www.RepealFATCA.com
2013 World Credit Union Conference
July 15, 2013 – Ottawa
Getting rid of “the worst law most
Americans have never heard of.”
-James George Jatras
www.RepealFATCA.com
2013 World Credit Union Conference
July 15, 2013 – Ottawa
Introduction
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Lack of jurisdiction: No requirement that FFI be present in the U.S. FATCA applies
to all FFIs, everywhere. No valid legal theory for applying U.S. law abroad.
Extraterritorial: U.S. law to force reporting only by foreign institutions (FFIs).
One-sided: Not a word about reciprocity in the FATCA law.
Anti-sovereignty: You must obey our law or be punished.
Expensive: Millions of dollars in costs per FFI, $1 to 2 trillion aggregate.
Anti-privacy: Reports information not just of “U.S. Persons” but millions of nonAmericans: “accidentals,” dual citizens, spouses: (e.g., 1 million Canadians).
Not an anti-tax evasion law : Not a single provision in FATCA targets actual
evasion activity.
Reprisal: “Recalcitrant” FFIs: 30% withholding; expropriation, sanction, not “tax.”
Fear: “We have no choice.” Either FFIs comply, or hope for rescue via
intergovernmental agreement (IGA).
www.RepealFATCA.com
2013 World Credit Union Conference
July 15, 2013 – Ottawa
Example: CANADA
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“Finance Minister Jim Flaherty has said Ottawa is ‘nearing a conclusion’ on the
issue, suggesting a similar arrangement as reached by the U.K. is in the offing. . . .
‘An agreement with the U.S. to share information on a government to government
basis, within prescribed limits, will bring certainty to the application of the FATCA
regime to Canadians, and will also facilitate compliance by our financial
institutions,’ he said in a statement. . . .
“[Canadian Bank Association President Terry] Campbell said [Canadian] financial
institutions have no choice but to comply with U.S. law because the penalties can
be onerous — a 30-per-cent tax on U.S.-source income. . . . ‘(But) short of having
the U.S. authority change their law, and short of having the world financial system
being radically restructured, neither of which is going to happen, authorities
around the world have come to the conclusion they must deal with the United
States to make this as administratively feasible as possible.’” [“Canadian banks
wary of U.S. tax disclosure law: U.S. law FATCA forces dual citizens to file two
returns whether or not they have paid in Canada,” The Canadian Press, 11/28/12]
www.RepealFATCA.com
2013 World Credit Union Conference
July 15, 2013 – Ottawa
How did we get to this point? Why did Congress pass FATCA?
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“ ’FATCA’? What’s that?” Almost no one in the U.S. (including in Congress) has
heard of FATCA.
Hearings on U.S. assets (claimed “$100 billion”) hidden abroad – but no
examination of FATCA as a mechanism.
Require disclosure by everybody: a global “stop and search law”.
Assumed that U.S. “fat cat” tax cheats will just fall out of the woodwork.
Passed as a “revenue offset” (would “recover” revenues of less than $1 billion per
year vs. $1 to 2 trillion in costs to firms globally).
Slipped into HIRE Act (jobs bill) in 2010 with no cost/benefit study, no regulatory
impact study (“only will hit foreigners”), no Senate or House “floor” debate.
No awareness that foreign laws would block FFIs’ compliance.
No awareness of impact on U.S.: withdrawal of foreign investment, jobs.
Top DC tax attorney Herman Bouma: FATCA is “sheer idiocy.”
www.RepealFATCA.com
2013 World Credit Union Conference
July 15, 2013 – Ottawa
Why intergovernmental agreements (IGAs)?
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Hundreds of thousands of FFIs in almost 200 countries.
