This RepealFATCA.com bulletin departs from our usual format to round up some important news and commentary from around the world on the deepening troubles of the dysfunctional “Foreign Account Tax Compliance Act” (FATCA). The headlines:
- Treasury Department Promises RepealFATCA.com “Expedited” Response to Freedom of Information Act Request Regarding Agreements with Britain, Canada, and Switzerland.
- Russian Foreign Ministry Affirms Exchange of Tax Information but Rejects FATCA as “Counterproductive,” “Extraterritorial in Nature,” and “Contrary to the Principle of Sovereign Equality.”
- Canadian Opposition and Citizens Take Government and Big Banks to Task for Selling Out on FATCA; Macleans picks up on FATCA.
- Risk.net: “Fatca fears reach swaps market”: Withholding on U.S. Treasury securities could wreak global havoc.
- Rahn: “Looking for lucre in all the wrong places” (Washington Times, 10/28/13).
- Rommann: “FATCA: The Scarlet Letter Abroad” (American Thinker, 11/2/13).
More information on each of the headlines above is provided below:
1. Treasury Department Promises RepealFATCA.com “Expedited” Response to Freedom of Information Act Request Regarding Agreements with Britain, Canada, and Switzerland
The U.S. Treasury Department has informed RepealFATCA.com via letter that our Freedom of Information Act (FOIA) request for departmental records regarding “intergovernmental agreements” (IGAs) with Britain, Canada, and Switzerland has met the legal requirement for “expedited treatment,” and that “every effort” would be made to provide a “timely response.”
Watch this space for further updates!
2. Russian Foreign Ministry Affirms Exchange of Tax Information but Rejects FATCA as “Counterproductive,” “Extraterritorial in Nature,” and “Contrary to the Principle of Sovereign Equality.”
In what may be to date the strongest public statement from any government, the Foreign Ministry of the Russian Federation has released a statement on media reports that Moscow might be close to signing an IGA with the United States to enforce FATCA. While confirming its support for transparency and exchange of tax information on a balanced and mutual basis, the Ministry statement noted (in a report from Russia Behind the Headlines, or in the original Russian from the Ministry):
“’Precisely in this [spirit] do we maintain dialogue with the U.S. administration, arguing that the approaches set forth in the Foreign Account Tax Compliance Act (FATCA) are counterproductive,’ the Russian Foreign Ministry said.
“‘Our position is well known: this law is of exterritorial essence and is at odds with the principle of sovereign equality. It demands that foreign lending-financial institutions comply with American law.’”
Comment by RepealFATCA.com: It is notable that the statement is from the Foreign Ministry, not the Finance Ministry. It seems that in many countries, finance ministries are all-to-ready to accept assurances from their “sister” bureaucracy, the U.S. Treasury Department, that a FATCA IGA is a simple “tax information exchange” commitment. Nothing can be farther from the truth, as FATCA’s intrusive mandates for collecting and reporting private financial data are nowhere authorized under tax treaties. Rather, they are a new set of mutual obligations which, aside from serious privacy and probable cause issues, would require submission to the U.S. Senate for advice and consent as treaties – a path Treasury is not taking.
Also significant is the reference to “the principle of sovereign equality” Enshrined and legally binding on all Member States under Article 2.1 of the United Nations Charter (“1. The Organization is based on the principle of the sovereign equality of all its Members.”), FATCA’s demand to enforce America law on an extraterritorial basis on firms not under U.S. jurisdiction is a fatal flaw under international jurisprudence. In its statement, the Russian Foreign Ministry also insists that any agreement (if there is one, which would exclude the “one size fits all” IGA text currently being presented on a take-it-or-leave-it basis) “must comply with the generally accepted international standards and guarantee a reliable protection to our financial institutions.”
It remains to be seen what steps Moscow might be willing to take if in the absence of an IGA Russian banks and other financial institutions are threatened with a 30% withholding of U.S.-derived revenues, which “accepted international standards” would have the character of an illegal sanction.
