Campaign to Repeal FATCA
November 14, 2017
The Honorable Steven Terner Mnuchin
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
Dear Secretary Mnuchin:
The Campaign to Repeal FATCA (www.RepealFATCAcom) was launched earlier this year with one purpose: to get rid of the Foreign Account Tax Compliance Act. FATCA is a textbook example of a badly conceived, badly written, and badly enforced law that doesn’t achieve its stated purpose but does inflict an excess of harmful consequences on citizens, American taxpayers around the world, the global financial and investment sectors, and the principle of national sovereignty.
As Co-Leaders of the Campaign, we are writing to you on the supposition that in a democratic country elections should have consequences. When a political party stands before the electorate on declared principles and makes specific promises, those principles and promises should be reflected in how that party governs under its mandate from the voters.
The 2016 Republican Platform reads in part:
“The Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank and Asset Reporting Requirements result in government’s warrantless seizure of personal financial information without reasonable suspicion or probable cause. Americans overseas should enjoy the same rights as Americans residing in the United States, whose private financial information is not subject to disclosure to the government except as to interest earned. The requirement for all banks around the world to provide detailed information to the IRS about American account holders outside the United States has resulted in banks refusing service to them. Thus, FATCA not only allows ‘unreasonable search and seizures’ but also threatens the ability of overseas Americans to lead normal lives. We call for its repeal and for a change to residency-based taxation for U.S. citizens overseas.”
This Republican pledge to repeal FATCA rests on the deepest and most cherished American principles, not least a decent respect for the privacy of citizens who are not engaged in lawbreaking and are not even suspected of doing so. Even the IRS’s own Taxpayer Advocate Service has criticized FATCA’s “enforcement-oriented regime with respect to international taxpayers” with its “operative assumption [that] appears to be that all such taxpayers should be suspected of fraudulent activity, unless proven otherwise.”
FATCA’s privacy violations and compliance burdens fall disproportionately upon people of moderate means, few of whom are engaged in evasion or owe any tax at all. As examined at a hearing on April 26 of this year by the House Subcommittee on Government Oversight presided over by House Freedom Caucus Chairman Mark Meadows, FATCA has led to financial institutions around the world denying or withdrawing financial services from Americans, in turn leading to growing numbers of U.S citizenship renunciations. (Meanwhile the genuine “fat cats” supposedly targeted by FATCA can easily avoid it by hiding assets in real estate, bullion, fine art, gems, and other ruses.)
FATCA’s indiscriminate invasion of privacy would be unjustifiable even if it were an effective mechanism for detecting offshore tax evasion and recovering revenues due. But FATCA is a failure from that standpoint as well, as irrefutably demonstrated by Professor William Byrnes of Texas A&M University School of Law, who calculates that the actual net recovery attributable to FATCA is a mere $100-200 million per year – far less than the approximately $800 million it was scored upon enactment in 2010. Worse, projects Byrnes, the recovery trend is downward, and FATCA (excepting penalties for filing deficiencies, even where there is no tax liability) could soon cost more money than it brings in. This contrasts to the IRS’s standard of approximately seven dollars in tax recovery for every enforcement dollar spent. As a weapon to combat tax evasion, FATCA is a waste of money that could be more effectively spent on other programs.
In addition, FATCA imposes massive compliance costs on the entire global financial system – money that comes out of the pockets of customers, depositors, and shareholders. Even a small non-U.S. bank can expect to spend millions of dollars looking for American “indicia” among thousands of accounts. According to available data, bigger institutions spend much more. For example, according to the Wall Street Journal, Canada’s “Big Five” banks collectively had paid out $693.5 million in primary compliance by 2014. Bank of Nova Scotia alone had spent $100 million as of 2013. As cited by Professor Byrnes, BBVA (Banco Bilbao Vizcaya Argentaria, S.A.), Spain’s second-largest bank, estimates FATCA compliance costs to be at least €8 million for a local entity up to €800 million for a global one; similarly a cost estimate from the U.K. Revenue for British financial institutions is a one-off cost of approximately £900 million to £1,600 million, with an ongoing cost of £50 million to £90 million a year. Estimates of total global compliance spending rely on aggregating what is known about per-institution costs. One such projection assesses FATCA’s cumulative cost at between $58 billion and $170 billion. This is an order of magnitude greater than any recoveries from FATCA.
