Liberty and justice for all United States persons abroad

The Isaac Brock Society

Posted on by Posted in FATCA, Issues regarding US persons abroad 62 Comments

Reposted from the Renounce US Citizenship blog

This post was written in December 2014. It is being reposted in 2018 – the question is why

FATCA and the CRS (“Common Reporting Standard”) are mandatory information sharing schemes. They first define people in terms of their “tax residency” (each country defines who its tax residents are) and then shares people’s private information based on that “tax residency”. In other words (assuming you believe that there is a legitimate interest in privacy) both FATCA and the CRS should be viewed as “privacy overrides”.

Although the notion of privacy is dead in the United States (companies like Facebook and Google make a living off obtaining and using private information), the European GDPR suggests that privacy is valued by Europeans and that individuals should have some control over their data. In Europe the GDPR reflects a presumption that individual belongs to the individual. There is no such presumption in the United States. See:

Automatic exchange of tax information and data privacy

The potential conflict between the automatic exchange of information under the CRS and privacy rights under the GDPR has not gone unnoticed and has been the subject of academic commentary. It has also led to citizens proactively asserting their privacy rights as reflected in the following article which includes:

“In a democratic society, the rights to privacy and data protection are an essential safeguard to protect compliant citizens against potential abuses and must be treated with the appropriate seriousness by the authorities.”

The awareness of the collection of and misuse of personal data is becoming more and more prevalent.

Now back to my thoughts in December of 2014.

___________________________________________________________________________

An attack on privacy is an an attack on freedom itself.

I have previously posted on the theme of – “From Facebook To FATCA” . My theory has been that FATCA (which is an erosion of freedom) is possible only in a world that does NOT value privacy. The erosion of privacy NECESSARILY LEADS to the erosion of freedom.

An earlier post describing the relationship between FATCA and freedom included:

The argument over FATCA is NOT really about taxes. The argument is over whether individuals should be allowed to have freedom and privacy.

The U.S. government wants to abolish privacy and freedom.

Some countries and individuals want to preserve freedom (at least as long as possible.)

Question: How did the values of “freedom” and “privacy” disintegrate? Why are so many people unconcerned about the the loss of privacy? Makes no mistake about it, “privacy” and “freedom” are linked.

I speculate that the world of social media has paved the way for this. People now think nothing of having their life visible to all on Facebook, Twitter and the rest. If there is no personal privacy, and financial privacy is part of personal privacy, then …

Privacy and freedom are linked in all aspects of life. The links include:  Financial aspects, Spiritual aspects, Family aspects and really ALL aspects.

Financial aspects: In a previous post, it was reported that Charles W. Adams in his book: “For Good And Evil – The Impact of Taxes On The Course Of Civilization”  – describing 27 lessons from the history of taxation included:

11. If liberty is to be defended with success against the dominance of the state, then financial privacy must be preserved. Banking privacy is one the cornerstones of liberty, having its roots in the principle of early English Law that a man’s castle (primarily his treasury) is beyond he surveillance of the king.

Family aspects: No matter what you think of the U.S. Supreme Court decision in Roe v. Wade, Justice Blackmun, in ruling that the Government could not prohibit abortions, Justice Blackmun recognized a constitutional right of privacy.

Few decisions are more personal and intimate, more properly private, or more basic to individual dignity and autonomy, than a woman’s decision – with the guidance of her physician and within the limits specified in Roe – whether to end her pregnancy. A woman’s right to make that choice freely is fundamental…[11]

(Note that some do NOT agree with the idea that the U.S. constitution guarantees any right of privacy.) In a world of FATCA, FBAR, Obama, NSA, etc., the question of whether there is a constitutional right to privacy is a question of profound importance.)

Spiritual aspects: The United States was largely founded by people seeking the freedom to engage in religious activities of their choice. Even today “freedom of religion” is recognized as an important part of American society.

Privacy certainly matters to individuals. Privacy matters to societies. Privacy matters to democracies.

The advent of social media and the erosion of privacy:

More and more of people’s lives have  been subject to scrutiny. In fact, those who value privacy are frequently regarded with suspicion. The erosion of privacy was purported to have been justified by the events of 911. The “Patriot Act” required people to  “give up” more and more of their privacy in exchange for … (what)?

Leading us directly to the Edward Snowden’s revelations about NSA spying

I highly recommend you read Glen Greenwald`s book “No Place To Hide“. Mr. Greenwald was the journalist who was contacted by Ed Snowden. He traveled to Hong Kong to interview him. Mr. Greenwald places the Snowden revelations in the proper context. The most interesting chapter is Chaper 4: “The Harm of Surveillance”. The theme of the chapter is about the rise of the “Surveillance State” and the corresponding loss of privacy. It’s a fascinating description of how the “Surveillance State” (which includes government-motivated “whistleblowers“) both affects and changes the “human condition”.

