By Jon Matonis
Thursday, May 23, 2013
Last month, I warned
that the Foreign Account Tax Compliance Act, an attempt by the U.S. to
impose reporting burdens on other countries’ banks, would produce blowback for domestic financial institutions. Credit unions, at least, are worried.
The powerful Credit Union National Association has thrown its support behind Senator Rand Paul’s bill to repeal the anti-privacy provisions of this heavy-handed law. “We share your concern that FATCA, if left in place, will impose billions of dollars of compliance costs on U.S. credit unions and banks annually,” Bill Cheney, CUNA’s president and CEO, wrote
to Sen. Paul on May 8. “We are also concerned that FATCA and
FATCA-related intergovernmental agreements with foreign nations
undermine the constitutional privacy rights of U.S. credit union members
and bank customers.”
Cheney went on to emphasize the fear of reciprocation by foreign governments for Washington’s overreaching.
is also concerned that the European Union is considering adopting a
‘European FATCA’ which would regulate U.S. credit unions and banks in
the same manner that the United States’ FATCA purports to regulate
credit unions and banks in the European Union,” he wrote. “Unless
Congress repeals FATCA, we think that it is only a matter of time before
the extraterritorial diktats of a European FATCA and other
FATCA-inspired foreign laws become additional compliance burdens on U.S.
financial institutions.” As the largest credit union advocacy
association in the United States, CUNA represents nearly 90% of America’s 7,000 state and federally chartered credit unions and their 96 million members.
Sen. Paul has cited the destructive effects of the law and questioned its legitimacy as a tool to combat tax evasion, arguing
that “FATCA has had the practical effect of forcing [foreign financial
institutions] to relinquish any association with American customers, and
to avoid direct investment in the United States. Perhaps even more
troubling, the implementation of FATCA has allowed the Treasury
Department to make independent decisions with respect to the sovereignty
of foreign nations and the privacy of United States citizens.”
CUNA’s support for rolling back FATCA follows a move on March 27 by the World Council of Credit Unions,
which represents member-owned cooperative nonprofit lenders in 100
countries. Michael S. Edwards, the council’s vice president and chief
for full repeal of the law, similarly citing the boomeranging costs of
FATCA from foreign institutions to domestic U.S. entities like credit
By comparison, the credit unions’ banking brethren have been subdued in their resistance to FATCA. Texas and Florida banks have sued
to block a regulation requiring them to tell the IRS when they pay
interest to nonresident aliens, and the American Bankers Association has
urged the agency to spare certain products and balances from reporting requirements.
Aside from the credit unions, many in Washington are weighing in on the matter. In its 2014 budget, the administration buried
a request for Congress to authorize the Treasury Department to issue
unprecedented regulations requiring U.S. financial institutions to
report information on nonresident accounts for the IRS to share with
foreign governments. This plan may be dead on arrival.
According to the White House’s “Analytical Perspectives to the Fiscal Year 2014 Budget,”
“the [budget] 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
Without such authority, the Treasury Department
will be unable to follow up on its promises that have been a part of the
already-negotiated “intergovernmental agreements.” The IGAs have been
instrumental in persuading foreign governments to enforce FATCA on
themselves in exchange for imposing FATCA-like mandates domestically in
the United States. But the agreements are an unauthorized creation of
the U.S. Treasury Department, according to McGill University law
professor Allison Christians, author of a recent Tax Notes International article, “The Dubious Legal Pedigree of IGAs (and Why It Matters).”
George Jatras of RepealFATCA.com calls Sen. Paul’s bill “a major
game-changer.” He also predicts Congress will fail to legislate the
necessary reciprocity authority to rescue the flawed statute. “With the
wind in Washington now blowing against FATCA, foreign governments are on
notice that Treasury’s promises of ‘reciprocity’ are plain rubbish,”
according to Jatras.
Though Sen. Paul’s bill aims to repeal only
certain anti-privacy provisions of the FATCA legislation and a companion
version is expected in the House, he has also been holding up Senate approval of all tax treaties since he was elected in 2010.
encourages all international firms to get involved, adding that
“American and non-U.S. firms that stand to lose millions of dollars each
complying with FATCA need to help push the repeal bill through. FATCA
repeal needs to be part of any tax reform.”
With a litany of
bipartisan reasons to oppose FATCA, ranging from privacy and sovereignty
to U.S. economic competitiveness, it is startling that the legislation
has advanced as far as it has. The situation speaks volumes about the
opaque process of continually “hiding” the specifics of putting laws
into practice in other legislation, resulting in the nearly seven-year
implementation timetable. AT THE INTERSECTION OF FREE BANKING, CRYPTOGRAPHY, AND DIGITAL CURRENCY
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