FATCA: The Sleeper Election Issue for 9 Million Americans

Democrats own FATCA, which is wreaking havoc with even basic financial services available to Americans abroad.  Those nine million Americans are feeling its effects, and they are not happy.  Expect them to vote accordingly.

This column was originally published in American Thinker

Surprisingly large numbers of Americans live abroad.  According to State Department figures, nearly 9 million U.S. citizens currently reside in foreign countries.  If “Abroad” were a state, it would be America’s 11th most populous.

Most election years, these voters are not particularly noticeable: they do not vote as a bloc, but are divided according to their respective states of registration; and their vote is not unified, as a variety of issues affect them and their respective countries of residence.

This election, however, may be different.  There is a single issue unifying the usually-disparate overseas vote, and likely to turn that vote decidedly Republican:  the need to repeal “FATCA,” the 2010 Foreign Account Tax Compliance Act.

If you’ve never heard of FATCA, you are forgiven.  FATCA does not affect domestic voters, and won’t show up on any pollster’s list of important issues.  But for Americans in foreign countries, FATCA increasingly wreaks havoc with their businesses and access to basic financial services, not to mention their privacy rights.  If those Americans were polled, FATCA would surely top the issues list.

What is this benign-sounding law that has Americans abroad so agitated?

FATCA was initially conceived to combat offshore tax evasion and recoup tax revenues, requiring U.S. citizens, including those living abroad, to report all financial accounts held outside the country—an arguably reasonable purpose and measure.   But the Democrats took that simple, targeted goal and addressed it by trapping every American abroad in an insanely expensive regulatory dragnet of questionable legality.

FATCA doesn’t simply target a few suspected tax cheats; instead, it requires each and every foreign financial institution (“FFI”), including banks, brokerages, pension funds and insurance companies, to annually identify and  report to the IRS all clients who are “U.S. persons” (a broad category, including businesses where even one American has signature authority on a financial account), and to turn over to the IRS detailed information on each client’s total assets, account balances, transactions, account numbers and other personal identifying information.  Any noncomplying institution faces draconian penalties, including the withholding of 30% of U.S.-sourced income.

In essence, FATCA coerces FFIs to become IRS lackeys, making them conduct wholesale warrantless seizures of Americans’ private financial information on behalf of the IRS, without any reasonable suspicion or probable cause.  The extent of the information collected and disclosed to the IRS is far more intrusive than would be tolerated by law-abiding Americans at home.  By having the FFIs do their dirty work, the IRS sidesteps issues of constitutional violations and privacy rights of American accountholders.

Furthermore, the FFIs must comply with these requirements at their own significant expense.  As FATCA regulations have metastasized into hundreds of dense, complex pages that must be followed to the letter by each individual institution (mostly in non-English-speaking countries), implementation and administration costs have skyrocketed, and are projected to run over $100 billion worldwide.

All of this effort will allow the IRS to collect—get ready—some $790 million annually (according to optimistic estimates), enough to fund the federal government for perhaps 90 minutes.

Of course, many FFIs have figured out how to avoid spending those thousands of dollars per U.S. customer in order to comply with FATCA: they jettison their American clients. Financial institutions worldwide are slamming their doors shut on Americans and their businesses, denying even basic financial services such as checking, mortgage and brokerage services.  American customers are simply not worth the hassle.

Furthermore, as even a single American signature on a corporate bank account triggers FATCA reporting obligations, Americans abroad now face discrimination from foreign employers and the loss of job opportunities and promotions in multi-national corporations seeking to avoid expensive FATCA compliance.  FATCA is forcing Americans operating overseas businesses requiring foreign financial services to choose between citizenship and livelihood, leading to a record-breaking surge in renunciations of U.S. citizenship.  Thanks to FATCA, American citizenship, once prized and envied, is becoming an albatross.

This is inexcusable.  Americans currently living abroad, like their compatriots at home, are overwhelmingly honest, productive, hard-working citizens.  They are not 9 million money-laundering criminals.  Yet, FATCA assigns these Americans a presumption of guilt.

FATCA also mandates a new IRS database for that collected sensitive information, plus the hiring of 800 new IRS agents (there goes another $100 million annually).  Many resent giving the IRS additional power and control over private information, particularly at a time the IRS has shown itself willing to abuse its power for political purposes.

Of course, FATCA data collection and wholesale disclosures to the IRS also expose Americans’ private financial information to certain countries’ unscrupulous governments, not to mention the goldmine created for identity thieves.

The Democrats own FATCA.  They rammed it through the 2010 Democrat-controlled Congress by a razor-thin margin as a revenue accounting gimmick, supposedly offsetting tens of billions of dollars of pork-barrel spending.  It was passed without a single Republican vote, and without the usually-mandatory Congressional cost/benefit analysis, floor debate or amendment process.  It shows.

Republicans, by contrast, continue to fight FATCA on multiple fronts.  Spurred by Republicans Overseas International, leading Republicans filed a federal lawsuit challenging FATCA on constitutional grounds (currently winding its way through the appeals process), and the 2016 Republican Party Platform calls for FATCA’s repeal.  Congressman Mark Meadows (R-NC) recently introduced a bill to repeal FATCA, and the House Oversight and Government Reform Committee is planning FATCA-related hearings. Republicans in Israel succeeded in postponing Knesset approval of FATCA’s implementation on grounds of privacy violations and discrimination based on national origin, taking these arguments all the way to the Israeli Supreme Court.

The Democrats, meanwhile, have been AWOL from the fight to repeal FATCA, and voters abroad know it.

Of all the laws enacted by the Obama Administration and Congressional Democrats, FATCA stands out for its mindless inefficiency, counterproductivity, and bureaucratic abuse.  Nine million Americans abroad are feeling its effects, and they are not happy.  Expect them to vote accordingly.

Abe Katsman is an American attorney and political writer living in Israel.  He serves as Counsel to Republicans Overseas Israel.

This column was originally published in American Thinker


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