The Russian position should be a model for other countries. As one active participant of the Isaac Brock Society has written to Canadian officials:
“Please note in the following news item today, that Russia has made it very clear that any agreement between the US and Russia over FATCA must be fully reciprocal and must respect Russian sovereignty. The statement also mentions that FATCA as currently formulated is an extraterritorial violation of the sovereign equality of other countries.
“It would be utterly unacceptable for Canada to accept or insist on less than what Russia does, in any agreement with the US over FATCA. As it is highly unlikely the US can respect or even get full reciprocity, which would require US Senate approval not yet forthcoming in even one IGA the US has signed, I think the most rational approach for Canada to take is to walk away from negotiations with the US over this, to insist on Canadian financial institutional compliance with current Canadian law and our Charter of Rights and Freedoms, and to contemplate protections or retaliatory sanctions against the US should it ever actually enforce the threatened sanctions against Canadian financial institutions that have branches in the US.
“Canada’s sovereignty is no less important than Russia’s, and I expect that my government will stand up for Canadians as forthrightly as the Russian government does for its own citizens and sovereignty. It would be a very sad, pathetic commentary on any Canadian government that would not do so.”
3. Canadian Opposition and Citizens Take Government and Big Banks to Task for Selling Out on FATCA
In more news from the “True North strong and free,” Canadian citizens have submitted a petition to Liberal MP Ted Hsu, who has already submitted his own blistering set of questions to the Conservative government of Prime Minister Stephen Harper and Finance Minister Jim Flaherty. Hsu has been seconded by his Liberal colleague and his party’s Finance Critic (a/k/a Shadow Minister) Scott Brison, whose inquiry includes what one would expect would be the first question any country would ask itself before knuckling under to the costly demands of a foreign state:
“[H]as the government assessed the possibility of not acceding to FATCA in any way and, if so, with what conclusion and with what cost to Canada or to Canadians when compared to accession[?]” (Appears as “(dd)” in the orginal list at the link.)
Canadians’ awareness of the threat FATCA presents to their civil rights and their country’s sovereignty received a major boost recently with the October 31 publication in Macleans, the nation’s premier news magazine, of “What’s FATCA? The IRS peeking into Canadians’ bank accounts,” by Erica Alini.
The text of the citizens’ petition follows (again from the Isaac Brock Society):
Petition to Canadian Government re: Foreign Account Tax Compliance Act (FATCA) in Canada
Whereas the United States is demanding that Canadian financial institutions provide to the United States Treasury and United States Internal Revenue Service comprehensive and confidential financial information on “US persons” who are Canadian citizens and residents;
Whereas Canadian Bankers Association has advised that they may comply with FATCA, including possible closure of bank accounts of Canadian citizens and residents who refuse to consent to information being provided to US Treasury and IRS;
Whereas FATCA is a foreign law that violates Canada’s sovereignty;
Whereas the term “U.S. person” has no legal meaning in Canada;
Whereas FATCA violates Canada’s Bank Act, Personal Information Protection and Electronics Documents Act (PIPEDA) and Canadian Human Rights Code;
Whereas compliance with FATCA would violate Canada’s Charter of Rights and Freedoms;
Therefore, we request the Canadian government to:
1. Immediately assure Canadian citizens and residents that all Canadian citizens and residents have the same rights to privacy in managing their financial affairs.
2. Advise Canadian financial institutions that they must comply with Canadian laws.
3. Assure Canadian citizens and residents that those Canadian laws and the Charter of Rights and Freedoms will not be changed for FATCA.
4. Cease negotiating with the United States on any agreement to implement FATCA that will contradict Canada’s Charter, its current banking, privacy and human rights laws and the current Canada-US Tax Treaty.
4. Risk.net: “Fatca fears reach swaps market”: Withholding on Treasury securities could wreak global havoc.
Having narrowly averted a potential global financial crisis triggered by a U.S. debt default (and maybe awaiting a reprise in January 2014), how many people anticipate the U.S. government might spark a crisis of confidence in American creditworthiness by deliberately withholding a portion of the legally due payments on part of the U.S. debt?
But that’s exactly what the Treasury Department would do under the 30% “withholding” of payments to “recalcitrant” foreign institutions. One shudders to think what the impact could be on the marketability of U.S. securities and interest rates. Even a minor upward blip of the rate the United States pays on our massive debt would more than wipe out the meager gain (less than one billion per year) FATCA supposedly would “recover.”
