On October 13, 2014 Robert Wood published a fascinating post title: “100 Swiss Banks Get Ultimatum: Hand Over Americans Or Face U.S. Prosecution“. Mr. Wood is writing about the Swiss Banks who foolishly entered the “OVDP For Swiss Banks Program” that the Department of Justice announced in August of 2013. I have followed this topic with great interest: arguing that Swiss Banks should NOT have joined OVDP for Swiss Banks and that Americans in Switzerland should NOT join OVDP and take part in the FBAR Fundraiser.
Mr. Wood’s post demonstrates the pitfalls of entering into disclosure agreements with the U.S. Government. In this case (among other things) the U.S. is demanding that “Americans be handed over”. The reality is (as one commenter notes) that what the U.S. Government calls “Americans” the Swiss Government likely calls “Citizens of Switzerland”. Therefore, the U.S. is using the “OVDP for Swiss Banks Program” as a vehicle to force Switzerland to turn their own citizens over to the United States. Interesting. That said, every country that enters into a FATCA IGA (which is really an OVDP program for countries) has agreed to turn its own citizens over to the United States. For example, the “Alliance For The Defence of Canadian Sovereignty“, in it’s video of the FATCA proceedings in the Canadian House of Commons, describes July 1, 2014 as the day that “Canada begins to turn its citizens over to the United States”.
Robert Wood describes the demand to the Swiss Banks in the following way:
Now, from its position of dominance, the Justice Department has made it clear what it wants from the hundred Swiss banks that hurriedly grabbed the DOJ’s settlement deal before January 1, 2014. The U.S. seeks ‘total cooperation’, and that truly means total. Any American names, details, and more. The Justice Department intends to get it all. … (and later)
However, all banks must report to U.S. authorities any information or knowledge of activity relating to U.S. tax. They must reveal all cross-border activities and close the accounts of Americans evading taxes. The 3 tiers of penalties are vastly better than a full-blown U.S. investigation with potential tax evasion charges. Participating banks are required to provide details on American accounts.
In the same way that Americans abroad regret having entered the OVDI/OVDP programs I think the Swiss banks who entered OVDP for Swiss Banks now regret it.
How did we come to this? The answer is that some U.S. Homelanders used a limited number of Swiss banks to evade U.S. taxes. In other words, it was a small number of people who brought us to the point where Americans abroad are being forced to renounce their U.S. citizenship to survive.
But, all of that is old news. For Americans abroad their problems are NOT the state of their tax compliance. Their problem is that they are American.
Mr. Wood ends with some very interesting NEW news. He writes:
Meanwhile, the tax evasion trial of a key Swiss banker and former UBS high-flying executive, Raoul Weil, is commencing in Florida. It comes after a five year wait. Aptly, if he is convicted of helping Americans evade taxes, he could spend five years in jail. After all, if the last five years of IRS and DOJ success has shown anything, it is that the U.S. is all powerful and wants to make examples of high-flying individuals and institutions.
I had completely forgotten about Raoul Weil. Apparently his trial begins today October 14, 2014 in Florida. It will be very newsworthy.
Ex-UBS Banker Weil Says Trial Witnesses Fear Retribution http://t.co/H2O8EOrWAl via @BloombergNews
— U.S. Citizen Abroad (@USCitizenAbroad) October 13, 2014
What this Swiss banker could reveal at his trial http://t.co/8JSkaDedlE
— U.S. Citizen Abroad (@USCitizenAbroad) October 13, 2014
It will be fascinating. There are two stories being developed:
Story 1 – The Defendant Is Alleged To Have Helped U.S. Citizens Evade U.S. Taxes
Story 2 – How Raoul Weil Finds Himself Standing Trial In The United States To Begin With
Each story has its own narrative. Each story is important. I came across the following post at International Man about the second story.
@USCitizenAbroad What the world looks like when non-violent political offenses (like Weil's) become extraditable. http://t.co/mNU8Uh4m8M
— International Man (@intlmandotcom) October 14, 2014
The article referenced in the above tweet is thought provoking. It begins with:
Though it seems farfetched, the prospect of being extradited to North Korea is a chilling thought.