The U.S. Treasury Department realized early on that FATCA was unenforceable:
– “Mark Matthews, . . . former head of the criminal investigation division at the IRS. ‘It
[the US-UK IGA] is clearly less airtight and bulletproof. But the (FATCA) statute as written
was wholly unachievable.’” [Patrick Temple-West, “U.S. overseas tax dragnet refocuses
on country partnerships,” Reuters, 9/18/12]
– Professor J. Richard Harvey : “The long-term success of FATCA may depend upon
whether the US can convince other countries to adopt a similar system, or better yet,
join with the US in developing a multilateral FATCA system. . . . The major weakness of
FATCA is that the US is attempting to unilaterally require FFIS to report information to
the US. . . . [T]he US could continue down the course of unilateral adoption of FATCA
with the hope that the US investment market is sufficiently large . . . If the US were to
abandon FATCA, it would be a serious long-term setback to addressing offshore tax
evasion both in the US and the world.” [“Offshore Accounts: Insider’s Summary of
FATCA and Its Potential Future,” Villanova Law Review, Vol. 57, Issue #3, Dec. 2011]
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Treasury’s only solution: foreign governments enlisted as IRS’s deputies to impose
foreign (U.S.) law on their own FFIs (at their own expense).
www.RepealFATCA.com
2013 World Credit Union Conference
July 15, 2013 – Ottawa
To impose IGAs, Treasury counts on panic from FFIs: “Save us from FATCA!”
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Draft regulations on FFIs due by end of 2011 were delayed: 388 pages released in
February 2012. (The more complex, confusing – and scary – the better!)
“Joint statement” on “automatic data exchange” with five EU countries in
February 2012.
– (Letter from four Senators to Treasury Department in July 2012.)
Release of draft IGAs: Model 1 (“reciprocal”) and Model 2 (“non-reciprocal”) in
July 2012.
First IGA signed with United Kingdom in September 2012.
Final rules were due in November 2012 (but not released in January 2013): 544
pages.
Despite Treasury claims of “momentum” 2012 ends with whimper (four, not 17).
Pace of IGA signing progress continues slow through 2013, selling FATCA model in
G8, G20, OECD: toward “GATCA: Global Account Tax Compliance Act”
Beginning of FATCA regulations phase-in delayed from January to July 2014 –
maybe. Treasury’s claim of “groundswell” interest in IGAs is absurd.
www.RepealFATCA.com
2013 World Credit Union Conference
July 15, 2013 – Ottawa
IGAs are a flawed solution to FATCA’s already fatal flaws
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IGAs are not treaties nor authorized by FATCA: force of law for non-U.S., not for the U.S.
Annex II is no real protection for FFIs: U.S. can cancel, hence change terms, at any time.
U.S. promises of “reciprocity” to non-U.S. governments under Model 1 are spurious:
– Art. 2(b): limited non-resident alien (NRA) interest reporting (under fire from Congress,
in Courts)
– Art. 6(1): No legal authority to require U.S. firms to report “equivalent” data:
Reciprocity. The Government of the United States acknowledges the need to achieve
equivalent levels of reciprocal automatic information exchange with the United
Kingdom. The Government of the United States is committed to further improve
transparency and enhance the exchange relationship with the United Kingdom by
pursuing the adoption of regulations and advocating and supporting relevant legislation
to achieve such equivalent levels of reciprocal automatic exchange.
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Treasury admits it has no authority for “equivalent levels of reciprocal automatic exchange,”
hence needs new legislation (requested with FY14 Budget, next slide).
www.RepealFATCA.com
2013 World Credit Union Conference
July 15, 2013 – Ottawa
Administration’s request for new authority (in (Analytical Perspectives to the Fiscal Year
2014 Budget, page 202):
Provide for reciprocal reporting of information in connection with the
implementation of the Foreign Account Tax Compliance Act (FATCA). — In many
cases, foreign law would prevent foreign financial institutions from complying with
the FATCA provisions of the Hiring Incentives to Restore Employment Act of 2010
by reporting to the IRS information about U.S. accounts. Such legal impediments
can be addressed through intergovernmental agreements under which the foreign
government agrees to provide the information required by FATCA to the IRS.
Requiring U.S. financial institutions to report similar information to the IRS with
respect to nonresident accounts would facilitate such intergovernmental
cooperation by enabling the IRS to reciprocate in appropriate circumstances by
exchanging similar information with cooperative foreign governments to support
their efforts to address tax evasion by their residents. The proposal would provide
the Secretary of the Treasury with authority to prescribe regulations that would
require reporting of information with respect to nonresident alien individuals,
entities that are not U.S. persons, and certain U.S. entities held in substantial part
by non-U.S. owners, including information regarding account balances and
payments made with respect to accounts held by such persons and entities.
www.RepealFATCA.com
2013 World Credit Union Conference
July 15, 2013 – Ottawa
“D(omestic)ATCA”: Chances of Congressional enactment of new legislation for
“equivalent levels of reciprocal automatic exchange” are virtually zero
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Existing NRA regulations already under fire:
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Texas and Florida banks’ lawsuits.
