Category Archives: Issues regarding US persons abroad

The Cayman Financial Review has just published an excellent new article by Brian Garst, political scientist, blogger and Director of Government Affairs at the Center for Freedom and Prosperity:

http://www.compasscayman.com/cfr/2014/08/08/U-S–can’t-deliver-on-FATCA-promises/

Contributing to a growing wave of understanding about Treasury’s lack of legal authority for its concoction of Intergovernmental Agreements, Mr. Garst examines the likely trigger for FATCA’s self-destruct mechanism:  its increasingly evident failure and likely permanent inability to provide promised reciprocity to its so-called IGA partners:

Since its passage in 2010, financial institutions and their governments have scrambled to comply with the costly impositions of the Foreign Account Tax Compliance Act (FATCA). To entice foreign governments to assist in administration of the law and bypass certain legal obstacles, the U.S. Treasury Department has promised reciprocal information sharing. Now, however, they are admitting to having promised more than they can deliver.

The U.S. government’s assertion of authority over the global financial sector has redirected tens of billions of dollars away from productive pursuits and towards compliance efforts. So complex are the demands imposed by FATCA that the law, as originally passed, was almost assured to fail. There was simply little chance that thousands of individual financial institutions would be able to both comply with FATCA’s demands and continue to operate within the legal requirements of their host nations, particularly when it comes to protection of privacy rights.

To circumvent the issue of conflicting local laws, the U.S. Treasury Department conjured for itself powers and responsibilities not part of the actual legislation. Namely, they developed intergovernmental agreements (IGAs) to allow foreign governments to first collect information on American taxpayers before sending it to the IRS. Because institutions are sharing the information with their own governments rather than directly with U.S. authorities, and those governments are updating their laws accordingly, the IGAs allow for compliance with local privacy laws as well as FATCA.

As would be imagined, not every government has been thrilled by the prospect of upending their laws to placate U.S. fiscal imperialism. To entice skeptical foreign governments to sign the IGAs – without which the law would fail – Treasury promised to share similar information on any of their citizens investing in U.S. markets. Now, however, it’s becoming increasingly clear such reciprocation may never occur, throwing FATCA’s viability back into question.

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Incidentally, author Garst’s motto is:

Malo periculosam, libertatem quam quietam servitutem

There is an otherwise (see below) excellent article on CBC News webpage today, discussing how the Harper government seems bent on a confrontation with Canada’s legal system by deliberately bringing forward legislation that Justice lawyers advise have only even a 1% chance or slightly higher of surviving a constitutional or Charter challenge.

Harper government strategy of confrontation with courts

I am a retired federal public servant who occasionally worked with Justice lawyers on legal matters and legislation though not in the Department of Justice itself. And I am not a lawyer. But — I do know from personal experience and discussion with Justice lawyers back then, that the Harper government approach, putting forward legislation that career lawyers in Justice doubt has even a 1% chance of surviving a court challenge, is a complete reversal of the standard used by all previous federal governments under which I served, including the three Progressive Conservative governments of Clark, Mulroney and Campbell.

The article lists, near the bottom, several recent pieces of legislation likely to be challenged in court and unlikely to survive court scrutiny. Disturbingly, however, Bill C-31 Section 5 (the FATCA/IGA implementation provisions buried in the omnibus budget bill) is not included in that list.  CBC should have known to include that, given past stories and contacts we’ve had with some of their news writers.

This is an opportunity for Brockers and Sandoxers to blog a CBC story and to help raise reader awareness of the Charter and other legal issues that Harper and crowd have patently been ignoring re the IGA and FATCA. It also helps explain the careful choice of words the Finance officials were using in answering Opposition questions about Justice review of the legislation’s constitutionality under the Charter. My suspicion is that the advice that Justice gave Finance is that the probability the legislation could survive a Charter challenge was maybe more than 1% but probably not a lot more, certainly no more than perhaps 10% or so I’d guess.

This raises broader issues of Harper and crowds’ total disregard for “rule of law” in Canada and misunderstanding of the role our courts are supposed to play under our constitution, parliamentary democracy, and the Charter.

I’ve posted my own comment to the above effect in the story, still awaiting CBC moderation though. There are already hundreds of comments, most extremely critical of Harper and Justice Minister Mackay on this point, but I didn’t see any other FATCA related ones than mine, though I don’t pretend to have the time nor patience to wade through all those comments to check.