It is thus no mystery why big accounting, law, and software firms are thrilled with FATCA and are keen to insist that “FATCA is here to stay!” But corporate welfare for compliance vendors who are the real fat cats in this saga is no reason to keep a bad law.
Thus, there is overwhelming reason for the Republican Party – which is in unified control of the Executive Branch and of both houses of Congress – to keep its promise to the American people. To that end, our Campaign is working with the Congressional sponsors of FATCA repeal legislation in both chambers: Senator Rand Paul (S.869) and Representative Mark Meadows (H.R. 2054). The repeal movement has also gained the support of numerous taxpayer groups, including Americans for Tax Reform, the National Taxpayers Union, the Center for Freedom and Prosperity, American Commitment, the Taxpayers Protection Alliance, the Competitive Enterprise Institute, R Street Institute, The Market Institute, the Center for Individual Freedom, Frontiers of Freedom, 60 Plus Association, FreedomWorks, the Sovereign Society Freedom Alliance, the Institute for Liberty, The National Tax Limitation Committee, Citizen Outreach, Campaign for Liberty, Jeffersonian Project, The Institute for Policy Innovation, Americans for Limited Government, the National Center for Policy Analysis, the Small Business and Entrepreneurship Council, and others. In addition, the Credit Unions of North America and the World Council of Credit Unions have also called for repealing FATCA.
We are confident that legislative progress is being made and that FATCA will be repealed in the near future. We are writing to you now because of our disappointment that no positive action has yet been taken by the other part of the apparatus of government, in the Executive Branch. This includes the Department of the Treasury.
Our concerns in this area relate mainly to the so-called “intergovernmental agreements” (IGAs). The IGAs are a product of the Treasury Department’s realization soon after FATCA’s enactment that it was unenforceable in light of other countries’ privacy laws and that the only way to implement this ill-advised and badly crafted mandate on hundreds of thousands of non-U.S. firms – over which American law has no jurisdiction – would be to induce foreign governments to enforce FATCA against their own citizens and institutions. Worse, as an incentive for foreign governments to sign the IGAs, the Geithner and Lew Treasury Department promised, in the name of the United States, to provide “reciprocal” information from U.S. institutions – a promise which, if kept, would impose immense FATCA-like compliance costs on American domestic financial firms.
Neither such reporting nor the IGAs themselves are authorized by FATCA or any other statute. The IGAs are not submitted as treaties to the U.S. Senate for that body’s advice and consent, though the non-U.S. party is required to ratify the IGA under “its necessary internal procedures for entry into force.” Imposing such one-sided agreements on America’s trading partners under threat of sanctions amounts to a gross violation of international comity and the very concept of national sovereignty. No wonder the Organisation for Economic Co-operation and Development, which for years has sought to extinguish personal financial privacy and create a worldwide financial data fishbowl, has praised the IGAs as a “catalyst” to that end.
It should be clear from the foregoing that the IGAs are a textbook example of the prior administration’s disdain for the rule of law in favor of Executive overreach. As former House Speaker John Boehner put it in another context, President Barack Obama demonstrated an unprecedented circumvention of Congressional authority “through executive action, changing and creating his own laws, and excusing himself from enforcing statutes he is sworn to uphold – at times even boasting about his willingness to do it, as if daring the American people to stop him.” This characterization fits the IGAs to a T.
Secretary Mnuchin, the IGAs are purely inventions of the Treasury Department under your two immediate predecessors and can be revoked by you under the same authority. We are aware of at least two Congressional letters sent to you taking issue with the IGAs and urging specific steps by your Department to nullify the IGAs and alleviate their harmful impact. One letter, from Senator Paul and Congressman Meadows, was sent on April 3, 2017, and was also addressed to OMB Director Mick Mulvaney. The other, from Congressman Bill Posey, a member of the Financial Services Committee, was sent on September 29.