Consider the thought experiment below and see if a similar scenario is as implausible as it initially sounds.
Suppose you are on vacation with your family in China, doing typical tourist things: checking out the Forbidden City, Tiananmen Square, and the Great Wall. However, about five years ago you had made a couple of viral YouTube videos poking fun and making jokes about the North Koreans—particularly their deceased Dear Leader Kim Jong-il. The North Koreans, however, were not amused at all. And despite years passing, they have not forgotten nor forgiven. Insulting the North Korean government and especially the Dear Leader is deemed a very serious “crime.”
The North Korean authorities have charged you with a crime and declared you a fugitive from justice—facing many years in prison. They also put out an international arrest warrant.
When they found out you had checked into a hotel in China—a country which they have good relations with—they sprang into action. An official request was made to extradite you from China to face trial in North Korea.
The Chinese, treaty-bound and respecting the wishes of their ally, oblige.
Then, at 2 in the morning, you’re violently awakened as a squad of heavily armed Chinese police break into your hotel room, point loaded guns at you and your family, and haul you away in your pajamas. After some brief formalities in a Chinese kangaroo court, you’re taken to a jet bound for Pyongyang, where you are promptly convicted by another kangaroo court and thrown into a North Korean prison. The end.
This made-up story is what the world could look like if the international norm of not extraditing people for political “crimes” continues to be eroded.
You will find the complete article (which I highly recommend) here.
I see, this is why it boils my blood that the US refuses to address these problems in a reasonable way. There is no excuse for causing the kind of suffering these people are going through. Living in a place like Canada, we do not see situations such as needing to keep the US-ness due to turmoil in the country. Nor do we hear about it due to reasons as you have given.
Why is it that it is difficult to obtain citizenship in SE Asia?
@ Heidi –
In relation to the W8BEN…… As is everyone here at IBS, I’m appalled by FATCA, the whole over-reach and 2nd class citizenship. That being a basic position, I also am opposed to signing US government forms in a non-US bank on non-US territory. If the bank wants (because of the laws their country’s government signed into action for the US) me to document to them that I am not a US citizen, I have no huge problem doing so (since I can prove this with my CLN) BUT NOT HAVING ME SIGN SUCH A STATEMENT ON A LEGAL DOCUMENT CONSTRUCTED BY AND FOR A FOREIGN COUNTRY. That is tantamount to my (and my bank’s) groveling to the US even further than just knowing that my government has wimped out and bent itself over to comply with US demands.
Case in point: today I received a bunch of signature pages in relation to an investment with a small Canadian firm. I’ve had investments with them in the past but this time the documents included some new paragraphs to which I have to lend my initials in order to make this investment:
(1) the Purchaser is not a “U.S. Person” (as that term is defined by Regulation S under the U.S. Securities Act, which definition includes, but is not limited to, an individual resident in the United States, an estate or trust of which any executor or administrator or trustee, respectively, is a U.S. Person and any partnership or corporation organized or incorporated under the laws of the United States) and is not acquiring the Shares for the account or benefit of a U.S. Person or a person in the United States;
(2) the Shares have not been offered to the Purchaser in the United States, and the individuals making the offer to purchase the Shares, and executing and delivering this Subscription Agreement on behalf of the Purchaser, if applicable, were not in the United States when the order was placed and this Subscription Agreement was executed and delivered;
(3) the Purchaser undertakes and agrees it will not offer or sell the Shares in the United States unless such securities are registered under the U.S. Securities Act and the securities laws of all applicable states of the United States or an exemption from such registration requirements is available, and further that it will not resell the Shares, except in accordance with the provisions of applicable securities legislation, regulations, rules, policies and orders and stock exchange rules
So, if I want to invest with this firm, they require I agree to these terms. BUT THEY DO NOT REQUIRE THAT I SIGN A U.S. LEGAL DOCUMENT TO DO SO.
