nations and nothing whatsoever flowing back the other way. Moreover, even if at some point in the future full reciprocity is instituted it will not be a fair exchange because, except for Eritrea, all other nations on earth practice residence-based taxation (RBT). They have no need for information about the finances of their citizens who no longer live within their borders.

In addition, it has been suggested that the IGA approach instituted by the US Treasury Department is not even legal. IGAs were not mentioned in the FATCA legislation that passed through Congress. They were instituted, after the fact, by the Treasury Department when it realized that FATCA wasn’t going to fly without them. As it stands, the agreement process has not been given the green light by Congress. Indeed, as types of tax treaties or amendments to tax treaties the agreements require ratification by the US Senate. None have so far been subjected to scrutiny by that body.

Regardless, many governments have signed FATCA IGAs, agreeing to alter their own privacy and banking laws to accommodate the United States. They have signed out of fear of the institution of the 30% FATCA sanctions against their banks. The Canadian government did so on February 5, 2014 and now finds itself the defendant in a lawsuit being brought against it by two Canadian women of US birth. They represent the estimated one million Canadians and their families who now stand completely unprotected by their own government whose moral integrity and courage have collapsed in the face of the sheer might of US economic power.