This comment by Jim Jatras is too important to let it be lost in our comment stream:
To Tim, Petros et al.at IBS:
The organizers at George Mason Law School inform me that the video of the event will be posted in a few weeks. Yes, it was great to have a chance to offer a few points directly to Prof. Harvey and Jesse Eggert at Treasury. Once the video is up, we can let viewers to decide who might be a flake and who is not.
Bottom line from the event is that it confirmed my sense going in of FATCA’s extreme political vulnerability and ripeness for repeal — if financial institutions (both US and non-US) and foreign governments would stop acting as, in effect, FATCA enablers. Most significant: Prof. Harvey, Mr. Eggert, and pretty much everyone admitted in substance that FATCA as written can’t be enforced. IGAs (intergovernmental agreements) are essential for the US to implement what would otherwise be an unenforceable regime. No one pretended that FATCA could be successfully enforced solely as a unlilateral and direct U.S. imposition. Either Washington will be successful in pressuring or tricking other countries into enforcing FATCA on themselves, or the whole scheme collapses.
As such, IGAs – such as the one finalized with the UK (though Parliament still needs approve it) and being negotiated with many other governments – are positively counterproductive for foreign firms and governments. They have the effect of rescuing FATCA.
But as I pointed out — and no one disputed — IGAs have another, unintended consequence: they repatriate FATCA’s costs to U.S. Under “original FATCA,” as enacted, American firms’ costs were relatively minimal, basically as a withholding agent for “recalcitrant” foreign firms, which would bear the vast bulk of the costs. But under the IGAs, similar obligations would be imposed on US domestic firms for reporting non-US residents’ data to the IRS, for transfer to foreign governments. (Indeed, under Article 6 of the “reciprocal” version of the IGA, the U.S. commits to achieving full reciprocity in data exchange with the “partner” country.) These costs – which would be passed on to American consumers – could be massive, since US firms will have to report on multiple countries, not just one. Not only will this be quite costly and invasive for American domestic institutions, it would be especially problematic for non-bank institutions (e.g., insurance companies, pension funds) that don’t routinely collect the kind of anti-money-laundering and “know your client” information banks do.
So Treasury faces a conundrum. On the one hand, FATCA can’t succeed without going down the IGA road. On the other hand, IGAs mean that FATCA costs that originally would be carried almost entirely by FFIs are now to be imposed here in the U.S. That changes the political landscape to FATCA’s detriment.
As IBS participants are aware, very little about any of this has appeared in the U.S. media. (And most of what has appeared are thinly veiled ads by compliance vendors – tax lawyers, accountants, etc. – who expect to educate their kids and retire on FATCA.) Americans only dimly perceive the looming threat to their privacy, pocket books and personal freedom. But if this were well-publicized through an active media campaign, that could change – and help set the stage for FATCA’s demise. But because U.S. interests are not (yet) sufficiently alerted to the this danger, I believe it is vital that non-US financial interests provide the catalytic initial support. Unfortunately, that has not yet happened. Instead (perhaps not fully appreciating that ours is not a parliamentary system) foreign firms are still begging their governments to negotiate with the Americans for relief — leading to the counterproductive IGAs.
As indicated on my site http://www.repealfatca.com, a place-holder for a campaign aimed at arousing U.S., there has only begun some pushback on FATCA based on repatriation of the outrageous costs FATCA would impose. IBS readers are of course familiar with the July 25 letter to Secretary Timothy Geithner from Rand Paul (R-KY) and three colleagues, just prior to the release of the “model” agreements. (Also, I thank IBS for bringing to my attention the letter from Rep Dave Reichert, with whom I plan to follow up, along with other Ways and Means Committee offices with whom I’m in contact.). Treasury’s answer to Rand Paul and his colleagues earlier this month is entirely inadequate and ignores entirely the Senators’ questions about costs, and other touchy issues. (At the George Mason event I argued about this with Mr. Eggert.) Treasury’s avoidance of talking about domestic costs is significant, as it flags a key, possibly fatal FATCA vulnerability.
The kind of pressure evidenced by the Paul-plus-three and Reichert letters could increase dramatically and be combined with legislative initiatives to stymie FATCA’s enforcement and help lead to its repeal. (Also, remember that we’re about to have an election, which also could change the landscape with respect to FATCA.) There is a standard panoply of techniques used in concert with lobbying Congress to achieve the passage – or repeal – of legislation. These include hearings, ordering cost/benefit studies (which never was done for FATCA), withholding enforcement funding, freezing Executive Branch nominations, and perhaps most importantly, blocking implementation of the IGAs as the “weak link” in the FATCA enforcement plan, combined with a vigorous PR campaign to “brand” FATCA as (this is only slightly hyperbolic) the worst law ever. But this requires a serious, sustained – and funded – on-the-ground Congressional lobbying and media effort. Simply writing letters to Congress explaining why FATCA is bad cannot accomplish the needed task, especially if they represent only the concerns of foreign (or for that matter, expat) interests.
