Cross-posted from the Flophouse. I finally got around to reviewing Robert Morris’ book on FATCA which I read before Christmas. Here’s what I think. Would be very interested in knowing your take on it as well.
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At last a book about the beast, FATCA.
I read Robert Morris’ FATCA and the New Birth of American Empire in one sitting a few weeks ago and I just posted a review up on Amazon.
It’s not long and it’s not an expensive book but it is for you? The disclaimer at the beginning is very helpful because Morris clarifies that he is not speaking to Americans abroad in his essay. If you are one of these “US Persons” he has no advice to offer though he points out that what’s happening to them (us) is a darn shame. I immediately disagreed with him on two points however in that introduction: he says Americans living outside the U.S. have power (which is nonsense) and that media outlets are willing to shine the spotlight on our stories (yes, but only very recently and after much effort by folks like Marvin,Peter and Lynne).
“This essay will focus on everyone else.” So his words are meant for those not directly in the line of fire – all those who think they are safe and that this business does not concern them because they are not US citizens or don’t have connections to the United States.
Morris begins by admitting that at first glimpse the law might seem to be quite a fine thing for those committed to the fight against tax evasion: “FATCA requires foreign businesses to provide information on any US accounts they manage to the United States Internal Revenue Service (IRS). If those foreign banks and investment companies do not do this, they are subject to a 30% withholding tax.”
Good for them, some say. At last something that really goes after all those darn tax cheats – those who profit from America but who, when the time comes to pay the bill, illegally send their money offshore, leaving the poor fools at home to face higher taxes.
Ah, but the devil indeed is in the details and a closer reading of the law (and the 500+ pages of regulations AND all those intergovernmental agreements) is required to understand the full scope of this nasty little piece of extraterritorial legislation. If it were just Americans impacted then it would simply be an affair between Americans in the homeland, the America diaspora abroad and those Yanks who keep their precious persons at home but let their money do the migrating.
Morris argues that everyone in the world is impacted in ways that are hard to see from just a cursory reading. His claim is that FATCA is “imperialist, racist and protectionist” and his essay is the case for repeal on those grounds.
FATCA is U.S Imperialism: FATCA requires that foreign (that is, non-US) entities be strong-armed into acting as enforcers for the American government. Every US person (a US citizen, a Green Card holder or anyone with a connection to the United States) is a target and a potential source of revenue even if they don’t live or work in the U.S. and the money earned was earned entirely outside of the United States. You wouldn’t get more extra-territorial than that – we are talking about people, assets and bank accounts that do not live on U.S. soil. Up until FATCA these things were subject to the laws of the country where they were located. Getting a job, earning a living and opening a bank account in Country A meant obeying the laws of that country and paying taxes to that government. FATCA (and by extension citizenship-based taxation) turns that on its head: “The most important laws governing the economic activity of US citizens abroad are no longer the laws of the country that they live in.”
Furthermore, in order to implement the law in the 190+ countries of the world, foreign countries are being asked to change their own laws, charters and constitutions to make them FATCA-friendly. Hard to see how anyone could argue that this is not imperialism. “The level of instrusiveness is staggering. If a given country has a confidentiality law that forbids their banks from sharing this kind of information, then the law has to be changed. Put simply, with FATCA the United States is asserting the right to tell other countries what their laws should be.”
FATCA is Racist & Protectionist: 500+ pages of complex regulations in English. Small countries and emerging markets, Morris argues, are at a terrible disadvantage under FATCA. Developed countries already have experience with complex regulations but even they are groaning under the sheer cost of re-tooling their IT systems and modifying their procedures to comply. How are less-developed countries supposed to manage? This was, in fact, a point made at the European Parliament FATCA meeting last year (my report here) by Action Aid “who pointed out quite rightly that such systems and the information they contain must be made readily available to developing countries.”
I see no sign whatsoever that the Europeans or the Americans are taking this aspect seriously. FATCA is an affair of les grands and the little people and the little countries will simply have to adjust to this brave new world.
But Morris makes the point quite well, I think:
“FATCA creates a catch-22. Banks from emerging markets can only become large modern financial institutions by competing in international markets. FATCA, however, requires these banks to be large modern financial institutions before they can compete in international markets…The developed countries did not have to put up with these burdens while they were developing, it is unjust to force others to take them.”