To repeat: The “surveillance state” changes the human condition. An earlier post on this blog – “The Lives of Others: The True Significance of Bradley Birkenfeld” included:

It’s clear that if approached by the Stasi, one had little choice but to cooperate.

What does this have to do with Bradley Birkenfeld, the IRS and the 104 million payout? Well, at a minimum it means that the IRS will reward, people who report on the activities of others. The proof is that they are willing to pay. They even call them “whistle blowers”. As Sovereign Man points out, this surely will provide incentives to people to spy on each other. What does this mean about the future of American Society? Amazingly, I came across a brilliant analysis which begins as follows:

In 1787, philosopher and economist Jeremy Bentham proposed a new plan for a jail that would allow a very few officials to continuously monitor the inmates. He called his plan the panopticon.

“The essence of it consists, then, in the centrality of the inspector’s situation, combined with the well-known and most effectual contrivances for seeing without being seen,” he wrote in describing his plan. Under the plan, because the inspector — i.e., the jailer — could see without being seen, the inmates could never know whether they were being watched or not. As a result, they had to assume that they were under complete surveillance at all times, with the hoped-for result being that they would modify their behavior accordingly.

I commend the complete article to you.

And now back to Mr. Greenwald …

(For the transcript of a fascinating speech given by Mr. Greenwald on the “Surveillance State” – read this.) A need for “privacy” is part of what it means to be “human”. Therefore, governments that erode “privacy” erode “humanness”.  Mr. Greenwald’s book is  a must read. (In addition, I highly highly recommend you see the movie “CitizenFour” which is a documentary about the Snowden revelations. Incredibly, the makers of “CitizenFour” are now being sued – go figure.)

Mr. Greenwald writes (at the end of Chapter 4):

Forgoing privacy in a quest for absolute safety is as harmful to a healthy psyche and life of an individual as it is to a healthy political culture. For the individual, safety first, means a life of paralysis and fear, never entering a car or airplane, never engaging in an activity that entails risk, never weighing quality of life over quantity, and paying any price to avoid danger.

Fear mongering is a favorite tactic by authorities precisely because fear so persuasively rationalizes an expansion of power and curtailment of rights. Since the beginning of the War On Terror, Americans have frequently been told that they must relinquish their core political rights if they are to have any hope of avoiding catastrophe.

(The very first post on this blog (October 20, 2011) described how the “fear mongering” caused by the “war on terror”, has led to the erosion of freedom.)

Brandeis – “The Right To Privacy” – Privacy and the human condition

In Chapter 4, Mr. Greenwald described an essay written in 1890 by Louis Brandeis (of Supreme Court Justice fame) and Samuel Warren. The essay is titled: “The Right To Privacy“. Think of it. The essay was written in 1890 which was almost 100 years before the “assault” on privacy began in earnest. It was almost 100 years before the “price to participate in the digital age” was the “loss of any expectation of privacy”. Yet, Justice Brandeis was was writing about “privacy” and the importance of privacy in the human condition. In 2014 his 1890 essay was referenced and discussed by Glen Greenwald in “No Place To Hide”.

The Brandeis essay includes:

We must therefore conclude that the rights, so protected, whatever their exact nature, are not rights arising from contract or from special trust, but are rights as against the world ; and, as above stated, the principle which has been applied to protect these rights is in reality not the principle of private property, unless that word be used in an extended and unusual sense. The principle which protects personal writings and any other productions of the intellect of or the emotions, is the right to privacy, and the law has no new principle to formulate when it extends this protection to the personal appearance, sayings, acts, and to personal relation, domestic or otherwise.40

You will find the complete essay (written in 1890) here. Justice Brandeis was identifying and articulating an important interest that is at the heart of the debate today.

An attack on privacy is an attack on freedom itself.