We hear all the time that “FATCA is here to stay” – mostly, as I say, from practitioners with a pecuniary interest in a very expensive FATCA regime, many of them non-Americans with no experience with the US political system. But based on my experience, I am convinced repeal is a realistic outcome – if there is launched a campaign comparable to other projects for the passage or repeal of legislation. Unfortunately, while impacted firms (mainly foreign ones, but American too) have already spent millions sending pointless comment letters to Treasury and gearing up for compliance to the tune of untold billions of dollars in the aggregate, and millions per institutions, none has yet seen fit to commit a small fraction of this to exploiting FATCA’s manifest vulnerabilities.
Indeed, by point of comparison, there are significant examples of the sudden house-of-cards collapse of what had been considered unassailable initiatives, once an intelligent and active campaign to that end was launched:
a. The Medicare Catastrophic Coverage Act of 1988-89 (“Rarely has a Government program that promised so much to so many fallen apart so fast.” Unlike FATCA, the Catastrophic Coverage Act – which was repealed 17 months after it was enacted – had a clear and identifiable set of beneficiaries.
b. Dubai Ports World debacle of 2005-2006. (As it happens, I had a hand in killing the Dubai Ports World deal, despite the solid support for it from the White House of George W. Bush, Congressional majorities in both the Senate and House and Republicans and Democrats alike, and editorial support from publications including the Financial Times, the Wall Street Journal, the Los Angeles Times, the Washington Post, The Economist, and top commentators including Tony Snow, Thomas Friedman, Rush Limbaugh, former president Jimmy Carter, Senator John Warner, and Bill O’Reilly. In addition Senator John McCain stated he believed Americans “should trust the President on this issue.” In the end, they didn’t.)
Dramatic turnarounds of this sort aren’t automatic or easy. Nor is the outcome certain. But what is certain now, is that if a repeal campaign is not launched, Treasury will continue with its methodical campaign to pull country after country into IGAs and eventually solidify a “global FATCA” – an outcome that might have been averted with some active and intelligent opposition in the US.
That said, based on the observations above, there is enough reason to suggest that that in addition to spending huge sums of money on FATCA compliance – already described as a practitioners’ “gold rush,” especially for tax lawyers – devoting a comparatively small amount to seeing if this costly nightmare can be averted altogether. For large firm the difference between compliance and supporting a repeal effort could be one between hundreds of millions of dollars versus tens of thousands of dollars.
My guess is that FATCA could probably be repealed in about a year – before the most draconian regulations go into force – with an effort costing between $50 and $100 thousand per month. Obviously, the more money devoted to the effort, the greater the likelihood and speed of success. Even if a foreign interest takes the lead in launching the effort, a coalition of interests – including domestic American ones – is important. To put it bluntly, Congress will respond to concerns of costs inflicted on U.S. domestic interests, they are far less concerned about costs imposed on foreign interests.
This also relates to some criticism I’ve seen on IBS and elsewhere regarding my focus on costs to firms and not, specifically, the unfair costs FATCA imposes on (for example) expats and dual nationals in Canada and elsewhere, not to mention related issues stemming from American worldwide taxation. Short answer: I am interested in solving this problem. Like it or not, the fact is that the legitimate complaints expats have about FATCA and related impositions cannot get FATCA repealed – but the ones I have pointed to have that potential. Moreover, unlike individual expats, the impacted financial interests have the resources to support the kind of effort needed at cost far less than they are facing to comply with FATCA. To put it another way: if you are an expat or dual national in Canada or somewhere else, focusing on how FATCA unfairly injures you is not going to relieve you of that injury. Instead, you need to think of who you know in the banking, insurance, pension, investment, etc., industry, either in the U.S. or abroad, and suggest that they would be protecting their own interests (not to mention yours) by jumping off the IGA and compliance hamster-wheel and freeing up some resources to bringing FATCA down.
Two closing thoughts:
First: No doubt some will read this and say, “Sure, he tags tax lawyers, accountants, and so forth with lucrative motives, but isn’t he also just trying to drum up business?” Of course. But let me note that not only is what I am proposing far less costly than the truly obscene amounts that would be spent on compliance, the purpose would be to relieve what I sincerely believe to be a tragic mistake. One of the lawyers at the George Mason event, at the opening of the second panel, posed the relative costs of FATCA as a projected $1 trillion worldwide versus a projected recovery of lost taxes at less than $1 billion a year. It doesn’t take a math genius to figure out this is a bad exchange, since that $1 trillion will be spent on an activity that contributes absolutely nothing to the American or global economy other than compliance with the FATCA edict itself. In comparison, I would not be continually beating this drum (at the risk of “flake” characterizations) unless I believed I was offering the “right” product to the marketplace, not only from a business perspective but morally.
Second: As I mentioned in closing at the George Mason event, a few months ago a U.S. financial industry lobbyist in Washington told me that he thought FATCA would be repealed in the end, but it would follow the trajectory of the Catastrophic Coverage Act. That is, it would be pulled back after it had turned into a horrendously expensive global train wreck. My thought is, wouldn’t it be better to save the time and cost – not to mention the economic wellbeing of who knows how many individual persons – by undertaking that now, and not waiting until today’s foolhardiness had matured into tomorrow’s catastrophe?
@the Animal
‘The CBA is committing a crime in complying to the wishes of a foreign taxation entity’
On the other Jatras thread where he is actually communicating with us, he has said that if any of us would like to talk to him about any ‘direct contact’ he has with the CBA we would have to contact him directly. If he is talking to the CBA, it’s certain he wouldn’t be encouraging them to rally behind an IGA.
