Who Does FATCA Affect?
The short answer is: just about everybody. At the top of the list are those who carry U.S. indicia and who live outside of the United States. In Canada these are estimated to represent approximately 3% of the Canadian population. Add to that their spouses and family members with whom they share accounts and a much larger figure is indicated (perhaps, as has been suggested by some, as great as 12%.) Publicity about FATCA has served to educate not only “overseas US Persons” about CBT (citizenship-based taxation) and FBAR (Foreign Bank Account Report) but also those who employ them or otherwise associate with them. US Persons are being asked to vacate positions with signing authority. Some couples are reconsidering marriage plans and getting divorced due to the understandable unwillingness of non-US spouses to have their personal and financial information shared with the government of a foreign country. Banks, particularly in Europe, are refusing services, including such basics as mortgage renewals, to “US Person” customers. The list of abuses is lengthy and I refer you to the reference links that I provide in Part IV.
In addition, there will be a risk of FATCA fallout to all bank customers outside the United States. FATCA, and the response to it by the world’s FIs (financial institutions), puts everyone with a bank account at risk of scrutiny for evidence of US indicia. This is a violation of everyone’s financial privacy particularly if a 3rd party is hired by the FI to perform this work as is, apparently, a possibility in the United Kingdom. In addition, it is estimated that implementing the systems necessary to comply with FATCA is costing every single FI in the world somewhere in the neighbourhood of 100 million dollars. This cost will undoubtedly be passed on to all their customers in the form of higher bank fees. And taxpayers of IGA signatory nations will be on the hook for implementation costs to comply with the terms of a FATCA IGA (Intergovernmental Agreement).
Immigrants to the United States who still have bank accounts in the countries from which they came are also in serious positions with regard to FATCA. Immigrants are welcomed to the United States every day but immigration officials don’t tell them about the requirement to file FBARs. With FATCA, these people who may hold accounts in their homelands for no worse a purpose than to help support elderly parents are now in danger of being penalized several times the value of each account that they have neglected to report.
Finally, America itself will feel the unintended backlash of FATCA and the CBT tax policy it has exposed and is now enforcing. The effects may take a great deal longer to be felt in America but already, around the world, people and institutions are divesting themselves of US content in their portfolios. They are seeking alternative markets and investigating alternative reserve currencies. The world may have agreed, in large part, to FATCA but it has done so grudgingly and at financial gunpoint. On a personal level, many people like myself are now frightened of traveling to the United States. In the past, cross-border shopping, winter vacations in the southern States and just visiting relatives were a way of life. Now we spend our money elsewhere and are estranged from our families. The list goes on (see references in Part IV) and none of it bodes well for the future prosperity of the United States and her people.
The Negative Consequences of FATCA
All told, FATCA is a ‘lose-lose’ situation on a massive scale. The many costs of FATCA are felt at the national, the corporate and the personal level. The costs are legal, financial, emotional and integral. First and foremost, FATCA uses the language of threat and intimidation to coerce submission from the rest of the world. Canada for example, the closest and most stalwart friend of America, has been coerced into destroying the carefully knit fabric of its inclusive society. Thanks to FATCA, Canada now has a law that allows Canadians of a certain national origin to be treated as foreigners by their banks.
Canada stands to lose a significant percentage of its tax base to FATCA as penalty money, back taxes, fines and fees (as well as $2,350.00 for every dual citizen who wishes to renounce her US citizenship) are levied against Canadian citizens who have unwittingly run afoul of a US tax law they didn’t know existed. A large number of affected citizens are retired people who came to Canada as babies or young children and have lived their entire lives here having organized their financial affairs like any other Canadian. Now, in their “golden years” they are discovering that as “US Persons” they are invested in all the wrong vehicles and stand to lose much of their hard-earned and hard-saved “nest-eggs” in order to pay a government to which they had no idea they had any financial “responsibility”.
One of the things that make a nation “sovereign” is its right to determine its own laws within its own borders. FATCA rides roughshod over Canada’s Charter of Rights and Freedoms as it transforms a significant number of Canadians into 2nd class citizens, citizens who have now lost their financial privacy, their right to a full range of investment options and even their right to have a bank account. FATCA has resulted in the institution into Canadian law of discrimination based on national origin which is strictly forbidden by our Charter. Meanwhile, our compatriots “down under” will have to contend with these words penned on p. 6 of the FATCA Regulatory Impact Statement issued by the government of New Zealand: “U.S. persons: Any avenues they may have to take action against financial institutions for breaches of the Privacy Act or Bill of Rights Act may be extinguished.”
With the signing of its FATCA IGA Canada is forcing me, and hundreds of thousands like me, to impale myself upon one of three prongs of a “Morton’s Fork”: #1) apply for a Social Security Number and start filing US tax returns at enormous annual cost of time and money; #2) be literally forced to officially renounce or relinquish my relationship with the land of my birth, at enormous cost both financial and emotional. (This is a huge issue, adequate discussion of which is beyond the scope of this article.); and #3) become a financial non-person with less than $10,000 in my own name, take my name off the title to my house, etc.
For the “free world”, FATCA, as the handmaiden of CBT, ushers in George Orwell’s Nineteen Eighty-Four just a few decades late. Sadly, the list of the world’s “Big Brothers” now includes the name of Uncle Sam.