Tax Cheats, Privacy Rights and Stiff Enforcement: A Matter of FATCA

By Sam Obenhaus

Does Americans’ right to privacy extend far enough to protect their hidden foreign bank accounts?  Will a law requiring foreign financial entities to disclose information on all American account holders lead those institutions stop doing business with Americans?  The Republican National Committee (RNC) says yes and voted to repeal the Foreign Account Tax Compliance Act (FATCA) at its winter meeting.

The Act was passed in 2010 but goes into effect this July.  Its principle objective is to make it harder for U.S. citizens – primarily those living within the U.S. – to evade taxes by stashing money in offshore accounts.  However, banks, libertarians, and non-resident U.S. citizens, among others, are all opposed to a law that some call “overzealous.”

The heart of the conflict, the burden on U.S. citizens living abroad, comes about because of the U.S.’s unique extraterritorial taxation system.  Unlike all other developed nations, the U.S. taxes its citizens living in foreign countries.  One legitimate concern is that these Americans will find it harder to find a local bank willing to deal with them because of the increased regulatory burdens imposed by FATCA.

Undeterred, the U.S. government is forging ahead and recently signed an intergovernmental agreement with Canada to facilitate the sharing of bank account information.  This is the 22nd such agreement.

You can see the RNC resolution here and an article about their vote over at Reuters.  Bloomberg BNA has an article on the U.S.-Canadian agreement.