Where do you find evidence that the CBA is ‘committing a crime’?
usxcanada and ConfederateH
Re “Canada is not a “nice” place – it only seems so to some beneficiaries because there is still fiscal elbow room to slosh enough oats out of the swill bucket to pacify most of the peons.”
or this “Migrated U.S. persons fail to see that their warm fuzzies for Canada derive mostly from how horrible the United States is by comparison. Hell makes limbo look delightful.”
I chuckled. So much about what we believe, or what we feel is based upon our perceptions and comparative references. I guess that is part of the human condition coping mechanism to deal with the realities we find ourselves in.
It is also why marketing can be such an effective tool in dealing with any situation. All the masters really need do, is change the perception, not the situation. It is cheaper and easier than dealing with the real issues.
This made me think of these three Ted Talks I watched some time back. Roy Sutherland is “an ad man” amusing and thought provoking. You might enjoy, as there are great life lessons there. There is a clever marketing story in relation to Canada in the first one. A change in perceived value can be just as satisfying as what we consider “real” value. In the second, a good explanation of how Congress got FATCA wrong with disproportional effort when small nudges would have worked, and then in the third, he makes a compelling case for how re-framing is the key to happiness. (Canadian happiness?)
You might find them interesting… Enjoy or not. Your choice.
Rory Sutherland: Life lessons from an ad man
http://www.ted.com/talks/rory_sutherland_life_lessons_from_an_ad_man.html
Rory Sutherland: Sweat the small stuff
http://www.ted.com/talks/rory_sutherland_sweat_the_small_stuff.html
Rory Sutherland: Perspective is everything
http://www.ted.com/talks/rory_sutherland_perspective_is_everything.html
Whoa — lots to deal with here! I will try to get back to you on specifics this afternoon.
On the specific point on who is (or more to the point, who is not) supporting any work opposing FATCA here in DC, and regarding my contacts with firms, associations, and governments, I am happy to converse directly via my contact information at http://sspa.squiresanders.com/professionals/professionals_detail.aspx?attorney=6014 , as above. I can also be reached at repealfatca@gmail.com .
http://www.nytimes.com/2012/10/25/us/liberty-dollar-creator-awaits-his-fate-behind-bars.html?pagewanted=2&_r=0&nl=todaysheadlines&emc=tha23_20121025
Don’t know if I am the only one that saw this:
guy going to jail for making and backing his own currency
@usxcanada, ConfederateH- I believe that the difference between the quality of life in Canada when compared to the U.S. is more than just something that is measured on a relative scale. In most every objective measure of the quality of life comparison between the nations of the world, Canada has consistently come out ahead of the U.S.
In measures such as political freedom, health care, infant mortality, educational attainment, personal income, economic mobility etc. Canada has consistently ranked ahead of the U.S.
Is Canada economically better off than the U.S.just because it happened to win the resource lottery? I would reply with a resounding, no. When it comes to resources the U.S. is one of the wealthiest countries in the world. The U.S. is in the mess it is in because of mismanagement on the part of its politicians and ultimately because of the voters who put those politicians in office. The U.S. is not in trouble because 6-7 million expats have not paid taxes. The problem is that the 330 million people in the U.S. want services but don’t want to pay for them.
They want a bigger military than they can afford. They want to give tax refunds that they can’t afford. They have a tax code that looks more like a block of Swiss cheese. And it is safer to walk on the streets of Baghdad than it is to walk the streets of Chicago or inner city L.A. Congress is a corrupt mess where the lobbyist are more powerful than the vote.
I find nothing at all in America that is attractive. The problem with America is that it still thinks that it is the only place on earth where freedom exists. While not realizing that it never was the paradise that it thinks that it was or still believes that it is.
I’ve been there and done that and I would never go back. My life in Canada, and that of my children, is vastly improved over my former life in the U.S.
@Mark Twain
Interesting story, but not exactly new.
What’s interesting is that the FBI calls Von Nothaus’ actions “terrorism” (read especially the US Attorney’s statement at the bottom of the press release). Here is a perfect example of the government prosecuting people using the terrorism label, applied arbitrarily to get maximum punishment.
It’s a sign of things to come.
@Mark Twain
Terrorism has lost all meaning, when it is trotted out by the likes of the FBI to describe every possible action by man that the government doesn’t like.
Using the word “terrorism”, as liberally applied as government does, is Terrorism. There, I have done it too! Marginalized the word from its real meaning, or have I amplified it to what it really is? Government overreach really does terrorize us.
Example: OVDI = Terrorism FATCA = Terrorism
Have you noticed too, that WMD now seems to represent any weapon or violence that America deems is so. A knife at a gang fight is now a WMD.
@usxcanada
Thank you for bring up these points again and again, as it’s an important reminder to all of us of where our wealth comes from, and to not be so strident about our good fortune. There is a battle being waged in BC over the Enbridge pipeline, Canada’s alternative to the US’s Keystone to get tar sands oil out of Alberta. Right now our Liberal government insists on answers to its environmental concerns, but in the end access through pristine wilderness may just be a matter of compensation.
@jim jatras
There’s another joke:
How do you keep an idiot in suspense?
