UPDATE: FATCA IGA litigation in Canada Federal Court: The guts of our Plaintiffs’ (Gwen and Kazia) arguments and those of the Government we oppose (for simplicity, “Canada”) can now be found in four court documents (that our supporters paid for) submitted between October 3 and December 13, 2018 (see below for some excerpts). The Court submissions can be found on our ADCS website.
The trial, which fleshes out the written arguments in orals in Federal Court, has been held the week of January 28, 2019 in Vancouver.
OUR TRIAL WOULD NOT HAVE HAPPENED WITHOUT THE GENEROUS SUPPORT OF BROCKERS. Somehow you found the monies to pay for this trial.
THE FEDERAL COURT DOCUMENTS THAT OUR SUPPORTERS PAID FOR:
1. October 3, 2018 Plaintiffs’ Complaint. We argue in part that Canada’s FATCA IGA legislation violates Sections 7, 8, and 15, of our Charter of Rights and Freedoms and the sovereignty of our country. Includes: ” …the principle of nonintervention between states is a cornerstone of the international order and intrinsically connected to state sovereignty; it is undoubtedly considered by all Canadians to be fundamental to their notion of justice that Canada will not expose them to enforcement of another state’s laws; and it is predictable and easily applied – simply, Canada may not allow other state to enforce their laws on individuals residing in Canada.”
2. November 21, 2018 Canada’s response to Plaintiffs’ Complaint. Many arguments including: Canada argues that it responded wisely to a threat from a bully:“…severe consequences to the Canadian financial sector, its customers and investors, and to the Canadian economy as a whole if Canadian financial institutions were unable or unwilling to comply with FATCA.” “…the plaintiffs have no standing..” because their accounts were not turned over, etc. “The CRS has been adopted by over 100 countries, including Canada…” “While it is acknowledged that the Impugned Provisions cause the seizure of information for the purposes of s.8, the plaintiffs do not have an objectively reasonable expectation of privacy in that information.” “The plaintiffs argue for the recognition of a novel principle of fundamental justice “that Canada will not deny its citizens the protection of Canadian sovereignty”. This proposed principle does not meet the requirements of a principle of fundamental justice as outlined by the Supreme Court of Canada.” “Avoiding the possibility of such catastrophic effects as a decline in GDP, labour income, employment, a depreciation of the Canadian dollar and a lowering of the standard of living of Canadians, are certainly sufficiently pressing and substantial to justify any minimal limitation on rights which may be found to a be result of the Impugned Provisions.”
3. December 7, 2018 Plaintiff’s response to Canada’s motion to strike out some testimony of our witnesses. Includes: “Canada seeks to strike the entirety of the Second Nightingale Affidavit based on a lack of relevance. The Second Nightingale Affidavit concerns the Exit Tax. As explained in the plaintiffs’ Memorandum of Fact and Law, the Exit Tax is relevant context in this constitutional case because it constitutes part of the burden faced by some individuals of avoiding exposure to the Impugned Provisions.” “The out of court statements referred to by Ms. Tapanila to which Canada objects are not adduced for the truth of their contents, but rather for the fact that they were made. The plaintiffs do not rely on the legal advice lay witnesses were given for the truth of its contents. Rather, the plaintiffs rely on the fact that these witnesses sought and paid for legal advice, in many cases from multiple lawyers and at significant expense. This evidence establishes that it can be onerous and costly for an individual to determine whether and how they may be affected by the Impugned Provisions – and if they are affected, whether and how they may avoid this by changing their immigration status under US law – as referred to in the plaintiffs’ Memorandum of Fact and Law, at paragraph 19. The specific legal opinions lay witnesses received are not relevant to this point.” [I will not provide a link to this short submission, which includes the names of witnesses other than that of Carol Tapanila, whose name is already in the public domain.]
