James George Jatras for RepealFATCA.com
Washington, DC -- Those familiar with the U.S. "Foreign Account Tax Compliance Act" (FATCA) -- and in the United States, that's not many people -- think of it as either a as sledgehammer attempt to curb "offshore tax evasion" or (more accurately) as a costly, counterproductive, and indiscriminate burden on the global economic system; a compliance nightmare that only benefits tax lawyers, accountants, and software firms; a job-killing disincentive for foreign investment in the United States; a crude extraterritorial overreach in violation of every principle of sovereign legality; an abuse of the U.S. Senate's constitutional treaty authority; a blatant violation of WTO and other trade commitments; and a financial "drone strike" against Americans living abroad .
FATCA is all that and much, much more. But in light of sweeping revelations about the email, telephone, and internet surveillance activities of the U.S. National Security Agency (NSA), it's time to take a look at FATCA's implications for personal electronic privacy and the growing power of U.S. intelligence agencies' global " surveillance state ."
Just Hand Over the Information -- or Else
FATCA is a U.S. law enacted in 2010 that, beginning in July 2014, would require all "foreign" (i.e., non-American) financial firms (not just banks but also credit unions, insurance companies, pension funds, stock and investment funds, etc.) to report the accounts of "U.S. Persons" defined so broadly as to include many citizens of other countries, for example perhaps a million Canadian citizens .
How does the U.S. government get jurisdiction to do this? Well, it has no jurisdiction and doesn't claim any. If any of the hundreds of thousands of foreign financial institutions (FFIs) anywhere in the world, whether it does business in the U.S. or not, fails to demonstrate to the U.S. Treasury Department that it has "due diligence" in place to gather the demanded account information, and agrees to hand it over to the IRS in a manner dictated by that agency in 544 pages of mind-numbing regulations , it will be hit with a 30% deduction on any U.S.-sourced revenues, including "pass-thru" payments on a percentage basis.
In view of the U.S. role in the global financial system, many if not most FFIs are recipients, at least indirectly, of revenues that can be intercepted by U.S. financial institutions forced to act as "withholding agents" on Treasury's behalf. This would amount to confiscation of the FFIs' legitimate assets for being "recalcitrant" under a foreign law which they are under no legal (much less moral) obligation to obey, and which in most countries they can't obey without violating local human rights , data security , and other protection laws.
Thus, FATCA has no legal claim to its breathtaking demand for worldwide submission. Its only claim of authority is the Treasury Department's threat to inflict pain on foreign entities not otherwise subject to U.S. law. In other words: might makes right.
There is much more to it of course, including the fact that even FATCA advocates admit the law is " wholly unachievable " as written and can only be implemented by foreign governments' knuckling under to the threat of economic sanctions and agreeing to sign so-called "intergovernmental agreements" (IGAs) to act as the IRS's enforcers against their own institutions and citizens under false promises of "reciprocity ." And it is well established that FATCA would yield at best a meager "recovery" of revenues hidden offshore -- less than $1 billion per year (enough to fund the U.S. federal government for about two hours) while inflicting compliance costs worldwide of $ 1 to 2 trillion . It is increasingly clear that FATCA is cruising towards a " catastrophic collision " with reality. (See Victoria Ferauge and Lynne Swanson, " FATCA Losing Its Way ," Accounting Today , September 11, 2013.)
Since FATCA doesn't pass the laugh test as an effective tax enforcement tool, one then has to wonder if it serves some other purpose. Why would the U.S. government (or at least some elements of the U.S. government) be so insistent on gathering immense amounts of personal financial data from foreign institutions, without any suspicion of wrongdoing by either the vast majority of account-holders or by the institutions themselves?
FATCA-Compliant Banks Would Have No Privacy Expectation from U.S. Security Agencies
If FATCA's sole purpose were to "recover" tax revenues from assets squirreled away offshore by American "fat cats," it seems odd that it targets only individuals and specifically exempts reporting on accounts held by U.S. corporations. On the other hand, targeting individuals makes a lot of sense if FATCA's purpose is directed towards something else: adding to U.S. government agencies' global electronic "map" of personal information. Americans and the rest of the world are increasingly aware of the vanishing concept of personal privacy, whether supposedly "justified" by the needs of law enforcement, anti-terrorism, or (as here) recovering tax revenues.
It should be further understood that any data transmitted by foreign financial institutions will not be confined to the IRS but will be handed over ("upon request," of course) to other "three-letter" agencies of the U.S. government. The following is from a 2012 letter from Sen. Carl Levin (D-Michigan), a prominent FATCA supporter, to then-IRS Commissioner Douglas H. Shulman:
"Although FATCA is structured to address offshore tax
abuse [ Note : this is itself inaccurate, as FATCA includes
not a single provision targeting actual tax
evasion activity], offshore account information has significance
far beyond the tax context, affecting cases involving money
laundering, drug trafficking, terrorist financing, acts of
corruption, financial fraud, and many other legal violations and
crimes. Given the importance of offshore account disclosures, FATCA
guidance and implementing rule should create account FATCA forms
that are not designated as tax return information but, like FBARs,
may be provided to law enforcement, regulatory, and
national security communities upon request.
FFIs are not, after all, U.S. taxpayers , and will not be
supplying tax information on behalf of their U.S. clients; they
will instead be providing information about accounts opened by U.S.
persons. The U.S. Supreme Court has long held that bank
account information is not inherently confidential but is
subject to inspection by law enforcement and others in appropriate
circumstances. Foreign account information is too important to a
wide range of civil and criminal law enforcement and
national security efforts to be designated as tax return
information bound by Section 6103 's severe
restrictions on access." [emphasis added, source:
This requires some explanation. "Section 6103" refers to
United States Code Chapter 26, Section 6103 , which
according to the Justice Department "generally
prohibits the disclosure of "tax returns' and other "tax return
information' outside the" IRS, unless certain narrow exceptions
apply, mainly with respect to specific criminal cases.
Here, Senator Levin is saying -- correctly, as far as U.S. law goes
-- that when FFIs sign on to the IRS portal for transmitting data
demanded under FATCA ( https://sa2.www4.irs.gov/