I’ll tell you later!
Thank you for your kind offer to contact you directly. I wrestled with it and as tempting as it may be to do so, there are a few reasons why at this point I won’t, one of which is that I would not want to be privy to information that I would be required to withhold from those of us here who for various reasons cannot/will not contact you for the same information. So for now, I’ll need to deduce from your comments the information you might be willing to give me over the phone or by email 🙂
PS I’ll leave that to the journalists doing their job!
I haven’t read all of the most recent comments in this current thread (Jatras communication to IBS about FATCA) so I don’t know if this has been discussed yet, but I just got an update mail from IRS vs Expats blog advising me of this new post: http://irstargetsexpats.wordpress.com/2012/10/25/another-fatca-delay/
I think that the new post is about delay of withholding to 2014, and that this was already announced by the IRS? I’m not sure what if anything is new as of October 2014. Sorry, I have company this evening and unfortunately cannot research further right now, but I wanted to let everyone know about this new post on IRS vs Expats.
@jefferson
and of course any delay the IRS would support would be one that benefits them. Imagine the manpower and training the IRS will have to do to implement something of FATCA’s magnitude. In the end it may be congress itself that will want that genie back in the bottle (fingers crossed). What a debacle and waste of scarce resources.
recalcitrant says: In measures such as political freedom, health care, infant mortality, educational attainment, personal income, economic mobility etc. Canada has consistently ranked ahead of the U.S. … My life in Canada, and that of my children, is vastly improved over my former life in the U.S.
In general, you say two things here, and I agree with both. (1) Hell makes limbo look delightful. (2) Canada is a smarter master, and understands that a self-deceived, well-fed, healthy, educated serf will profit the overlord – and be less likely to revolt. Canada is allowed so far by corporatocracy to “afford” this because of the resource base and the lower level of military spending. This does not make Canada a better state.
PS Political freedom = Opaque Harperian omnibus autocracy based on minority popular vote? Provincial etc Municipal etc
*usxcanada
I would really like someday for Carl Levin and Peter Van Loan to go mano a mano.
ConfederateH and Just Me – Your revisionism dismays me. The word is ORT not OAT. Use a dictionary. Hell, do some crossword puzzles. I am capable of a typo, but do me the credit of starting from an assumption that my text is clean.
Good one, Tim. Pot Dryden and Kettle Van Loan! Most electoral “choice” is nothing but an opportunity to tweedle with dum or dee. The vote is precious only because it is a perpetual instrument to oust the current rascals. A change of scenery is better than an uneradicated pest.
Friends,
Addressing your valuable comments as I get to them, please note the following:
@Christophe
Yes, of course the October 10 response to Senator Paul from Assistant Secretary Mark J. Mazur can be made public, and I have seen it online somewhere but can’t find it at the moment. I have it in PDF if anyone wants it. It basically is an exercise in saying as little as possible, but the passage Christophe cites is highly significant (again, if viewed from the perspective of finding vulnerable points that can be exploited politically): “For now, no additional obligations will be imposed on U.S. financial institutions unless and until additional laws or regulations are adopted in the United States.”
To flesh this out, the “reciprocal” version of the partnership agreement (signed with the UK: http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Agreement-UK-9-12-2012.pdf ), requires (in Art. 2(a)) a significantly higher level of information transfer to the US than US institutions are required to provide “for now” under Art. 2(b). But under Art. 6: “The Government of the United States acknowledges the need to achieve equivalent levels of reciprocal automatic information exchange with the United Kingdom. The Government of the United States is committed to further improve transparency and enhance the exchange relationship with the United Kingdom by pursuing the adoption of regulations and advocating and supporting relevant legislation to achieve such equivalent levels of reciprocal automatic exchange.” In context, this would mean imposing on US institutions something closer to the far more extensive and invasive (and expensive) requirements of Art. 2(a), and for that matter the requirements the FATCA statute itself places on FFIs.
The reason this is politically significant: The US is admitting what London, Berlin, maybe at some point Ottawa, already know: the “reciprocity” (for what it is worth) just isn’t reciprocal. It’s a token. “But that’s OK – we’re pledged to get to a true, reciprocal partnership. You can trust us.”
But at the risk of saying “never” – never is a long time – that just ain’t gonna happen.
Treasury states in the letter that the Art. 2(b) obligations to be placed on US institutions are “limited to the information that US financial institutions will be required under existing regulations to report to the IRS about nonresident accounts in 2013.” What is not said is that even this limited authority under “existing regulations” is hardly a given. Treasury is already in a running gun battle with the House Ways and Means Committee on the legal authority of these regulations with regard to current efforts to force banks to report non-resident alien income.