The Canadian IGA states
(1) A self-certification that the Account Holder is neither a U.S. citizen nor a U.S. resident for tax purposes (which may be on an IRS Form W-8 or other similar agreed form). I think the operable words here are “MAY” and “OR”. The bank may have as it’s (normal/routine) policy to just whip out a W-8 and expect the client to sign, but the client can (and I feel rightly should) refuse to sign a legal document from a foreign country. Rather, they should demand that another form, or an individualized letter from them to the bank, should suffice to serve as a self-certification. There is no requirement that a person fill in and sign a W-8 legal form from another country. If my bank were to demand this or they would not deal with me as a client, then so-be-it. People should stand up for what they believe are their legal rights and the banks should know better; whipping out a W-8 is a very lazy thing for a financial institution to do rather than create their own form which does not put their clients in such a difficult position with legal documentation.
My bank is a large European bank with extensive operational exposure to the US. It can’t accept the 30% withholding, as it would kill the bank, so from its perspective it has to please the US on Fatca.
The agent at the bank with whom I talk is just relaying the orders of the Fatca group. I’ve been told I won’t hear back for a least a couple of weeks.
“Why is it that it is difficult to obtain citizenship in SE Asia?”
I don’t know about SE Asia, but in Switzerland the naturalization process is administrative and political. A retired chemical engineering professor, originally from California and with a doctorate from Princeton, was recently denied Swiss citizenship after having lived in Switzerland for around 40 years, including teaching at the top engineering university for 30 years. Although his citizenship application was turned down officially due to lack of knowledge of local politics and geography, some suspect that he was black-balled by the naturalization commission in a right-wing town of 15,000 for who he was, an aloof professor who didn’t socialize in the town:
Television report, Swiss-German and German:
Comments in the German-language media generally support him and show little understanding for the local naturalization commission that denied his application.
Most countries ask you to take a test for citizenship, I know in the UK it now includes history, law and local knowledge. The BBC put a test on their website, I only just passed! I am not sure why, after working in Zurich and living in Schwyz, he did not know the surrounding villages!
As an aside, can I ask if anyone knows about receiving SS payments in Switzerland. Is it a 15% withhold on the full amount, or 15% on 85%. The info on their website does not make it clear if 15% of 85% only applies to US citizens and not NRA’s?
@Trica – in many Asian countries it is very difficult to obtain citizenship. Unlike the West (e.g. US, Canada, UK, Australia) when you follow the rules, they cannot discriminate – you meet the requirements, pass the test and you are in. Asia is different, they make it very hard and at times impossible so the most you can get is permanent residence (i.e. you are stuck using the US passport even if you live there for decades). For example, while Singapore is more open, the rules have become much more restrictive in the last few years and there is still the determination of what ‘added value’ you bring when they make the decision. Malaysia is almost impossible (even permanent residence is very hard to get), in Thailand permanent residence is not that hard but citizenship is very hard to get (again it’s not just about checking the boxes, it’s whether they believe you bring added value AND check the boxes and also speak and read Thai). Japan is VERY hard to acquire Japanese citizenship (of course Japanese is a necessity). Also, many of these countries do not allow dual citizenship (Japan, Singapore, Malaysia for example) and anyone found holding US plus the local will be in trouble and potentially lose the local citizenship. All of this is to say that many US expats are really stuck – FATCA will find them and they will be reported – so what many are doing is putting their assets in non US Person spouses and girlfriend/partners names and making it look like they have very little….such are just some common examples of collateral damage/risk driven entirely by FATCA and CBT.
For NRAs, it appears to be 15% of TOTAL monthly SS benefits:
“Nonresident Alien Tax Withholding
An income tax treaty between the United States and Switzerland, decreases the rate of nonresident alien tax withholding to 15 percent of the total monthly Social Security benefits paid to residents of Switzerland.”
For additional details, see Nonresident Alien Tax Withholding Calculator:
Also, an update on the professor’s denied naturalization application:
I agree it is unacceptable to sign a W8. Presuming one accepts the bank has to follow the IGA, it says W8 or some similarly agreed form. That sounds like the US would have to agree to whatever the bank created. I can’t imagine they would consent bc they wouldn’t be able to demand that the bank produce the form should they suspect a lack of due diligence.
This is where we should consider trying to organize (or at least instigate) a large-scale act of civil disobedience. I bet you could come up with a good plan for this!