4. December 13, 2018 Plaintiffs’ reply record for the Summary Trial. Includes: “This is the first time Canada has raised standing as an issue. It does not plead that the plaintiffs lack standing in its Amended Statement of Defence. Canada’s assertion that the plaintiffs’ rights have not been affected by the Impugned Provisions is incorrect. It is undisputed that the plaintiffs bear US Person Indicia, since they both have an unambiguous US Place of Birth. As a result, any Low Value Accounts they own now or in the future may be reported and shared pursuant to the Impugned Provisions. For Lower Value Accounts or High Value Accounts that they own now or in the future,the relevant FIs are required pursuant to the Impugned Provisions to obtain or review the plaintiffs’ Proof of Loss of US Citizenship.” “Further, or in the alternative, the plaintiffs have public interest standing to challenge the Impugned Provisions…Relatedly, in an earlier summary trial in this proceeding, this Court declined to grant costs given “the public interest involved in clarifying the scope of novel provisions affecting hundreds of thousands of Canadian citizens.” etc. “Canada relies on the expert report of Matthias Oschinski for the proposition that if all of Canada’s big banks did not comply with FATCA, and the Impugned Provisions were not implemented, Canada would face significant negative economic impacts. In fact, Mr. Oschinski agreed that the severity of those impacts was subject to a “great deal of uncertainty” More importantly…” “This Court has already observed that the Common Reporting Standard is different from FATCA in “significant ways”. Comparing the CRS and the Impugned Provisions – as Canada does in various parts of its argument – does not aid in the resolution of this case.”
“…the record before the court actually does not establish that the plaintiffs have US tax reporting obligations [!]. There is no expert evidence before the court that considers the plaintiffs’ immigration and citizenship status under US law. The plaintiffs are affected by the Impugned Provisions because they bear US Person Indicia, not because they are US citizens. This is important: it is the presence or absence of US Person Indicia – as defined in the Impugned Provisions – that determines whether an individual is affected by the Impugned Provisions, not their citizenship status under US law. As noted above, Canada’s submission unreasonably assumes that the two are perfectly correlated.” “Canada states that its primary purpose in enacting the Impugned Provisions was to “avoid the potentially catastrophic impacts of FATCA on Canadian financial institutions, their customers and the Canadian economy.” It says its secondary purposes were to (a) lessen “the burden of the direct application of FATCA on Canadian financial institutions and their customers” and (b) “obtaining additional automatic exchange of information from the US to Canada for Canadian taxation purposes.” Assuming that the first of the secondary purpose is different than the alleged primary purpose, we do not accept that lessening of an undefined “burden” would be a legitimate objective for purpose of s. 8 or s. 1. As to Canada’s secondary purpose (b), while it is supported by one paragraph of the preamble to the IGA, it is undermined by all other relevant evidence and the effect of the law…Third, and in any event, Canada’s articulation of its “primary purpose” is too general to be accepted. A purpose that is articulated in too general terms will provide no meaningful check on the means employed to achieve it. Not only is the threat of economic harm Canada refers to amorphous and highly uncertain, it is so general that it could justify any rights infringement arguably motivated by such a threat from a foreign state…Canada effectively maintains that it enacted the Impugned Provisions under duress from a foreign state. The Court should be very slow to accept this as a justification for infringements of the Charter. Canada is expected to defend the constitutional rights and freedoms of its citizens and not bargain them away or capitulate to threats from a foreign bully state. The notion that a foreign state could indirectly cause the violation of a Charter right in circumstances where Canada could not do so directly simply cannot be accepted. This is a deeply illiberal proposition and it would undermine the principle of the rule of law which explicitly animates the Charter. ”
“Further, even if a desire to avoid financial punishment by a foreign state is accepted as the actual objective underlying the Impugned Provisions, and is considered a valid basis to violate a Charter right, there is significant uncertainty surrounding (a) whether the United States actually would have inflicted that punishment if Canada did not abide, or would do so now if the Impugned Provisions were declared of no force or effect, and (b) the severity of the financial consequences if they were to materialize.” “Canada does not deny that the CRA will use Accountholder Information obtained pursuant to the Impugned Provisions for domestic tax compliance work, nor does it refute the plaintiffs’ contention that such use is unrelated to the objectives of the Impugned Provisions. However, Canada relies on Jarvis for the proposition that “once information is validly gathered by the CRA any reasonable expectation of privacy in the information is lost.” On this basis, it suggests that the CRA’s use of this information is not unreasonable. Jarvis cannot be applied to the present case in the manner suggested by Canada. First…”
“In asserting that the Impugned Provisions are minimally impairing, Canada states that it is not the court’s role to speculate about whether Canada could have achieved a better deal through negotiations with the United States. We disagree. It is Canada’s onus to prove that the Impugned Provisions are minimally impairing and if its claim is that it had no choice because of US demands then it must prove that by appropriate evidence.”