“Now that the benefits of economic growth are finally spreading to non-white (or non-Japanese) areas of the world, the US government is ensuring that a vital part of every country’s economy, the banking sector, is reserved for the already developing countries. This protectionist measure may not be racist in intention, but it certainly is in effect.”
As for those intergovernmental agreements (IGA’s) one could see them as special deals the US is making with its “friends” – the other developed nations. One has only to look at the French IGA to see how the burden has been lightened for this and other European countries. “The rich and established countries are being given a lighter, easier path to dealing with FATCA.” Will African, South American or Asian banks get the same deal? We shall see.
FATCA begets GATCA (a term coined by Marvin van Horn). The idea of a worldwide information financial information system has been around for quite awhile. There are other systems in place or in progress that more or less do what FATCA does. The EU, in particular, has what it calls AEOI (automatic exchange of information) and they are expanding it. It is more mature than FATCA (which has yet to be implemented) and the Europeans have chosen a more step-by-step approach. The OECD has also been working on it and has this fine article about how they view the matter.
But they all have the same ultimate objective: to be a model for the rest of the world. I have speculated more than once that the Americans looked at all of this and greatly feared that they would be subject to a system made in the EU and so they decided to float their own system as a counter-offer (if not an outright attempt to do in these efforts in favor of something more favorable to the US). Is this a race to define the model? The story is just beginning and I think there will be much negotiation to come as these competing models bump up against each other and their merits and demerits become clearer. In any case, I would make the point that the idea behind FATCA was not something dreamed up by the United States, but rather something that has been around for awhile now.
Morris touches on the international nature of these efforts: “With FATCA we will set up an international tax regime that will be subject to the interests of those with the most power. For the next few decades, the United States will be the most powerful interest. As all systems do, it will consolidate, and get more powerful. As this process continues, the system created will look more and more like a worldwide empire. The evolution will outlast US dominance.”
This is where I would part company with Morris. I am simply not convinced that the final system (and I believe there will be one) will be FATCA. It’s not just that there are competing models out there but also the Americans have not exactly shined in their implementation efforts. They have struggled to produce the regulations to make the law a reality. The signing of IGA’s has been at a snail’s pace and each one is different depending on how well each country was able to negotiate. That doesn’t look terribly efficient nor does it scream “model for the rest of the world.”
There is also the uncertainty around reciprocity. Americans abroad may not be powerful but Americans banks in the United States are. That foreign banks are subject to FATCA is fine by them – in fact, it gives American banks a competitive advantage. But the suggestion that they might also be required to turn over information to other countries, well, that does not sit well and they have friends in Congress who will help.
Lastly, the agency that has been tasked with actually setting up the infrastructure and administration for FATCA on the US side is one that is not loved and has a very tight budget: the U.S. Internal Revenue Service. On top of last year’s scandals, low morale and even further attempts to cut their budget, they have been handed Obamacare (the new US national healthcare system). Oh what a gift…. Reports from the US seem to say that it is not going well.
The Taxpayer Advocate Service (led by the remarkable Nina Olson) has already warned Congress that the IRS today is not funded sufficiently well to adequately serve taxpayers in the homeland, much less those abroad. And now they want to add the rest of the world into the mix, responsibility for a model international tax reporting scheme, while cutting their budget?
Ce n’est pas sérieux.
I HAD A DREAM – I had a dream that the Prime Minister of Canada decided after years of negotiation with the USA to no avail to just say no to FATCA – so he wrote to President Obama and copied every member of Congress to explain in detail why Canada cannot comply with FATCA – with a courtesy copy to the NY Times. That to do so would be a violation of its Charter and other laws and Canada cannot subject and discriminate against a sub group of it citizens based on place of birth or days of travel to the USA or other “indicia”
IF the Canadian PM took that stand and wrote that letter with the sound reasons why Canada cannot implement and comply with this US law it would OVERNIGHT bring FATCA and it’s issues directly to the attention of Congress the President and the public.
I believe that would be the shot heard round the world.
Alas I am sadly not Canadian so I have no standing to suggest this but I would if I could and many IBS members can.
Great idea Steve Klaus. Great Idea. Perhaps such a letter could also be written by the Brock society and be sent to the same recipients as well as every news outlet in existence in the hope of building a a little more pressure on the politicos.
Wow. Many thanks for the kind review. I hope you are right about my over-confidence in FATCA’s potential. If the US was forced to back down on this, it would be a great sign and precedent for international governance generally.