Legislation in House (HR 2299) to block NRA authority (strong bipartisan support).
ABA opposition to NRA reporting to Mexico.
Letter to Sec. Lew from Rep. Posey: reciprocal reporting authority blocked.
Request for new authority is far more intrusive, burdensome than NRA; multiple
countries. A net revenue loser for the U.S. government.
FATCA’s costs meant to fall on FFIs: no appetite for massive, new domestic
regulatory mandate.
Overall gridlock in Washington, no “dark of night” passage like FATCA.
Congressional vendetta against IRS/Treasury, NSA scandal.
Only reason final rejection hasn’t been announced is lack of awareness of FATCA,
Treasury’s promises.
Underappreciated by FFIs and foreign governments: United States does not have a
parliamentary system. Treasury is not “the Americans” – Congress is too.
www.RepealFATCA.com
2013 World Credit Union Conference
July 15, 2013 – Ottawa
IGAs a potentially fatal problem for FATCA
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Paradox: FATCA is unenforceable (“wholly unachievable”) without IGAs, but . . .
. . . IGAs are provoking domestic opposition.
No reciprocity – no IGAs?
Race against time between Treasury and growing domestic U.S. awareness.
What will foreign governments do without reciprocity from the U.S.?
Window to get rid of FATCA is not long-since closed – in fact, is just opening as
problems become better known in the U.S.
“FATCA is not going away” – sez who?
Possible “train wreck” in 2014 if Treasury tries to enforce FATCA unilaterally. Who’s
more afraid of “pulling the trigger,” FFIs – or Treasury?
Will FATCA exist three years from now? Need to take advantage of vulnerabilities
before major damage inflicted on global financial system (including credit unions).
www.RepealFATCA.com
2013 World Credit Union Conference
July 15, 2013 – Ottawa
Mood building in the U.S. against FATCA – but slowly
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Rand Paul repeal bill S. 887 introduced in May, House expected; item for tax
reform package (2014, 2015?).
CUNA, taxpayer groups, liberals, Greens, expats, support FATCA repeal, oppose
new legislation for “reciprocal” reporting.
House rejection of new domestic reporting authority (Posey letter): cripple IGA
process, render FATCA unenforceable, set up for repeal.
Catastrophic Care Act, Dubai Ports: examples of sudden and dramatic collapses of
seemingly “solid” initiatives.
Biggest problem remains lack of awareness about FATCA in the U.S. But this is also
an opportunity to “brand” FATCA negatively with public, Congress.
Focus on harm to U.S. and Americans (jobs, consumers), which matters politically
in U.S., not impact on FFIs. Support needed for American repeal arguments.
The “FATCA Compliance Complex” (FCC): lawyers, accountants, software, media.
Disparity of resources: FFIs spending millions each on FATCA compliance, but as yet
nothing to help get rid of FATCA. That needs to change.
www.RepealFATCA.com
2013 World Credit Union Conference
July 15, 2013 – Ottawa
What should Credit Unions do?
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Option 1: Just comply – if they can (violation of human rights, data laws).
Option 2: Press for IGAs: protections uncertain, deprivation of business decision.
In the absence of an IGA, non-U.S. governments can resist: China, Swiss parliament.
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Don’t sign IGAs. Every IGA is a lifeline for FATCA.
Don’t allow foreign (U.S.) law to be enforced on an extraterritorial basis.
Don’t allow FFIs to submit to foreign (U.S.) law over domestic law.
If U.S. attempts unilateral enforcement: lawsuits, WTO actions, counter-sanctions.
Option 3: Aid in U.S. repeal effort: help us educate Congress, U.S. public.
Option 4: Some or all of the above: hedge their bets. If firms invested 1% of what
compliance would cost into repealing FATCA, could save the other 99%.
Relative costs and risks need to be assessed on individual firm and country basis.