“Finally, the plaintiffs do not assert, as Canada suggests, a right “to avoid the consequences of choosing to violate US law.” The plaintiffs claim their Charter rights, and they claim that they have been breached by Canadian law for the reasons set out above.”
Nononymous:
“Also the exclusion of RRSP, TFSA etc. accounts from reporting under the IGA is not uniques to Canada. The same applies to ISAs in the UK and similar tax-protected accounts in other countries, does it not?”
Yes, for cash ISAs. Not for stocks-and-shares ISAs.
I believe that is the distinction – capital investment. I may be wrong.
@Nononymous
“I believe that CRA does get info that it otherwise wouldn’t have, thanks to the IGA”. I am WELL aware of the fact that people like me are under greater scrutiny because my account information has been sent to the CRA. I at one point drew attention to the comment from CRA that they would. I’m referring to reciprocal information.
@Plaxy
The US/UK FATCA IGA is here. ISAs are covered in Annex II, article III para B. No apparent distinction between cash and stocks and shares ISAs that I can see — both should be exempt.
@BB I suspected that was what you meant, but felt compelled to clarify.
To the first point, why are Canadian banks so lax about identifying US-person customers?
Thanks for the correction.
“why are Canadian banks so lax about identifying US-person customers?”
Does CRA guidance tell banks to refuse accounts to US-born applicants?
Or does the guidance tell banks to treat US-born accountholders as reportable?
It’s no skin off the bank’s nose (I speculate) if you certify as non-US despite US birthplace. From the bank’s point of view, as long as they report the account to the CRA, they’re safe.
Only speculating, I repeat.
I said:
“From the bank’s point of view, as long as they report the account to the CRA, they’re safe.”
Apparently, as long as they don’t know the birthplace, they can safely treat the applicant as non-reportable.
https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/enhanced-financial-account-information-reporting/reporting-sharing-financial-account-information-united-states/guidance-on-canada-s-enhanced-tax-information-exchange-agreement.html#p8_84
Which is deeply insulting to US-born individuals, IMO. A don’t-ask-don’t-tell policy to allow inconvenient applicants to hide their inconvenient origins, for the convenience of the bank and the protection of the government.
Even though the complete back and forth content isn’t available at the link below (I was looking about because of being intrigued by Stephen’s Dec. 24th reference on this thread to; “…… the March 8, 2016 Brock post (with comments attached) thanking Brockers for their donations — as “Exhibit “L” in its submission to Federal Court…” .
At this link http://apps.fct-cf.gc.ca/pq/IndexingQueries/infp_RE_info_e.php?court_no=T-1736-14&select_court=T there is ( though the list is only barebones ) ample evidence and a timely reminder to IBS readers and supporters of how much hard work and heavy lifting ADCS, the plaintiffs and the legal team have been shouldering ( on behalf of all affected parties ) since the inception of this worthy lawsuit.
Addendum to above, the “it” in the “its submission” clip of a quote I cited was in reference to the defendants – and the Government of Canada – whose Exhibit L cited a Brock post and comments.