Second, and even more problematic for implementing the IGAs, it’s clear that the asymmetrical Art. 2(b) commitment is far broader than just banks but includes all “Reporting US Financial Institutions” as defined in the IGA itself, and approximating the broad scope of the FATCA statute (if you don’t want to get too far down in the weeds, you can skip the following indented text):
Art 1(g) – “The term ‘Financial Institution’ means a Custodial Institution, a Depository Institution, an Investment Entity, or a Specified Insurance Company.” Each of the capitalized terms has its own definition, as follows:
h) The term “Custodial Institution” means any entity that holds, as a substantial portion of its business, financial assets for the account of others. An entity holds financial assets for the account of others as a substantial portion of its business if the entity’s gross income attributable to the holding of financial assets and related financial services equals or exceeds 20 percent of the entity’s gross income during the shorter of: (i) the three-year period that ends on the December 31 (or the final day of a non-calendar year accounting period) prior to the year in which the determination is being made; or (ii) the period during which the entity has been in existence.
i) The term “Depository Institution” means any entity that accepts deposits in the ordinary course of a banking or similar business.
j) The term “Investment Entity” means any entity that conducts as a business (or is managed by an entity that conducts as a business) one or more of the following activities or operations for or on behalf of a customer:
(1) trading in money market instruments (cheques, bills, certificates of deposit, derivatives, etc.); foreign exchange; exchange, interest rate and index instruments; transferable securities; or commodity futures
trading;
(2) individual and collective portfolio management; or
(3) otherwise investing, administering, or managing funds or money on behalf of other persons.
This subparagraph 1(j) shall be interpreted in a manner consistent with similar language set forth in the definition of “financial institution” in the Financial Action Task Force Recommendations.
k) The term “Specified Insurance Company” means any entity that is an insurance company (or the holding company of an insurance company) that issues, or is obligated to make payments with respect to, a Financial Account.
p) The term “Reporting U.S. Financial Institution” means (i) any Financial Institution that is resident in the United States, but excluding any branches of such Financial Institution that are located outside the United States, and (ii) any branch of a Financial Institution not resident in the United States, if such branch is located in the United States, provided that the Financial Institution or branch has control, receipt, or custody of income with respect to which information is required to be exchanged under subparagraph (2)(b) of Article 2 of this Agreement.
cc) The term “[FATCA Partner] Reportable Account” means a Financial Account maintained by a Reporting U.S. Financial Institution if: (i) in the case of a Depository Account, the account is held by an individual resident in [FATCA Partner] and more than $10 of interest is paid to such account in any given calendar year; or (ii) in the case of a Financial Account other than a Depository Account, the Account Holder is a resident of [FATCA Partner], including entities that certify that they are resident in [FATCA Partner] for tax purposes, with respect to which U.S. source income that is subject to reporting under chapter 3 or chapter 61 of subtitle A of the U.S. Internal Revenue Code is paid or credited.
In short, if Treasury is already having enough trouble with Congress enforcing this on American banks, how much easier that going to be to try to enforce the same regulations – which have yet to be written, by the way – on American insurance companies, investment funds, etc.?
That’s even before they try to get legislation passed to move toward full reciprocity, per Art. 6. Now, to be fair, maybe there’s no such intention. Maybe that’s just eyewash for the foreign “partner” to be able to say to the folks back home that this is not just obeying an edict from Washington, that the Americans have committed to equivalence of exchange, we’re all on the same page, and so forth – all the while knowing that it is precisely a capitulation, that the US will not pass legislation making this equivalent (and won’t even try), and that each side knows this, and knows that the other knows too.
Perhaps. But with respect to the Risk.net article Christophe posted regarding Germany, the participant in the George Mason seminar from the German Embassy made the same point – that reciprocity is essential to them with respect to complying with FATCA under German law. (Why that is has never been explained to me precisely. But every German official or banker I’ve talked to has been both specific and emphatic on this point.)
Apologizing for the length of this post, the bottom line is this: the IGAs – which I noted at the seminar and in my first note to IBS yesterday – are a weak link in the whole FATCA scheme. There are features of the IGAs that, in the US political context – the only one that matters, if we want to be rid of this monstrosity – that, if exploited, could render the IGAs unviable. And as even its proponents concede: no IGAs, no FATCA.
But again, this a “hands-on” exercise. To attack the IGAs and other FATCA vulnerabilities requires both an “air game” (media, especially those directed at Capitol Hill and impact US industry) and a “ground game” (doing the grunt work with Senators, Congressmen, committees, staff, think tanks, etc.) And (this being America) that requires money devoted not to complying with FATCA, not to sending thoughtful but ineffective comments to IRS on the proposed regulations, not to encouraging Ottawa to “engage” with the Americans – but funds to support a targeted and dedicated “Repeal FATCA” campaign in the US.
Christophe asks: “What else can we do, as individuals, to help bring awareness of this issue, that can ultimately lead to a repeal of the law? A lot of people I’ve talked to don’t see its negative consequences and tell me I am paranoid.” Short answer, see above paragraph re “air game.” There are standard PR techniques that can successfully sell this story. One big advantage that we have is that hardly one American in a hundred has heard FATCA. It’s a blank slate begging to be characterized.
This related to Christophe’s final thought on that posting:
Now, and this might confirm that I am paranoid… or realistic: with a reporting threshold of just $50k, I don’t think tax evasion is the primary goal of the law. If they wanted to catch tax evaders, the threshold would be much higher. They might have enacted it for a different purpose that they don’t want the rest of us to know.
As they say, just because you’re paranoid doesn’t mean they’re not really out to get you.