Thanks for reading and reacting in such a perceptive manner!
@Robert Morris
Thanks for participating. I haven’t yet read your book, but am disappointed to learn that you didn’t include any concerns about the effects of FATCA on US persons living abroad. I believe that citizenship based taxation is one of the biggest barriers to FATCA’s success in the long run. CBT enforced by FATCA will create the unintended consequence of ending American global migration on any significant scale. The end of January will bring the release of the total number of US citizens who’ve renounced in 2013 – at least according to the Federal Register. I believe they will be unprecedented and enough to catch the attention of US lawmakers (for good or for bad).
@Robert Morris
I bought and read your book.. It is so informative and helps me see where FATCA will take us. I highly recommend my friends to buy and read it.
@Steve Klaus
Great Idea.
It is a great dream… and Dreams come true
I am from the civil rights and Viet nam era so I have a Dream is very meaningful to me. It so sad I am being oppressed again.
I knew when those chads were being counted and the outcome that the world was getting on a new path. PAX AMERICA
Thanks Victoria for an interesting review.
I agree with Steve Klaus completely.
It’s truly amazing how leaders around the world caved in so quickly to the U.S. They are a bunch of cowards with no backbone at all. The US is a bully that is blackmailing the world with FATCA, but I cannot help but feel this is going to backfire royally someday.
@Eileen Simonsen
You don’t have to look much further than Switzerland to see what caving in to US demand has done under the US ‘pogrom’. Many of the banks there are currently erring on the side of caution and designating themselves as non-compliant for the same reasons a Canadian bank might – that they simply can’t verify that they don’t have non-compliant US persons as customers. Unless the DOJ says that Canadian banks with the same degree of culpability are somehow different because they are in a country not deemed a tax haven, Canada can expect the same treatment as Switzerland.
Hi Robert Morris.
I’d like to read your book, but can’t afford to buy a Kindle just for this. Any future plan to offer some kind of pay per download of a PDF, or any other way to get a copy?
Excellent post @Victoria, and a great preview/digest for those of us who don’t have a Kindle. Good to have the reminder of the barrier that hundreds of complex (and ill defined) FATCA-speak is for the rest of the world – because American English – and the version as spoken by the IRS and Treasury is no-one’s native language.
Also the point about FATCA limiting the development or viability of smaller banking systems – since the compliance costs are there whether they have only a potentially few ‘US taxable person’ accountholders or not. There WILL be high associated costs for implementing FATCA – for ALL accountholders, ALL FIs, many non-FIs, ALL taxpayers of ALL the globe, and NO benefit. And has never even undergone a cost/benefit analysis in the US.
What colossal hubris. And what an utter waste of resources.
thanks for the precis!
@Steve Klaus Sounds like a great Idea.
@bubblebustin Frankly I didn’t have much to add to the issue beyond what you guys have already put out there. I am an American living in Istanbul, so I have a sense of the stakes. My hope with the book is that if US policy-makers could be made to think through the the effects for the world financial system and American prestige they may think again. Almost four years of lobbying demonstrate how little they care about the concerns of US expats.
@NorthernStar Thanks! I made a video too, that I think adds to the conversation:
http://www.youtube.com/watch?v=Y-EVF7CZt_w
@badger This kindle for PC thing should allow you to read the essay: http://www.amazon.com/gp/feature.html?docId=1000426311
There is a similar app available for Apple stuff.
@Victoria Thanks again!
@Steve Klaus, @northernstar
I have a dream that my fellow citizens will one day live in any nation where they will not be taxed by the color of their passport but by the content of their address.
@Robert Morris
That was your video on FATCA? It was f##cking hilarious! Very well done, please keep em coming!
It would be great if you could do one about citizenship-based taxation (CBT) and expats: Taxation with no representation and no access to US public goods or services. The US is following in the footsteps of the British Empire — wouldn’t America’s founders be proud?
CBT, FATCA, FuBAR = Royally screwed expats.
@Robert Morris
That video is a Brock favourite! It generated a good number of comments here:
http://isaacbrocksociety.ca/2013/11/25/the-best-fatca-video-yet-american-empire-and-the-most-important-law-youve-never-heard-of/
@Robert Morris
Bravo for the FATCA book and video. You’re an ex-pat, would you consider doing something on the plight (persecution) of Americans abroad?