With reference to the article title posted by Plaxy (Dec30, 2:01pm) I am intrigued by the following paragraph. Does this mean that anyone to whom this applies can just tell their FIs to go stuff it if asked?
8.33 Generally, it is the CRA’s view that an explanation demonstrating a relinquishment of U.S. citizenship (other than by a renunciation before a U.S. consular or diplomatic official) before June 4, 2004, and in accordance with the U.S. Immigration and Nationality Act (Title 8 of the U.S. Code) as it existed at the time of relinquishment, is sufficient to demonstrate a reasonable explanation as to why an account holder does not have a CLN. Financial institutions are not expected to be experts in U.S. nationality law; any such explanation accepted by a financial institution is accepted for the purposes of Part XVIII and the Agreement only and is not finally determinative of tax or nationality status.
Speaking of the UK rather than Canada, one can certainly refuse to answer or ignore a FATCA letter.
Existing accounts may then be treated as recalcitrant; new accounts may be refused.
Both have been done to me (by different banks).
@ badger
That is a very long list of activities. I hope amidst all that complexity justice lurks for Kazia and Gwen (and all they represent).
“A don’t-ask-don’t-tell policy to allow inconvenient applicants to hide their inconvenient origins, for the convenience of the bank and the protection of the government.”
And above all the convenience of the applicant, if they are aware of how they should answer the question.
I greatly prefer “don’t ask don’t tell” (though it’s really “ask but don’t care about the answer”) to “show me your passport or birth certificate before you can open an account.”
PierreD. precisely. Say Johnny Canuck was born in ‘murica. but moved here to avoid Vietnam. A few yrs later he became Canadian. That’s all he needs because at that time he lost his US citizenship and there was no requirement for a CLN.
According to Canada finance guidance, that is a reasonable explanation that our FIs are supposed to accept. . financial institutions are not expected to be expert in US nationality law
Born in the US(A) and the bank knows it? Try these excuses.
1. I relinquished US citizenship when I became a Canadian citizen in 2003.
2. I lost US citizenship when I joined the Canadian army in 2003.
3. My mother/father was a Canadian diplomat posted to the US.
But even if the bank knew about place of birth, they would probably be fine with self-certification as a non-US-person, no excuse needed.
By “fine with” I mean accept the self-certification at face value and not report the account.
It’s refusal to answer the question that causes one to be reported as recalcitrant, and potentially suffer loss of services. Certainly I was threatened with a trading freeze on an RRSP when I considered not answering, about five years ago. (I then lied and all was well.)
“It’s refusal to answer the question that causes one to be reported as recalcitrant, and potentially suffer loss of services. ”
This victim mentality is surprising, if as frequently reported Canadians never “suffer” loss of banking services. Does no one in Canada ever tell banks to get knotted?
When an account is treated as recalcitrant it gets reported to the IRS, that’s all. The banks aren’t allowed to close the account.
Lock-out happens when banks won’t open accounts for US-born people. As far as I know there are no statistics about how many are affected. There may be some confusion between USCs getting refused because of FATCA, and certain investment accounts being not available to USCs.
Rage is the appropriate response IMO.
Not the offering up of lame excuses for having been born in the wrong place, or trying to cover up one’s origins.
We differ on this. I’m perfectly happy to make the problem go away by telling a bald-faced lie. A practical solution to a practical problem.
What I recall was being threatened with a trading freeze after refusing to answer, but because of some general failure to cooperate with KYC rules, i.e. the bank’s own compliance policy, nothing specific to FATCA or the IGA (though of course that’s the original problem). So I said fine, I’m not a US citizen, and obviously they didn’t care enough to question that statement despite all the previous fuss.
“I said fine, I’m not a US citizen, and obviously they didn’t care enough to question that statement despite all the previous fuss.”
They’re not required by Canadian law to question the self-certification. Don’t ask, don’t tell.