Despite these urgings, nothing has been done to reverse your predecessors’ highhanded and legally dubious actions related to FATCA. Quite to the contrary, under the Trump Administration the Department has pressed ahead with signing additional IGAs. For example, an IGA was signed with Ukraine in February of this year – after President Trump took office – and with Kazakhstan in September. Making “progress” towards a FATCA agreement with Singapore (a euphemism for pressuring that country) was part of President Trump’s briefing points for Prime Minister Lee Hsien Loong’s White House visit in October.
To put it bluntly, after the passage of a full year since Election Day 2016, by all indications the Obama Administration remains firmly in power as far as FATCA and the IGAs are concerned. While from outside the Treasury Department we are not in a position to tell which individuals are responsible for this state of affairs, we suggest with all due respect that it is your responsibility to inform the career officials who work for you than an election took place last year and to direct them to cease their efforts to carry out your predecessors’ legally deficient directives with respect to FATCA. At a minimum this should include (from the April 3 letter to you from Senator Paul and Representative Meadows) your taking action to –
“Instruct the Treasury Department’s Office of International Affairs and other elements of the Department that may be involved to cease all efforts to negotiate, sign, and implement IGAs. Continued signings of new IGAs – most recently with Ukraine in February 2017 – send a false signal that the new administration is committed to this destructive law as matter of policy.
“Announce that the IGAs are under legal review of their authority and that if they are found to be legally infirm – as I [sic] believe they will be – they may be declared invalid ab initiowith immediate effect or terminated upon expiry of the one-year’s notice specified.
“Under the broad authority FATCA grants the Treasury Secretary, deem all impacted foreign institutions compliant on a temporary basis pending outcome of the legal review of the IGAs. The IRS should also be instructed to suspend enforcement of provisions impacting individual taxpayers; and, on an urgent basis to help decrease the spiking increasing [sic] in U.S. citizenship renunciations, suspend imposition of penalties for FATCA filing errors by individuals.”
We thank you for your prompt attention to this matter and your anticipated implementation of the measures above.
We now turn our attention to a distinct but related topic. The same passage in the Republican Platform pertaining to FATCA also calls for “a change to residency-based taxation for U.S. citizens overseas.” As is not necessary to detail here, the United States is the only major country that taxes its citizens worldwide on the basis of citizenship, not residence. This creates a host of problems and inequities for the up to ten million Americans resident abroad. While adoption of a residency-based taxation (RBT) system is not a specific task of our Campaign, we strongly endorse the concept and hope it will be enacted as part of tax reform legislation pending on Capitol Hill.
As far as we are aware, RBT is not yet included in either the House or Senate tax bill. We also note that there are several approaches as to how RBT could be adopted. However, we draw your attention to the fact that suggestions have been made that adoption of RBT – were it to occur – would eliminate the need for repealing FATCA.
In our opinion, nothing could be further from the truth. While adoption of RBT could in some minor way assuage the administrative pain inflicted on Americans abroad, the fundamental flaws of FATCA would remain. As far as FATCA goes, RBT’s positive impact would be comparable to an aspirin’s on cancer. (This is not meant to minimize RBT’s benefits on matters unrelated to FATCA.)
Even under an RBT system, the larger toxic features of FATCA would remain. Keep in mind that FATCA is purely a financial reporting mandate that has no direct relationship to taxes or to what assets get taxed. FATCA demands data on assets whether they are subject to taxation or not. In principle, FATCA and the IGAs could stay in place just as they are even if RBT is adopted. At best, the entire structure of FATCA’s indiscriminate violation of personal privacy would remain unaffected except, in principle, applied only to U.S. residents as opposed to all citizens. The IGAs would presumably stay in place as well, with their ongoing damage to the principle of state sovereignty. The massive compliance costs imposed on financial institutions globally would remain, as would the gravy train for the relevant vendors.