@All
I just came across over at FATCA Daily. Its a a really good piece on CBT from a blogger at Obama’s alma mata. The writer, Jessica Dorfmann is right on target!
http://hir.harvard.edu/blog/jessica-dorfmann/the-cost-of-united-states-citizenship-abroad
@Rober Morris, I’m glad you liked the review. I’m tickled pink to see you here. Thank you so much for your comments and for the book which was a great read.
Sophie in’t Veld (The Netherlands MEP) said that she didn’t view “policy laundering” any more favorably than “money laundering.” The former has mean little or no real debate about FATCA (and I say this as someone who had to crash an OECD “public” meeting in Paris about it.) Your book has arguments and raises issues that merit a much wider audience. It’s not just US Persons, it’s everyone as you so rightly point out. I hope many MANY more people read your book. Thanks again and we’ll see how things shake out.
@RobertMorris
At one point in the clip, the woman says “We have been carrying the world economy for 50 years”
Does anyone in America realize that America did so well because it had no competition? The german AND japanese economy was in shambles after the war. So without any competition, people bought american cars etc. And as time went by, they rebuilt their industries and japanese and german products came onto the markets and rivaled American products. Wasnt it downhill from there? The sense that” we are the biggest and the best” and with that- “you OWE us” – was born out of this lack of competition.
@Polly
Very few people in America think of the rest of the world at all. Your story sounds about right. I would disagree with the `all downhill from there`. I am pretty optimistic actually. If the US can stop acting like a hyperpower before it is forced to, we may end up with a pretty incredible 21st century.
@Robert
You are the first to come out with a book on FATCA. You are ahead of your time. Keep up that pioneering spirit.
@Robert Morris
“If the US can stop acting like a hyperpower.” Hope would have me believe it can, but the realist in me has doubts. What you suggest would require the people of America to claim the power that those who make the US a hyperpower currently possess. That would involve some serious realization and effort on their part, but right now the electorate seems more content in fighting with each other and supporting US dominance in the world.
@bubbkebustin
I do not consume Pot but ….. Is this the sort of policy change that you are referring to (yes it is from Glen Beck’s site The Blaze):
http://www.theblaze.com/stories/2014/01/08/u-s-moves-closer-to-letting-banks-into-pot-business/
U.S. Moves Closer to Letting Banks Into Pot Business
Jan. 8, 2014 11:45pm Guest Post
[Editor’s note: The following is a cross post by Mark Berniker and Josh Lipton that originally appeared on CNBC.com]:
Recreational marijuana is legal in Colorado and Washington, and medicinal marijuana laws exist in 20 states. New York soon will become No. 21 on that list. But federal law currently prohibits banks and credit card companies from processing pot business transactions.
U.S. Moves Closer to Letting Banks Into Pot Business
That may all be about to change.
“Discussion with Justice to bring clarity to these issues for banks are underway,” said Steve Hudak, spokesperson for the Treasury Department’s Financial Crimes Enforcement Network, or FinCen.
Hudak told CNBC that “banks are obligated to report suspicious activity, but everyone involved is earnestly looking for a solution to this problem.”
The problem he referred to is this: Buying weed from an authorized dispensary is legal in many states, but banking laws clearly have not caught up.
“Everyone at this point is working together, so it’s just a matter of having a lot of different government agencies and bureaucracies … all on the same page,” said Dan Riffle, director of federal policies for Marijuana Policy Project, a lobbying group based in Washington, D.C. “We can find a solution that will make the banking services available to this industry.”
He expect that the Treasury and Justice departments will work out the differences in federal and state laws. That will allow banks to lend money to legitimate marijuana businesses and to process their transactions before the end of the first quarter of 2014.
Laws legalizing recreational or medical pot—or both—are passing on ballots throughout the country, and governors are keen to tap into the potential tax receipts from marijuana sales. Colorado, for instance, expects to generate $70 million in tax receipts from sales this year.
“The issue here is federal law,” Riffle said. “A lot of these businesses are going to need access to financing in order to get started. And because of federal laws, banks are unwilling to do business with marijuana-related dispensaries, because of fear of money-laundering charges.”
As a result, he said, there’s great interest in setting up private equity firms that “can provide start-up financing and capital to these businesses.”
In one such move, executives at High Times magazine have created the HT Growth Fund and aim to raise $100 million fund for pot-related start-ups.