As glimpse into uncertainty and complexity of the mechanics of withholding payment on U.S. securities is provided by Matt Cameron writing in the UK-based Risk.net (excerpts below, link to full text here (by subscription)):
“Swap counterparties could be caught in the crossfire of controversial new US tax rules – possibly facing a nasty hit – when they come into force next year, lawyers say.
[ . . . ]
“To give an example, if a Fatca-compliant FFI [foreign financial institution] receives US Treasury bonds as collateral on an in-the-money swap from a non-participating FFI counterparty, then the compliant firm is expected to pass any interest on the bonds back to the counterparty.
“However, the interest would be subject to the withholding tax, as the non-compliant counterparty is considered to be the beneficial owner of the bond. Essentially, the compliant collateral receiver would be left with just 70% of the interest, but would be required under the terms of the collateral agreement to pay 100% to its non-compliant counterparty, leaving it out of pocket.
“Lawyers say many firms are not aware of these implications, and the situation becomes even more complicated if the counterparties are using an English-law credit support annex (CSA). The document operates on the basis of title transfer, which means full ownership of the asset is passed to the collateral receiver. That party is free to rehypothecate the asset, and only has to pay an amount equal to the coupons received on the asset and return a similar, fungible security back to the poster when required. That raises doubts over whether the non-compliant collateral poster would still be considered the beneficial owner of the US Treasury collateral.
[ . . . ]
“The Fatca rules do provide some relief for swaps and collateral agreements that are outstanding as of July 1 next year. But the collateral backing the grandfathered trades needs to be split from the assets securing non-grandfathered transactions. In other words, if a pool of collateral backs both pre- and post-July 1 trades, then the counterparty must allocate each security to specific collateralised transactions – an unmanageable requirement, lawyers say.”
5. Rahn: “Looking for lucre in all the wrong places” (Washington Times, 10/28/13)
Richard W. Rahn, senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth, comments (excerpts below, link to full text here):
“The Obama administration has performed the unique trick of alienating the majority of our most important allies, while at the same time causing America to be viewed as a patsy by its enemies.
“The situation is bound to get worse now that the administration has taken the position that most financial institutions outside the United States are conspiring to help Americans and others avoid U.S. taxes and, thus, is attempting to require all of these foreign financial institutions to report to — and, in effect, become agents of — the Internal Revenue Service. A global revolt is brewing against the United States for being an international financial bully. The consequences of this revolt are likely to be extremely damaging and long-lasting to the nation.
“The administration has managed to cause serious damage to relations with our major allies over spying on them, acting as a financial imperialist and being perceived as an unreliable partner.
[ . . . ]
“The latest outrage is the Treasury Department’s Foreign Account Tax Compliance Act, which, in essence, demands that all foreign financial institutions prove that they have no U.S. clients or ‘tax persons.’ If they do, however, they must collect taxes from them for the IRS. This is, of course, an impossible task for any financial institution in a world of dual citizenships and work permits. The cost of compliance for foreign financial institutions is huge. Estimates run in tens of billions of dollars, yet the Congressional Budget Office estimates that the regulation will only bring $892 million per year into the U.S. Treasury. The proposed regulations are making it very difficult, if not almost impossible, for Americans living abroad to open bank accounts. The U.S. Treasury recently issued a ‘fact sheet’ on the tax-compliance act, totally unsupported, not surprisingly, by actual facts, since the Treasury never did a cost-benefit analysis. In response, a spokesman for American Citizens Abroad stated, ‘I am not only outraged, but absolutely astounded, that Treasury would issue such a statement of deliberately misleading lies.’ Of course, this same administration falsely told Americans they could keep their current health insurance and doctor under Obamacare.