Perhaps worst of all, by enacting RBT but leaving FATCA on the books, the Trump Administration would be wrongly declaring the FATCA problem solved. This would allow the dead hand of the past administration to reach into the future without limit: more IGAs, perhaps in due course the imposition of reciprocity on domestic American financial firms, and in the foreseeable future a global FATCA – or “GATCA.” This is the antithesis of what the GOP Platform promised.
The media carry numerous accounts of how the Trump Administration’s policies are being undermined by career bureaucrats and, in some cases, even holdovers from the Obama era. To the extent that that is the case at the Treasury Department and the root of the concerns we have expressed in this letter, we ask that you take prompt and firm action to rectify matters. We are already almost a year into what was supposed to be a sharp break from the failed policies of the past with as yet no Executive progress on FATCA. It’s well past time that the choice American voters made last year became a reality with respect to this critical issue.
Thanking you in advance for your attention and consideration, we remain –
Sincerely yours,
Nigel J. Green
Jim Jatras
CC:
The Honorable Rand Paul
The Honorable Mark Meadows
The Honorable Bill Posey
The Honorable Mick Mulvaney
Mr. Grover Norquist, Americans for Tax Reform
Mr. Pete Sepp, National Taxpayers Union
Mr. Brian Garst, Center for Freedom and Prosperity
Plus BCCs
This letter is obviously written from the perspective of a person(s) who has/have never tried to live under CBT as an American abroad. What they are really saying is: don’t think that a transition to RBT will solve the FATCA problem.
I suspect that those who have lived under CBT would prefer CBT repeal to FATCA repeal.
I suspect that those who have never lived under CBT would prefer FATCA repeal to CBT repeal.
It’s unfortunate that this letter does NOT strongly advocate for the repeal of both.
Like the proposed U.S. tax reforms, this letter picks winners and losers. The losers are tax compliant Americans abroad who are attempting to live under CBT.
“Like the proposed U.S. tax reforms, this letter picks winners and losers. The losers are tax compliant Americans abroad who are attempting to live under CBT.”
And that is going to be the way until CBT and FATCA are both history. If you are not compliant and hurting now, you likely will be hurting in the future.
It’s presumably FATCA that gets in the way of a business like DeVere’s. Not CBT.
Well good luck on asking a Goldman thug to help us. Doesn’t OMB head McCarty also have power to gut the IGAs? Why not send the letter to him
This letter calls for the elimination of Fatca, not RBT. The writers are not concerned very much about the treatment of non residents like us.
I am surprised at the ill will shown in the comments, especially given the recent spate of enthusiasm her for TTFI which really addressed neither CBT nor FATCA.
Indeed, to me it is FATCA that enabled CBT, made it toxic. I’m not dreaming of going back to 2009 but if we magically could, who here can honestly say they suffered from CBT alone? (I know, filing returns and FBARs was already required before FATCA, in theory, but not really in practice).
Of all people we here should understand that a strong issue makes for strange bedfellows. I would never have dreamed that I’d be cheering for Grover Norquist, for instance, or for an investment banker.
In my case, if banks stop bugging me because I was born in the USA, I’ll be very happy.
Would it be better to have a simple RBT? Yes. In that case would I care about what FATCA does to homelanders: I don’t think so, because it would be (somewhat) like me and CRS: my accounts abroad are reported to my country of residence. I hate it but that’s life and at least I have the choice of moving to another country.
I support that letter and hope for anything that sabotages the current situation. For instance if IGAs are dropped, the US is faced with going after thousands of individual FFIs. In the EU, notably in France, there would be an automatic clash between one’s right to a bank account, and the reticence of banks to open one. One can bet that banks and governments would not take kindly to the US starting to apply 30% or whatever withholding (I never did understand what would be withheld), especially in the Trump era.
Furthermore, any weakening of FATCA and its IGAs will be hard to recuperate. In the future, it can be hoped, the EU and others will no longer be able pretend to be uninformed about the plight of millions (or hundreds of thousands) of US-tainted EU citizens. In other words, FATCA IGAs are so effed up that if they are abolished one can hope that they cannot be reinstated later.