Another excellent reason to vote ABC (Anybody but the Conservative) in the next election, as well as another opportunity for Brocker and Sandbox bees to swarm and post to raise Canadians’ awareness of the issue.

UPDATE DUBLIN VENUE:

When: Tuesday, August 12, 6:00 – 8:00 pm

Where: Quaker House, Stocking Lane, Rathfarnham, Dublin 16 MAP
 
UPDATE BELFAST:

When: Wednesday, August 20, 6:00 – 8:00 pm

Where: Belfast Castle, Antrim Road, Belfast, Antrim, UK BT15 5GR MAP
 
Presenter: John Richardson, B.A., L.L.B., J.D., is a Toronto lawyer and a member of the Ontario Bar. Citizenshipsolutions.ca
 
Admission: Dublin €15 / Belfast £15 cash payable at the door (to cover costs).

It is estimated there are 7 million U.S. citizens living outside the United States. Some of these people don’t know that the U.S. may consider them to be citizens. The vast majority of these Americans abroad (according to U.S. law), are required to pay taxes and complete information reporting forms to the United States. Although “citizenship-based” taxation has existed for years, what is new is the enforcement.

The U.S. has enacted FATCA (“Foreign Account Tax Compliance Act”) and has signed IGA’s (Intergovernmental Agreements) in many European countries including Ireland, the UK, France, Germany, and Switzerland. Financial institutions across the globe will be required to identify accounts of “US Persons.” Starting July 1, 2014, financial institutions will begin to determine what accounts are “reportable accounts.” Information regarding those accounts will be passed on to the tax agencies of each country, who will in turn, pass this information on to the IRS. These seminars will include discussion and analysis of the IRS “relaxed opportunities” for people to come into compliance and will focus on:

Citizenship Issues:

Are you a US citizen?

Are you still a US citizen?

Are your children US citizens?

What is an Accidental American?

Tax Issues:

Filing US tax returns

What is involved?

Filing information returns (FBAR, 8938, 3520A & 3520, 5471, 8621 etc)

Reasonable cause (avoiding penalties)

Financial Planning Issues:

Treatment of tax-deferred savings plans

Treatment of Mutual Funds (PFICs)

Privacy Issues:

What might FATCA mean for me?

Border Issues:

Will FATCA make it harder for me to cross the border?

Does it make sense to give up US citizenship?

Relinquishment

Renouncing

Information presented is NOT intended or offered as legal or accounting advice specific to your situation.

Bubblebustin found and JC suggested the the following be a post:

Newsmax Finance, August 6, 2014: High Taxes, Abusive Enforcement Causing Businesses, Citizens to Flee America

Author, Peter Morici, starts out by blending US corporate and US personal of overreach of the US into other countries business and people:

President Obama, as promised, is changing America. High taxes and abusive enforcement are compelling businesses and ordinary citizens to leave the country altogether.

The United States has much higher corporate tax rates than other industrialized countries do, and increasingly, the IRS uses more aggressive enforcement tactics than foreign tax authorities use.

A recent article from James George Jatras published in RIA Novosti:

Moscow Must Close a Yawning Gap in Its Financial Armor

Topic: Sanctions Against Russia

http://en.ria.ru/authors/20140725/191441744/Moscow-Must-Close-a-Yawning-Gap-in-Its-Financial-Armor-.html

As the chill air of a new Cold War begins to blow, James Jatras explains why Russia’s and the world’s future hinges on how every nation responds to the threats posed by FATCA.  He forcefully argues that this is no time for strategic miscalculation by any country, especially by Russia, and especially in this increasingly dangerous geopolitical climate.

Not sure how this source and these articles have evaded detection for so long, but they deserve wider exposure:

http://wealthmanagement.com/commentary/fatca-violates-rights-american-citizens-overseas

http://wealthmanagement.com/wealth-planning/why-do-americans-hate-expatriates

http://wealthmanagement.com/legal-compliance/accidental-american-0

The newest, FATCA Violates Rights of American Citizens Overseas, is a hard-hitting commentary by Carrie Lowery, who is described thusly:

Carrie A. Lowery, Esq., has worked as a legal professional for over a decade. She recently founded Authority Legal Research & Writing Service, which provides legal research and writing support to practicing attorneys.