John Adams reminded us that:

“Liberty, once lost, is lost forever“

Epilogue:

While thinking about this issue, I discovered a bit of interesting (maybe) trivia. The 1967 case of Afroyim v. Rusk is playing a major role in the life of “Americans abroad”. (This is the Supreme Court decision that establishes that Congress cannot simple “strip people of U.S. citizenship” without their consent. I wrote about the possible impact of Afroyim on the treatment of Americans abroad in an earlier post. There is a strong consensus that Americans abroad are being forced to renounce their citizenship. Yet, in Afroyim, Justice Black reminds us that:

Citizenship is no light trifle 268*268 to be jeopardized any moment Congress decides to do so under the name of one of its general or implied grants of power. In some instances, loss of citizenship can mean that a man is left without the protection of citizenship in any country in the world—as a man without a country. Citizenship in this Nation is a part of a co-operative affair. Its citizenry is the country and the country is its citizenry. The very nature of our free government makes it completely incongruous to have a rule of law under which a group of citizens temporarily in office can deprive another group of citizens of their citizenship. We hold that the Fourteenth Amendment was designed to, and does, protect every citizen of this Nation against a congressional forcible destruction of his citizenship, whatever his creed, color, or race. Our holding does no more than to give to this citizen that which is his own, a constitutional right to remain a citizen in a free country unless he voluntarily relinquishes that citizenship.

As of late there there has been some discussion of a legal challenge to  citizenship-based taxation (or at least aspects of it) by using the 14th amendment arguments. I suggest that the above quote from Justice Black’s decision should be a leading part of that challenge.

The argument would be:

1. Maybe citizenship-based taxation is NOT unconstitutional per se; but

2. The rules that U.S. government is imposing (under the guise of citizenship-based taxation) are forcing people to renounce U.S. citizenship and are therefore unconstitutional.

The lawyer representing Afroyim (at least in the early stages was Nanette Dembitz. Nanette Dembitz was a niece of Justice Louis Brandeis.  Interestingly the impact of Justice Brandeis and people like Nanette Dembitz – who recognized the importance of the individual – carry on today.

62 thoughts on “Brandeis: The right to be let alone, to have privacy, is the most comprehensive and valued right”

  2. “When privacy rights as legislated by the GDPR conflict with the erosion of privacy as madated by the CRS and #FATCA:

    At present, GDPR allows a Member State to opt for derogation, on tax-related matters. Unfortunately.

    Fingers crossed the ECJ may rule that that provision breaches EU rights.

  4. The current GDPR position (and IGA1 position) is similar to the Texas statute position: that the state’s interest trumps the citizen’s rights.

    In 1970, an unmarried, pregnant woman, using the pseudonym of
    6
    Jane Roe, brought a class action in a federal district court in Texas. She sought a declaratory judgment that the Texas abortion statute was unconstitutional and an injunction against its enforcement.7 The Texas statute allowed abortion only “by medical advice for the purpose of saving the life of the mother.”8 A majority of the states had similar statutes. 9
    2. Holding
    Ultimately, the Supreme Court declared the statute a violation of the right of privacy “founded in the Fourteenth Amendment’s concept of personal liberty.”10 However, the Court declared that the right of privacy was qualified by compelling state interests.11 This balancing of the right of privacy against the state’s interests resulted in a trimester framework for legal analysis of state efforts to regulate abortion.
    For the first trimester of pregnancy, no state interest was found to be “compelling.” Therefore, a woman was free to decide whether to have an abortion, so long as she did so in consultation with her physi- cian.12 This was so because, until approximately the end of the first three months, the first trimester, medical science had demonstrated that it was safer to have an abortion than to carry the fetus to term.13 At the end of this period, the state’s interest in maternal health was considered to be compelling. Thus, from the beginning of the second trimester, the state could reasonably regulate abortion in order to promote maternal health.14

    At the point of viability, the Court held that the state’s interest in “potential life” became compelling.15 Thus, for roughly the last trimes- ter of pregnancy, the state “may go so far as to proscribe abortion … except when it is necessary to preserve the life or health of the mother.”16 The fetus was held to have no rights of its own, because the Court decided it was not a “person,” within the meaning of the fourteenth amendment.

    The Texas statute was declared unconstitutional for sweeping too broadly, by failing to distinguish among the stages of pregnancy and by allowing only the exception for preserving maternal life.18

    The abortion statutes of all the states fell along with the Texas statute; Roe made them unenforceable.”

    (James Bopp Jr, https://digitalcommons.law.byu.edu/cgi/viewcontent.cgi?article=1045&context=jpl)

    In a somewhat similar way, the EU GDPR regulation allows derogation where the interests of the state in tax enforcement outweigh the privacy rights of the individual; but the legitimacy of that stance has not yet been tested in court.

    When it’s tested, I personally am quite optimistic that the ECJ may rule that the state’s interests don’t outweigh the privacy rights of the individual simply because the individual was born in America.