@Fred (B)
There are in fact large numbers of Americans abroad who knew about CBT and were filing U.S. tax returns before FATCA – these are the people who would be least enthusiastic about this letter.
Non-US banks will never stop bugging those born in the US as long as CRS is around. CRS requires that the question be asked.
@plaxy
It’s CBT that makes the US birthplace toxic. CRS wouldn’t be a problem if US citizens weren’t automatically US tax residents.
US birth is a problem because it identifies a person who is or was a US tax resident. RBT wouldn’t change that – it would just mean that the bank could accept additional forms of documentation as proof of non-US-tax-residence. An exit tax document instead of a CLN, for instance. But banks don’t have to give you the opportunity to show that proof.
On the other hand, this birthplace discrimination has never yet been tested in a non-US court. If it ever does get tested, CRS rules would have to change.
Fatca and CBT both need to go. No two ways about it. They keep Fatca on the books now because they see it as in instrument of control. and they like it like this. Even if CBT goes and Fatca remains, there will always be problems for someone with US taint. The banks are not going to want to start policing who lives where and the coming and goings of people and all the rules around the physical presence test and what not.
If a certificate is necessary, not everyone is going to come forward for a departure certificate. would changing to RBT make the past compliance issues go away, I doubt it so those people under the radar now will still be wary of any sort of contact with the USA.
Both have to go and preferably at the same time.
RO claims that because FATCA targets Americans abroad specifically, TTFI would render FATCA unnecessary.
FYI – RO just reported that TTFI is still being scored.
@UK Rose: Where I live (Belgium) the national ID system, though quite 1984ish, does have the advantage of clearly designating one’s residence here. If we had RBT with FATCA, I would have zero trouble proving that I reside locally — the ID card is enough. If we had CBT without FATCA I could choose US tax compliance or not. That would be between me and the US. But I could live in the EU as an EU citizen with no trouble opening accounts or having a company.
@USCA, re people who were filing before FATCA. I filed (then stopped) before FATCA. I fail to see why they would be unenthusiastic about FATCA repeal. FATCA has made their lives complicated. Whereas before they were simply filing returns, now they have trouble banking. This is a huge difference. Before they could have banks accounts in several countries (quite usual in the EU) and not worry about it. No they can’t. Compliance means the local bank sends the local government the account situation for forwarding to the US. This means the local government knows more about your accounts than it used to. It means it knows more about your accounts than it does about other people in the same country.
@Plaxy: my understanding is that CRS is here to stay, but that it revolves only asking about residence (or more precisely, seeking signs of residence elsewhere). If you reside in X and you have an account in X, CRS leaves you alone, unless I am mistaken. This is logical because CRS was developed for normal (albeit invasive) countries that all have RBT.
Fred – not “residence” but “tax-residence.” A resident of a European country who was born in the US has to prove they’re not tax-resident in the US, because if they are tax-resident in the US, their account is treated as a cross-border account.
RBT wouldn’t change that. Believe me I wish it would. Apparently RO think TTFI would make a difference.
From the perspective of “tax residency”:
If the USA changes to RBT then U.S. citizens who were not resident in the USA would not be “tax residents” in the USA. They would be subject to U.S. taxation in the same way that nonresident aliens would be subject to U.S. taxation.
If the USA changes to TTFI for individuals, the U.S. citizens living outside the USA WOULD STILL be “tax residents” of the USA. In this case although “tax resident” in the USA, their non-U.S. source income would be excluded from their taxable income. They would still be subject to U.S. taxation in their U.S. source income.
From the perspective of the FATCA IGAs:
The IGAs would have to be updated to redefine who was being hunted by the USA. Without a change to the FATCA IGAs everything (from a FATCA perspective) would continue as is.
This congress or a majority of this congress has never had any intention of reforming the tax code. They will nibble around the fringes and finally pass a bill similar to the old one. The reason is twofold. First they simply will not stop or even slow down spending. and second they will keep the Marxist framework for taxation.