Over the next two years, HT Growth Fund plans to make investments of $2 million to $5 million in a variety of enterprises. It will be run by Michael Kennedy, who has served as the general counsel for High Times, and Michael Safir, a former business manager at the publication.
“It is important to note that the HT Growth Fund will not be seeking investors from the general public but only from those sophisticated enough to qualify as accredited investors,” Matt Stang, director of advertising and new business for High Times, told CNBC.
Pot-related small businesses often hold large amounts of cash, said Riffle, which makes those shops and their employees “targets for robbery, which obviously raises public safety concerns.”
In addition, he said, keeping transactions out of the banking system could make it more difficult to ensure that sales are tracked and taxes paid appropriately.
The legal marijuana business is valued at $1.4 billion, according to ArcView Market Research. And even though pot is a legitimate business in 40 percent of states, a robust underground market still operates in many of the same areas.
According to the Huffington Post, many marijuana customers in Colorado still get their pot from their illicit dealers rather than visit one of the state’s legitimate dispensaries. The reason: price.
Legal weed there retails at $65 for an eighth of an ounce—mainly because of high sales and excise taxes. That’s nearly double the price for underground grass.
@FRomtheWilderness
What a good article at the Harvard site – thank you for that reference.
Just want to enter osgood’s and then my and other comments last November re Robert Morris’ book, starting here http://isaacbrocksociety.ca/2013/11/25/the-best-fatca-video-yet-american-empire-and-the-most-important-law-youve-never-heard-of/comment-page-2/#comment-720521, just to get them into Victoria’s post stream. Thanks, Robert, for your book — and thanks for your participation at Isaac Brock.
@RobertMorris
I`m not wishing for anybody`s demise. But all I have seen parked at the mall are japanese and german cars. If America really wants to make its products better than the competition, it would have to look past its own boarders ( globalization) and even then, that would take research and some smarts- and when one looks at the downfall of the educational system due to lack of funding, one wonders if superior products will be produced in America in the upcoming decades. It is really eyeopening when one comes to understand that American products were not better – there was just no competition at the time. Add to this the economic pitfalls of FATCA which harm the US economy as you have surely shown in your book, and the fact that more and more people are chosing other holiday destinations – a lot is going wrong. I hope America doesnt want to solve its financial problems by taxing the rest of the world, as if we all owed them, nor by economic espionage through the NSA. That would be less than noble.
@nervousinvestor
Nothing like and increase in tax revenue and bank profits to bring about a consensus among lawmakers and private business, is there? Not if DuPont has anything to do with it.
You Can’t Grow Hemp in the US But You Can Import It:
“Benjamin Franklin started a paper mill that made paper exclusively from hemp. Henry Ford grew hemp on his estate, combining it with some other substances to create car bodies and fuel for vehicles. He was way ahead of his time since biofuels are now a hot topic for reducing our dependence on oil. Even modern diesel engines of today can run on hemp seed oil.
Then, in 1948, marijuana became a restricted substance. Although hemp is from the same plant family as marijuana, congress exempted industrial hemp growers from this law. I guess they didn’t see a reason to lock up one family member, just because the other family member could cause some trouble. However, the Federal Bureau of Narcotics lumped all cannabis together and the DEA continues to do so today.
It’s not known for sure why hemp was lumped together with cannabis, since you can’t get “high” from hemp. But, according to the 1985 book, The Emporer Wears No Clothes, the author Jack Herer states that DuPont played a key role in the criminalization of hemp. By stopping the growth of hemp, DuPont would have a monopoly on producing plastic and paper under their recently patented processes that used coal, oil and wood pulp respectively.”
http://brokensecrets.com/2010/06/01/you-cant-grow-hemp-in-the-us-but-you-can-import-it/
It would be great if IBS editors could make some remarks on Nina’s latest report – esp. her MSPs. She’s got some valid points … but it seems like she is also repeating herself from prior years.
This illustrates regarding VDs:
(a) how little has changed and her MSPs in past are not being looked into sufficiently
(b) the problems persists sufficiently that it merits so much attention by her again
It is also interesting to note her attention to FATCA is quite contrary to Robert’s stack of myths!
Note: Not *this* Robert, but *that* Robert!
The report:
http://1.usa.gov/1ks9YHf
infographics:
http://1.usa.gov/1ilCDJj