  5. The Mishcon de Reya case is apparently going to draw a comparison between the CRS and the EU data retention directive, which was effectively invalidated by the ECJ in 2016:

    In April 2014, the Grand Chamber of the European Court of Justice (ECJ) declared Directive 2006/24/EC (the Data Retention Directive) invalid on the ground that European Union legislators had exceeded the limits of proportionality in forging the Directive. In particular, the Court held that the Directive entailed serious interference with the rights to privacy and personal data protection of individuals guaranteed by the Charter of Fundamental Rights, and also failed to establish limits on access by competent national authorities, such as prior review by a judicial or an independent administrative authority. Because the ECJ did not specify otherwise, the Data Retention Directive is void ab initio and EU Members who have transposed the Directive into their national legal systems must ensure compliance with the ECJ’s judgment.

    https://www.loc.gov/law/help/eu-data-retention-directive/eu.php

    Presumably Mishcon de Reya will be arguing that DAC-CRS is comparable to the invalidated data retention directive in disproportionality and failure to limit access.

  6. The reference to the Brandeis essay is interesting, but Brandeis put his privacy concepts into a dissent in the case of Olmstead v US, a 4th amendment case from 1928-.–much of the dicta from the dissent I think would be very pertinent to a court challenge to CBT.

    The case is Olmstead v. United States, 277 U.S. 438 (1928). The Brandeis dissent is well worth the read, and it was cited in the majority opinion by SCOTUS in a recent 4th amendment search and seizure case.

    As Brandeis wrote, we must subject government officials to the same rules of conduct that we expect of the citizen. The very existence of the government is imperiled if it fails to observe the law scrupulously. As Brandeis puts it, “if the government becomes a lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy. To declare that in the administration of the criminal law the end justifies the means—to declare that the government may commit crimes in order to secure the conviction of a private criminal—would bring terrible retribution. Against that pernicious doctrine this court should resolutely set its face.”

    “The makers of our Constitution undertook to secure conditions favorable to the pursuit of happiness. They recognized the significance of man’s spiritual nature, of his feelings and of his intellect. They knew that only a part of the pain, pleasure and satisfactions of life are to be found in material things. They sought to protect Americans in their beliefs, their thoughts, their emotions and their sensations. They conferred, as against the government, the right to be let alone-the most comprehensive of rights and the right most valued by civilized men. To protect, that right, every unjustifiable intrusion by the government upon the privacy of the individual, whatever the means employed, must be deemed a violation of the Fourth Amendment. And the use, as evidence [277 U.S. 438, 479] in a criminal proceeding, of facts ascertained by such intrusion must be deemed a violation of the Fifth.”

    But before we litigate, it would be interesting to see if Trump would be willing to interpret the Internal Revenue Code by Executive Order to only apply to US residents, which order IMHO stands a greater chance of withstanding Supreme Court challenge than a change to birthright citizenship which Trump recently mused he might change by Executive order! Anyone have POTUS’ ear? With the stroke of his pen, he’d guarantee himself a huge number of overseas votes in 2020 (and even some oversea Democrats would vote for him if he did that!). Maybe just enough to win the Electoral College as GWBush did in 2000 thanks to overseas votes!

    If no luck with such an Executive order (EO)from Trunp, there are some US Supreme Court Decisions that weigh in favor of a successful challenge to CBT (beyond Olmstead). SCOTUS’ recent cases on the Alien Tort Claims Act, where they said Congressional acts intended to have extra- territorial effect must be express about such effect (the IRC is not so express), and its Charming Betsy canon, that Congressional acts should be interpreted to not conflict with international law (CBT seems in my view to conflict with customary international law as most countries only tax on the basis of residency), both make me think today’s SCOTUS might overturn its CBT decision from the 1920s in the face of a direct challenge..

    Plus, several recent GOP admins toyed with the idea of indexing cap gains to inflation by EO. They never did, but if they could have, I also think the POTUS could order the IRS to only tax residents.

    Well see!!

  7. @Pubmax

    Thank you for your substantial comment/thoughts.

    With respect to your suggestion that Trump could end the taxation of citizens who reside outside the United States, I know that Treasury regulations define an “individual” as either a citizen or resident.

    Presumably the regulations could be changed to exclude from the definition of “individual” non-resident citizens.

    See:

    https://www.law.cornell.edu/cfr/text/26/1.1-1#.V350uE12yHM.twitter

    § 1.1-1 Income tax on individuals.
    (a)General rule.

    (1) Section 1 of the Code imposes an income tax on the income of every individual who is a citizen or resident of the United States and, to the extent provided by section 871(b) or 877(b), on the income of a nonresident alien individual.

  8. “CBT seems in my view to conflict with customary international law as most countries only tax on the basis of residency.”

    America in effect does the same, simply by deeming US citizens to be always US-resident.

    That’s the core of the IGA1 injustice: the partner countries shred the privacy rights of their own residents simply because America claims they’re resident in America.