If you pardon my tinfoil hat, I’m inclined to agree. This is not just about catching fatcat “tax cheats.” As I said in one of my commentaries, “Global Financial Information Regime Looms”:
Toward a Global Financial Fishbowl
Among the commitments in the U.S. + EU 5 agreement is that of “working with other FATCA partners, the OECD, and where appropriate the EU, on adapting FATCA in the medium term to a common model for automatic data exchange of information, including the development of reporting and due diligence standards.” While the future role of the EU remains unclear—it is significant that Washington chose to bypass the European Commission in Brussels and first deal directly with EU member governments—the reference to the OECD (Organization for Economic Co-operation and Development) is further grounds for concern. A 34-country organization whose stated mission is “to promote policies that will improve the economic and social well-being of people around the world”—well, who could object to that?—OECD has been in the forefront of efforts for combatting “tax havens” to eliminate “harmful tax competition” from low-tax jurisdictions in favor of “tax harmony.” As some have characterized it, OECD aims “to create a global high-tax cartel” based on comprehensive intergovernmental financial information sharing or (in the words of the U.S. + EU 5 agreement) “a common model for automatic data exchange,” a natural way-station to a central global data clearinghouse—perhaps managed by the OECD itself. Not only would this entail unacceptable risks for the security of personal financial data, it would be a powerful tool for pushing “harmonized” tax rates at higher levels and, ultimately, a threat to all countries’ financial sovereignty. Even more ominously, comprehensive global collection of financial data and transactions could facilitate final realization of an idea that has been kicking around for a number of years in different forms: a supranational financial transaction tax (FTT).
Yes, if successful FATCA will indeed beget DATCA and GATCA. Indeed it must, or it will die. (You can still hide money in real estate – aha, we need to enact a RETCA!)
But from a PR standpoint, turn that around. Packaged properly, this agenda just will not play in Peoria, as they say. As indicated on the http://www.repealfatca.com site, I think the key themes are as follows, which can be refined and modified as implemented. FATCA threatens to:
But unless some institutions – foreign governments, US and foreign firms – who can pay the freight stop wasting time and money on compliance prep and jaw-jawing with Treasury and instead step up the plate to turn this into a fight, we’re just talking to each other (and to the guys from IRS who are reading these posts).
@usxcanada
Excuse me? I am puzzled. What are you talking about revisionism? Ort vs Oat? I am missing something? On a previous comment page? Must be. But, in the meantime I think I will digest what Jatras had to say..
@Just Me
Yes, sorry, was responding to this, below. I’ve lost track of where these appear on the comment thread.
Christophe
October 24, 2012 at 6:16 pm
@Jim Jatras, thank you so much for your long and valuable comment.
In his response to Rand Paul, Treasury said that the “scope of what US shares versus what other countries share is different. Equivalent levels of reciprocity in the future. For now, no additional obligations will be imposed on U.S. financial institutions unless and until additional laws or regulations are adopted in the United States.“
It basically says that at least in the beginning, there will only be reciprocity on whatever information US financial institutions are currently providing to the US government, and that no additional cost will be beared by US financial institutions. If it is the message that is sent to financial institutions, how can we better influence them that this law is not in their interest?
This is a response from Treasury to a US senator. Can that response be shared with the rest of the world to show what the US really has in mind and is not serious about reciprocity?
This article, where you’re quoted, mentions that Germany is the only country that has expressed interest, mainly as a matter of principle, to reciprocity. It is extremely surprising that other countries are not stating the same.
What else can we do, as individuals, to help bring awareness of this issue, that can ultimately lead to a repeal of the law? A lot of people I’ve talked to don’t see its negative consequences and tell me I am paranoid.
Now, and this might confirm that I am paranoid… or realistic: with a reporting threshold of just $50k, I don’t think tax evasion is the primary goal of the law. If they wanted to catch tax evaders, the threshold would be much higher. They might have enacted it for a different purpose that they don’t want the rest of us to know.
@Jim Jatras…
Excellent analysis. Your vision confirms my long held suspicions that FATCA, begets DATCA, begets GATCA.
Thanks for forcing me to get into the weeds with what the IGAs are promising. I hope you are right, that the US politics will NOT be able to deliver.. That is why I just tweeted the Finance Minister of NZ, Peter Dunne that the IGA won’t be worth the paper it is written on.
For a year now, I have been drawing inferences about the Global ambitions, and have described FATCA as the “Tip of the Spear” to force a new world order of total financial transparency. I see that you too see it that way.
From what I read and have observed from afar, the domestic FATCA story still receives even less attention than the foreign one in the media. It only captured my attention in the fall of 2011 year, when I read of Representative Boustany opposition to an IRS regulation I hadn’t heard about. It was reported here. That started me thinking, what is this about?
Then there was a long silence on the subject, although I did see the letter from the Florida Delegation in the spring of this year and a couple other mentions. There had been no other major media that I was aware of until these these dueling Editorials showed up in the Miami Herald. At the time, I emailed President of the Florida Banking Association about his one sided presentation of the issue, and put comments up explaining to any readers that bothered to look, what was driving this new regulation. This was FATCAs fault.
I have been attempting to keep track of the domestic developments on the Post entitled DATCA is Not DEAD
@Tim also put up a post on the Banking Industry response to DATCA here.