Marx said in the second chapter of his Manifesto, ”give me a progressive income tax and I will destroy the despised middle class”. They gave it to him 30 years after his death and he has succeeded beyond his wildest dreams.
They are not simply Marxists. They are keeping the framework so they can get the fat campaign checks from the ”K” street lobbyists, and stave off any opposition who would not go along to keep their positions.
There are still patriots in the country, but not in congress, The FairTax group is now more than a million strong and some day after I am disolved into primary elements, they will save these rotten no good souls’descendants. and maybe Neal Bortz will get a footnote in some history book.
If Jesus still walked the earth and said,” I have observed man and watched what he does to his fellow man by taking most of his earnings and giving him little in return. I have concluded that man must make a system that a minority cannot take advantage of the majority. Taxation must be kept low and any charity must be voluntary. Marx was wrong to want to destroy the middle class. Left alone they will give enough to provide the truly needy with their daily bread. The Marxist income tax is an evil creation by a bitter non believer, who wanted to destroy the best of God’s creation, so I support the FairTax in order to save a civilized nation. Neither party would go along with Jesus Christ because it destroys their ability to amend the tax code for a fat campaign contribution. Lucifer loves me this I know because he has made so many politicians in his image,,
Wilton J Tidwell says
November 19, 2017 at 1:48 pm
If Jesus still walked the earth and said,” I have observed man and watched what he does to his fellow man by taking most of his earnings and giving him little in return. I have concluded that man must make a system that a minority cannot take advantage of the majority. Taxation must be kept low and any charity must be voluntary. Marx was wrong to want to destroy the middle class. Left alone they will give enough to provide the truly needy with their daily bread. The Marxist income tax is an evil creation by a bitter non believer, who wanted to destroy the best of God’s creation, so I support the FairTax in order to save a civilized nation. Neither party would go along with Jesus Christ because it destroys their ability to amend the tax code for a fat campaign contribution. Lucifer loves me this I know because he has made so many politicians in his image,,
Wilton! We’ve missed you.
You covered Marxists and the Fair Tax, but you forgot Constitution. (Unless that’s coming in the next message.)
Plaxy: I may not be clear on what US tax-Residence is. If there is RBT and I reside elsewhere how can I have a US tax residence? I can imagine that some US source income is concerned, but that’s a question for tax treaties.
It has taken the ”K”Street Lobbyists this far in time to craft a Tax Bill they can easily amend any time they want to do so. A bill that was impossible to twist into a bill they controlled is what we voted for and what do we get, same oh same oh. The Speaker puts the ”pull the wool” over their eyes so well that a majority will say thanks for the borrowed buck thirty in their pocket and vote for this slime again to solve the problems he created, so he could get re elected to solve the problem he created.
I once thought in 1985 (I simply called it a National Sales Tax back then )that we would have the FairTax by now, but we will have to collapse into anarchy before the public wakes up and demands the FairTax .Every time I vote for one of these creatures, I have to sanatize my hands before I use the bathroom. WHAT SLIME!!!!!
@Fred (B)
Tax residence is not the same as physical residence. Taking an example from my own past, I have on different occasions lived and worked (and been tax-resident) in Germany while
(a) being tax resident of Canada because I still had Canadian ties and assets and did not apply for non-residency, and also
(b) not been a Canadian tax resident because I did file for non-residency, and paid some capital gains tax for the privilege.
At the risk of stating the obvious, note that in case (a) I filed Canadian tax returns, but in (b) I was not required to.
Fred: Some US citizens would want to carry on with US tax residence. Their residence-country accounts would continue to be reportable. Those with US birthplace who renounced or chose RBT would still have to prove they werent US tax resident.
As USCA says, this could be changed if the IGA was changed. But it would still be up to the banks to decide if they wanted to accept an applicant for a new account or not. My own experience since renouncing has been mixed.
I’m confused. It sounds like renouncing doesn’t solve the banking issue because a CLN isn’t enough to satisfy a CRS bank that one isn’t a US tax citizen? WT…?! I’ve only heard of folks being rejected by online banks when applying via internet, but not when actually requesting bank services in person.