  9. @Plaxy you write:

    “CBT seems in my view to conflict with customary international law as most countries only tax on the basis of residency.”

    America in effect does the same, simply by deeming US citizens to be always US-resident.

    No the regulation cited in the comment above makes it clear that citizens are a different category of people from residents.

    The regulation is an attempt to interpret Internal Rev. Code Sec. 1 which imposes worldwide taxation on all individuals except nonresident aliens. In response to Sec. 1 the regulations restrict the meaning of individual to include ONLY citizens or residents. This would appear to exclude (for example) Nationals who are not citizens. The regulation is NOT deeming citizens to be residents. The regulation is confirming that citizens whether resident or not are included within the meaning of individual and that residents whether citizens or not are individuals.

    So, no, this is in no way the same as the principle that is used by the rest of the world.

  10. @USCitizen Abroad. Thanks for that. Indeed, it would be a lot easier to simply change the Treasury regs!!!

  11. “this is in no way the same as the principle that is used by the rest of the world.”

    I think it is; I think that’s the only reason the IGA1 partners and the EU think they can get away with treating the domestic accounts of residents with US citizenship as cross-border accounts.

    However, the distinction only seems to matter for the purposes of challenging residence countries or the EU over IGA1 or DAC-CRS (not for the purposes of challenging US laws or regulations). So I will say no more.

  12. Not sure I understand the issue with the CRS. As I understand it, it applies to people who have financial accounts in countries in which they are not tax residents – e.g. Canadian tdott opens a financial account in England or wherever. Due to the CRS, the foreign financial institution would send my financial info to the Canadian tax authorities. Certainly when it comes to income generated in that account, I’m supposed to be reporting it to the CRA in any case, so where’s the issue? AFAICT, the point of the CRS is to motivate people to do what they should be doing regardless.

    [FATCA is a whole different kettle of fish, but even there, it’s only a problem because of CBT.]

  13. @tdott: FATCA question: are you a citizen or resident of the US? This makes it problematic even without Citizenship Based Double Taxation.

  14. CRS applies to all crossborder accounts. Including, in Wider Approach countries, the domestic accounts of US Persons.

  15. “FATCA is a whole different kettle of fish, but even there, it’s only a problem because of CBT.”

    It’s the other way around, for US citizens living in IGA1 countries.

    CBT is not law, in the IGA1 country, and never caused any problems for US citizens who never heard of CBT and never filed US tax returns.

    The IGA 1isthe law of the land, and causes problems for many US citizens.

  16. “The IGA 1isthe law of the land, and causes problems for many US citizens.”

    Still stuck on that nonsense, are we plaxy?

    I guess it is possible that one day all the countries which now have and IGA1 decided on their own to implement laws to support the IGA. But, I’d wager some kind of hook or crook got them to do so.

  17. If a country signed an IGA but never implemented it, obviously it wouldn’t become law of the land. What’s your point?

  18. Same as always, the US is the motive force behind the the IGAs that every nation signed. They did not come up with the idea on their own and were coerced to do so. Some too a lot less coercing that others, but they chsnged their laws and signed the IGAs at the behest of the US.

  19. Japan T:

    My point is that the provisions of the IGA1 get implemented in local law. The banks are legally obligated to comply. This causes problems for many US citizens.

    Whereas, CBT is US law, not local law. Residents aren’t legally obligated to comply. It doesn’t cause a problem for those who don’t comply (either because they don’t choose to or because they never heard of it).

  20. Reposting to correct the formatting:

    Japan T:

    My point is that the provisions of the IGA1 get implemented in local law. The banks are legally obligated to comply. This causes problems for many US citizens.

    Whereas, CBT is US law, not local law. Residents aren’t legally obligated to comply. It doesn’t cause a problem for those who don’t comply (either because they don’t choose to or because they never heard of it).

  23. Japan T:

    “Those local laws were not written to implement local policy. They were written to implement US policy.”

    The point is, once they’re written into local legislation, they’re the law of the land, and the banks must comply.

    Whereas, CBT is not the law of the land and residents aren’t legally obligated to comply.

    Obviously, some will comply even though it’s not local law, either because they feel they should comply with their citizenship obligations or because they have US income and can reduce the tax owed by filing a US tax return to claim US tax benefits, or for other reasons.

  24. “Whereas, CBT is not the law of the land and residents aren’t legally obligated to comply.”

    They must if local law implements US policy towards them.

  25. “CBT does cause problems if local law implements US CBT related policies.”

    US law may cause problems for US residents, wherever born.

    Canadian law, or UK law, or French law, may cause problems for US-born CLN-less citizens in Canada, Britain, or France.

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