Thanks for helping flesh out the Bigger picture for me about how the IGAs could be the undoing of this unworkable 388 pages of draft regulations. Now, we need to ponder how we can help get some organized opposition going, or financed. As you can tell by this motley band of Brockers, we are not deep pockets! LOL
You are partially right about FATCA being an blank slate for characterization, and the PR opportunity that provides, except that, the Media has already been doing the IRS work for them with what headlines they put up. Evidence the Headline story on Reuters today…
IRS delays key start dates for global tax evasion law
If I could write the headline it would be…
IRS delays Key Start Dates for Costly Job Destroying Tax law.
Unfortunately, we have also seen many uses of the words Tax Cheats and FATCATs in relation to anything about FATCA or IRS VD programs and that all meshes into the negative stereotype about organized opposition, as if you must then favor tax evasion!
I think we need a Frank Luntz to help us word smith the Key Talking points. You points are good ones to keep hammering home. Make this story about negative impacts to Homelanders. Job loss and higher banking fees, rather than unfair treatment of American’s abroad.
As we have learned, no one in the Homeland cares a whit about the travails of Expats. Hell, our 2 candidates don’t care enough about the 60,000 deaths related to our War on Drugs that is happening just south of our border. So why would we really matter either? If that humanitarian disaster doesn’t even merit a second of discussion in the recent Foreign Relations debate, why do we think our whines about loss of banking services will matter in that context? It won’t!
Latest FATCA Delay Bolsters Case for Repeal, Says CF&P President
Circulate this one around…
“FATCA is based on the lawmaker fantasy that we can tax our way to fiscal solvency. The reality, however, is that for all the costs imposed by this misguided foray into fiscal imperialism, the law won’t even raise enough in ten years to fund the government for a single day at present levels. FATCA is simply madness.”
Barbados might pursue FATCA agreement with USanother misguided government that thinks an IGA is their Saviour
It seems to me that the only forces with pockets deep enough to fight FATCA in the method Mr Jatras suggests would be our respective governments. Who here would be interested in ‘Jatras bombing’ every Member of Parliament in Canada, when so many here have expressed that our government is merely a puppet for a great force?
The link above does not work, so will repair it…
Latest FATCA Delay Bolsters Case for Repeal, Says CF&P President
@bubblebustin, you wanted a response as to why I think the CBA is committing a criminal act?
Personal Information Protection and Electronic Documents Act
–
7.
(1) For the purpose of clause 4.3 of Schedule 1, and despite the note that accompanies that clause, an organization may collect personal information without the knowledge or consent of the individual only if
(a) the collection is clearly in the interests of the individual and consent cannot be obtained in a timely way; – disclosure is not in the interests of the individual.
(b) it is reasonable to expect that the collection with the knowledge or consent of the individual would compromise the availability or the accuracy of the information and the collection is reasonable for purposes related to investigating a breach of an agreement or a contravention of the laws of Canada or a province; – Canada’s privacy laws for “information banks” read that as collecting of information indicates that information can only be used for the purposes of the operating purposes of the institution.
(e) the collection is made for the purpose of making a disclosure
(i) under subparagraph (3)(c.1)(i) or (d)(ii), or
(ii) that is required by law
subparagraph (3)(c.1)(i) or (d)(ii)
(3) For the purpose of clause 4.3 of Schedule 1, and despite the note that accompanies that clause, an organization may disclose personal information without the knowledge or consent of the individual only if the disclosure is
(c.1) made to a government institution or part of a government institution that has made a request for the information, identified its lawful authority to obtain the information and indicated that – That means it has to be a “Canadian Government Institution”
(i) it suspects that the information relates to national security, the defence of Canada or the conduct of international affairs, – FATCA is a US Legislation, and is extra-territorial in reach and is overreaching at that. It originates from south of the border and is not relating to Canada’s conducting of it’s own international affairs.
(ii) the disclosure is requested for the purpose of enforcing any law of Canada, a province or a foreign jurisdiction, carrying out an investigation relating to the enforcement of any such law or gathering intelligence for the purpose of enforcing any such law, or – That may be so, but it requires a IGA in order to do so. – This law is “overreaching” and “subordinating of Canada’s sovereignty” and thus the subsection has been tendered for repeal.
(iii) the disclosure is requested for the purpose of administering any law of Canada or a province; – FATCA is not a Canadian Law.
(d) made on the initiative of the organization to an investigative body, a government institution or a part of a government institution and the organization
(i) has reasonable grounds to believe that the information relates to a breach of an agreement or a contravention of the laws of Canada, a province or a foreign jurisdiction that has been, is being or is about to be committed, or
(ii) suspects that the information relates to national security, the defence of Canada or the conduct of international affairs;
Canada’s Privacy Act
7.
Personal information under the control of a government institution shall not, without the consent of the individual to whom it relates, be used by the institution except
(a) for the purpose for which the information was obtained or compiled by the institution or for a use consistent with that purpose; or
(b) for a purpose for which the information may be disclosed to the institution under subsection 8(2).
8.