“Only nine countries have signed the intergovernmental agreement with Treasury to implement the Foreign Account Tax Compliance Act. Without a large number of countries signing on, the regulation will be impossible to enforce. Switzerland is one of the countries that signed on, but now there is a pushback among Swiss citizens who are unhappy with their government’s acquiescence. They’re now collecting signatures for a referendum to overturn the agreement (which is allowed under Swiss law). If the tax-compliance act is overturned, is the U.S. government going to fine or jail Swiss bankers who come to this country for not following IRS regulations when their own Swiss citizens have instructed them not to? Foreign financial executives have already been warned by some of their own governments not to travel to the United States. If the administration persists with the Foreign Account Tax Compliance Act and the prosecution of foreign financial executives, it is in danger of having them pull out trillions of dollars of foreign investment, which would be a disaster for the U.S. economy and would likely cause a new global recession, or worse.
“The administration has the unmitigated gall to insult others by assuring foreign governments that all the sensitive financial information collected will be kept confidential. If the administration continues on this reckless and irresponsible course, the next president of the United States may well be forced to make an “apology” tour to most of the world’s countries for wrecking the world economy.”
6. Rommann: “FATCA: The Scarlet Letter Abroad” (American Thinker, 11/2/13).
Ryan Rommann, who writes on tax and economic policy for Healy Consultants (Singapore), comments on the human and economic cost of FATCA (excerpts below, link to full text here):
“I am a U.S. citizen living and working abroad. I have always been an upstanding, taxpaying American. I served in the Peace Corps and donate my time to community service. Never have I attempted to pay less than my fair share of taxes nor tried to hide in offshore tax havens. Yet I, and the 7.2 million Americans currently overseas, am being blacklisted by a little-known tax policy.
[ . . . ]
“FATCA is making it increasingly difficult to open personal bank accounts. Major banks such as HSBC, Deutsche Bank, DBS, and UBS have admitted to turning away holders of American passports. If you are an American living or working in Switzerland, for example, you can say ‘goodbye’ to innocent until proven guilty. The default bank response will be to assume you are Al Capone, because actually trusting an American client could elicit a hefty IRS fine in the future.
“The same applies for small businesses. Corporate bank accounts for U.S.-owned foreign companies face stiffer ‘Know Your Customer’ hurdles and paperwork. FFIs will have to form dedicated teams simply to navigate the new FATCA compliance, according to Bank of Singapore CEO Renato De Guzman. Minimum deposits and bank fees are increasing to cover the cost of complying with FATCA. Small businesses are forced to deposit minimums upwards of $100,000 and pay higher monthly maintenance fees. Foreign banks simply don't want the hassle of playing freelance IRS agents.
[ . . . ]
“Perhaps even worse than FFIs refusing U.S. clients, foreign banks may eventually divest from the U.S. market for fear of being taxed an extra 30%. Capital flight would be one more burden on an already tepid U.S. economic recovery. Meanwhile, the law would only raise a paltry $800 million per year, less than 1 percent of the $100 billion claimed to be lost each year to tax evasion according to Centre for Freedom and Prosperity's Andrew Quinlan. This gap in revenue is likely due to tax evaders' ability to remain hidden through layered corporate structures, nominee shareholders and trust agreements. The fact is that law-abiding citizens will forfeit privacy, while money launders and terrorists will manage to stay invisible.
“The legislation is simply un-American. Recent NSA spying allegations aside, privacy has always been protected for U.S. citizens. Yet FATCA affords no financial privacy. It requires banks to report back to the IRS account numbers, names, addresses, balances, and transactions. Why should foreign banks be expected to trust U.S. citizens when even their own government does not extend the same faith? And imagine if this disclosure requirement was applied by other nations. Would America's banks really be comfortable reporting back to Mexico, China, or Russia the financial portfolios of the 11 million immigrants living in the U.S.?
“The Romans had a phrase -- civis romanus sum -- to describe the far-reaching protection of the empire. A Roman citizen could travel the globe and be afforded the same status and rights as those of home, merely by proclaiming his citizenship. FATCA is the exact opposite. Financial institutions now view me as a potential fraudster and troublesome American. American citizenship should always be a badge of honor, but FATCA is making it a scarlet letter.”
James George Jatras
Contact RepealFATCA.com and find out how you can help get rid of “the worst law most Americans have never heard of”!
Email: RepealFATCA@gmail.com or email@example.com