When FATCA came around, the world’s banks had already had been numbed by the US financial system in the preceding 80 yrs. FATCA is just a continuation and furthering of existing stupidity.
People from the Land of the Free have not been allowed to purchase financial products outside of the Land of the Free since 1933.
Thanks for explaining about the difficulty of obtaining SE Asian citizenship.
I suspect there will be a surge in the shifting of assets to non-US spouses once people begin to realize this is real. Others are doing it slowly over time, by gifting the maximum annual limit the their spouse/partner. There are still people who do not believe they will be affected by this. I do remember early on, somebody posting from the UK, that they had chosen to do this, putting the wife in a really perilous situation since she was a stay-at-home mom with no income. I remember reading about a couple in Switzerland who divorced bc it was the only way they could get their mortgage renewed.
Hideous and reprehensible beyond belief.
@LM, the Regulation S definition is rather old and frankly I have no problem with it.
@monalisa, partly because of hanging out here at Brock and learning quite a bit about Canada, I have now learned that I am likely a real mutt!! Looks like I can add Canadian to the citizenship list. But even though this has likely been bestowed upon me, it appears I can renounce it by mail and pay the whopping fee of ………..zero, nil, nada……
Thanks for the SSA link, much appreciated.
I must say after reading the second article, it seems to me that Prof Dunn was a bit of a fool, telling the committee his reason for wanting to become Swiss was to enable him to return should he stay away for too long! After 39 years, he certainly doesn’t understand the Swiss. They are often traditional folk especially in rural Cantons such as Schwyz. They would expect him to want to become Swiss for the love and appreciation of their country and respect for its particular form of Government, not just for convenience of return.
@To all, I’ve always been an Anglophiles all my life so my heart is actually in Great Britain. I suppose my angst regarding my renunciation has been more to do with feelings that I have broken fealty to my family and roots. I love both countries for different reasons; perhaps a simple way of explaining it is America is my mother and family whereas England has been the ‘love of my life.’ At least in the Bible it expresses the notion that when one marries, she is supposed to leave home and cleave to her husband. So in that sense, I’m doing the Biblically correct thing to put my spouse even ahead of my parents and family.
I would have ideally preferred to retain both citizenships but the tax compliance burdens have become to great; I would have continued to suffer double taxation even with full consolidation; I could have actually lived with that as a tribute to my homeland but what I couldn’t live with were the ongoing annual tax preparation fees north of £3000 and the tax returns of +150 pages (when my UK tax returns are less than ten pages long and can be self-filed without an expensive accountant).
The thing that now scares me is that I am concerned that they may go after anyone whose 8854 showed total US taxation in the preceding five years of $10,000 and make out that they’d renounced mainly for tax reasons and thus start applying the Reed Act. I wouldn’t put it past them to go on a witch hunt over recent renunciants to deter the surge of expatriations.
I also wouldn’t be at all surprised if they send threatenimg letters to even former US citizens if their banks mistakenly report their accounts to their respective tax authorities; I know that when I rang the IRS regarding their refusal to let me use the FEIE form 2555 for my final dual-status return that they acknowledged receipt of my 1040NR /1040 but didn’t know what I was talking about regarding receipt of 8854. So they may still assume that I’m in their system and try to penalize me if they wonder why I haven’t been subsequently filing tax returns and FBAR for account information they may continue to receive via FATCA. I suppose I’ll have to wait for all the open Statutes of Limitations to have finally closed sometime in 2020….
“If Raoul Weil is convicted, he faces a jail term of up to 5 years and a fine of up to $250,000. If he does know where the bodies are buried – and those bodies turn out to be embarrassingly well-known names as far as the US government is concerned – things may turn out very differently. Brad Birkenfeld was in prison in August 2012; a month later he’d been awarded $104 million by the IRS Whistleblower Office.”
Swiss snitches are yet to feel the wrath of Swiss justice for their their disregard of their country’s banking secrecy laws in the Weil case:
“Swiss newspapers have welcomed the acquittal of ex-UBS banker Raoul Weil, accused of helping rich US clients evade tax, saying it was the correct decision from a legal point of view. They add, however, that no one comes out of the episode smelling of roses.”