(2) Subject to any other Act of Parliament, personal information under the control of a government institution may be disclosed
(a) for the purpose for which the information was obtained or compiled by the institution or for a use consistent with that purpose;
(b) for any purpose in accordance with any Act of Parliament or any regulation made thereunder that authorizes its disclosure;
(f) under an agreement or arrangement between the Government of Canada or an institution thereof and the government of a province, the government of a foreign state, an international organization of states or an international organization established by the governments of states, or any institution of any such government or organization, for the purpose of administering or enforcing any law or carrying out a lawful investigation;
(i) is satisfied that the purpose for which the information is disclosed cannot reasonably be accomplished unless the information is provided in a form that would identify the individual to whom it relates, and
(ii) obtains from the person or body a written undertaking that no subsequent disclosure of the information will be made in a form that could reasonably be expected to identify the individual to whom it relates;
(m) for any purpose where, in the opinion of the head of the institution,
(i) the public interest in disclosure clearly outweighs any invasion of privacy that could result from the disclosure, or
(ii) disclosure would clearly benefit the individual to whom the information relates.
Obstruction
68. (1) No person shall obstruct the Privacy Commissioner or any person acting on behalf or under the direction of the Commissioner in the performance of the Commissioner’s duties and functions under this Act.
Offence and punishment
(2) Every person who contravenes this section is guilty of an offence and liable on summary conviction to a fine not exceeding one thousand dollars.
Canada US Tax Treaty
ARTICLE XXVII
Exchange of Information
1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes covered by the Convention insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Article I (Personal Scope). Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the taxation laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the administration and enforcement in respect of, or the determination of appeals in relation to, the taxes
covered by the Convention. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.
2. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall endeavor to obtain the information to which the request relates in the same way as if its own taxation was involved notwithstanding the fact that the other State does not, at that time, need such information. If specifically requested by the competent authority of a Contracting State, the competent authority of the other Contracting State shall endeavor to provide information under this Article in the form requested, such as depositions of witnesses and copies of unedited original documents (including books, papers, statements, records, accounts or writings), to the same extent such depositions and documents can be obtained under the laws and administrative practices of that other State with respect to its own taxes.
3. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation:
(a) To carry out administrative measures at variance with the laws and administrative
practice of that or of the other Contracting State
; – Under the Privacy Act of Canada, unless there is legislation covering this exchange of information, the request is at variance with the laws of Canada.
(b) To supply information which is not obtainable under the laws or in the normal course
of the administration of that or of the other Contracting State; or: –
the law states that there is no reason under which the bank can disclose information directly unless there is an agreement in place with the federal government. In this case, the IRS has to approach both entities – Revenue Canada as well as the Federal Government under privacy laws before the banks and the CBA can comply.
(c) To supply information which would disclose any trade, business, industrial,
commercial or professional secret or trade process, or information the disclosure of which
would be contrary to public policy (ordre public).
4. Notwithstanding the provisions of Article II (Taxes Covered), for the purposes of this Article the Convention shall apply:
(a) In the case of Canada, to all taxes imposed by the Government of Canada on
estates and gifts and under the Income Tax Act; and
(b) In the case of the United States, to all taxes imposed under the Internal Revenue
Code.
http://www.cba.ca/contents/files/presentations/pre_20120515_irsfatca_en.pdf
I think it is well understood at this stage that FATCA compliance is challenging
for financial institutions. To date, by our count, approximately 350 different
submissions from 30 different countries representing all parts of the financial
sector have been made on FATCA notices. All of them have outlined a number
of technical, operational, and legal issues they need to contend with in order to
implement FATCA. The complexity stems from the fact that FATCA affects the
interaction between a financial institution and its client. FATCA sets out rules
about:
• how to classify different types of accounts;
• the information that must be collected and recorded when clients open
accounts;
• the information that must be reported to the IRS;
• withholding on income where a client is deemed to be recalcitrant; and
• closing accounts and terminating relationships.
All of these are issues that are properly governed by a body of domestic practice,
domestic legislation, and contractual obligations surrounding them. Therein lies
the heart of the complexity– how to satisfy Canada’s strong, comprehensive and
internationally lauded domestic regulatory oversight, while facing the U.S.-based
requirements under FATCA, all while working hard to keep customers happy.
This is not an easy balance.
Reading between the lines, it’s easy to see that the banks have no desire to continue to serve US citizen customers and are ready and willing to throw USC customers under the bus to save their bottom line. The only thing that is stopping them is the fact that there is no IGA yet covering FATCA.
As I have said before, contravening any statute that compromises Canadian sovereignty is tantamount to treason
. Do you want our financial institutions to be subsidiary reporting agencies of the IRS? The United States has engaged in practices of financial subterfuge and is planning to destroy the lives of 1 million US Citizen residents of Canada who did not realize that this was the road that the United States of America was going down and ended up leaving their US citizenship on the vine. This is WAR and must be fought as such.
@The Animal- Early last year I wrote a letter to Finance Minister Flaherty and made the same basic argument but based on Alberta’s privacy legislation and rules regarding the handling of banking information in particular.
The irony of all this is that what we have is the U.S., the self proclaimed champion of Human Rights amongst which is the right to privacy, being the destroyer of the privacy legislation of all people around the world.
It would seem that the work that the U.S. undertook to push for the world wide spread of Human Rights is now being selfishly and thoughtlessly undone by the U.S. Now even people who are perfect strangers to the U.S. will have to prove to the U.S., through their financial institutions that they have no connection to said country.
I find the fact that this irony seems to be completely lost to the minds of the members of Congress and the President, to be extrememly absurd.