Don’t rock the boat.
@Plaxy: “When an account is treated as recalcitrant it gets reported to the IRS, that’s all. The banks aren’t allowed to close the account.”
Maybe not close an existing account, but the IRS FATCA FAQs say this about opening new accounts:
Whether banks actually follow this isn’t clear. At one time it conflicted with the UK’s advice to its own banks on FATCA implementation. I’m not sure if that is still the case.
“What I recall was being threatened with a trading freeze after refusing to answer, but because of some general failure to cooperate with KYC rules, i.e. the bank’s own compliance policy, nothing specific to FATCA or the IGA (though of course that’s the original problem). ”
US withholding? Refusing to sign a W9?
An investor in US securities who refuses to sign a W9 in the interests of obtaining a lower withholding rate, is presumably in a very different situation than that of a banking customer who has no US financial connections and simply doesn’t want to have to sign a W9 to be allowed to have a bank account.
It’s possible that there is a lot of confusion worldwide about exactly why a financial institution is asking about US citizenship.
Possibly quite a few who think they’re being discriminated against because of FATCA, are instead just over-touchy about admitting to US citizenship, as well as being terminally confused about financial regulation.
Interesting.
“Maybe not close an existing account, but the IRS FATCA FAQs say this about opening new accounts:”
Yes, as I said above. Banks can certainly refuse to open a new account, unless or until a court says they’re discriminating or otherwise breaking the law. They’re not allowed to close an existing account. Presumably a) to cover the government’s back; and b) because the government (and the IRS) wants to see their records in the hope of finding that they’re refusing because they’re up to no good.
Nothing to do with US withholding. It was 2013, early days of FATCA when things were a bit loose. They wanted a declaration of citizenship and either W8 or W9 for a completely standard Canadian RRSP. I said no way was I signing a US government form (and reminded them that the account was non-reportable). They threatened a freeze, I said fine I’ll sign a W8, but then they backed down and accepted the declaration.
I imagine they have their own FATCA/CRS form now, and more refined procedures.
BB, back to your earlier point in the post about Canada (and all other FATCA’d countries?) using FATCA data (gathered for the purpose of exchange with U.S.) for domestic tax compliance, see below part of the cross-examination between our lawyer (Beddoes) and Sue Murray (2015) and, later, Cindy Negus (2018),
This confirms that the FATCA info Canada Revenue (CRA) obtains from Canadians for “U.S. exchange” can be used for domestic compliance.
This appears to me to mean that bank account information of some (second class) Canadian citizens is automatically sent to Canada Revenue for examination for domestic compliance purposes (because of a foreign-U.S. imposed law), but this does not happen to first class Canadian citizens. Charter violation?
Our lawyers “red-lined” for emphasis this portion of the cross for the Federal Court Justice:
BEDDOES TO CINDY NEGUS (2018): “I’d like to turn you to the [previous] cross-examination of Sue Murray, and that’s dated July 22nd, 2015, and in particular beginning at question 60 on page 33, and I’ll start reading at question 60:
BEDDOES (2018) TO CINDY NEGUS: “Do you have any reason [now, in 2018] to disagree with the answers provided [in 2015] by Ms. Murray in response to questions 60 to 62 that I just read?”
CINDY NEGUS: “No, I do not”.
BEDDOES TO CINDY NEGUS: “So do you agree that the information referred to in paragraphs 22 to 24 of your affidavit, and again that is the information that the CRA was provided by Canadian financial institutions and sent to the IRS for the 2014, 2015, and 2016 taxation years, can be used by the CRA for domestic compliance work?”
CINDY NEGUS: “So I guess that’s a question of fact. In the affidavit by Ms. Murray she confirmed that. I have not independently confirmed that but I would have no reason to believe that she’s incorrect.”
From the top of Plaintiffs’ Reply Record: http://www.adcs-adsc.ca/CourtSubmissions.html