I was particularly struck by her close attention to the violation of treaty powers represented by Intergovernmental Agreements:

FATCA requires foreign financial institutions to report the financial holdings of their U.S. clients to the IRS or will be charged a 30% withholding tax on payments from US Banks.

The Treasury Department has been unable to cite any constitutional, statutory, or regulatory authority which allows it to compel foreign institutions to collect and share the financial information of U.S. citizens.  As a result of foreign privacy laws which prohibit direct disclosure to the IRS, the Treasury Department has entered into numerous bilateral Intergovernmental Agreements (IGAs) with foreign agencies and governments.  There is no reference to or authority provided for IGAs in the statute itself.  When asked for a basis of authority for its action, the Treasury Department points to existing tax treaties with foreign governments.  Unfortunately, there is one fundamental difference between existing tax treaties and the IGAs: lack of Senate authorization, in violation of the treaty power.

It would appear that Allison Christian’s definitive evisceration of Treasury’s IGA lies continues to make waves.  Bravo!

The other two above-mentioned articles are less recent, but no less compelling, even though they do belie the incomplete perspectives of the compliance-industry.  Nevertheless, some good solid reading here.

As previously reported here:

https://isaacbrocksociety.ca/2014/03/05/obama-administration-asks-congress-for-fatca-reciprocity-in-latest-green-book/

and here:

http://www.repealfatca.com/index.asp?idmenu=4&title=News&idsubmenu=130

the Obama administration has been trying for some time, without success, to sneak some form of FATCA reciprocity past Congress to avoid any embarassing pants-on-fire confrontations with IGA signatories who were apparently promised the moon by American FATCA negotiators.  Seems they’re at it again, with a duplicitous new twist, as the following links reveal:

http://www.jdsupra.com/legalnews/treasurys-fincen-proposes-rules-forcing-79017/

http://www.treasury.gov/press-center/press-releases/Pages/jl2595.aspx

http://insurancenewsnet.com/oarticle/2014/08/04/financial-crimes-enforcement-network-seeks-comments-on-customer-due-diligence-re-a-539529.html#.U-BlY1Z3geQ

http://www.fincen.gov/statutes_regs/files/CDD-NPRM-Final.pdf

In a nutshell, Treasury aims to glue just enough sequins onto its FinCEN (Financial Crimes Enforcement Network) CDD (Customer Due Diligence) requirements to convince IGA suckers that it is finally forcing domestic financial institutions to reveal the beneficial owners of accounts held by foreigners in the US.  Since there is actually plenty of wiggle-room in the reporting thresholds, most such account holders will simply re-structure their ownership profiles and thus avoid reporting to their home countries, but no matter – the whole point of the exercise is merely to create a convincing-enough facsimile of reciprocity that the IRS will finally have the fig leaf it so desperately craves, not only for the FATCA club, but for its G8 G7 partners as well.

Now, in true FATCA IGA style, the proposed new legislation intends to simply bypass pesky Congressional authority altogether by being presented as a mere amendment to existing BSA (Bank Secrecy Act) regulations. Some bright light at Treasury finally made the right connection, thinking, hey, the ruse has worked fine for the IGA’s, so why not for DATCA?

Wonder how long it will take for Bill Posey to catch-on to this new effort?

The law of unintended consequences remains far more powerful than any half-baked legislation coming out of Washington, as this article from South China Morning Post reminds us:

http://www.scmp.com/business/article/1565727/fatca-regime-may-have-unintended-consequences-financial-system

Fatca regime may have unintended consequences for financial system

Crackdown on Americans’ money in overseas accounts may lead to the growth of shadow banking and the financial power of other countries

Many financial institutions are still completely confused and unable to comply with the US government’s Fatca regime. “Foreign Account Tax Compliance Act” sounds like another innocuous tax regulation. But it represents the most ambitious tax and personal data collection strategy in financial history. It will embolden and encourage more global intrusions by US government agencies. More people will be driven underground to seek shadow banking services.

Fatca is controversial because it dramatically shifts the burden of disclosure from the American person to their banks. Foreign financial institutions are now more than just tax bounty hunters for the US Internal Revenue Service (IRS), but pawns in an historical power play for control over the global financial system.

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