It bemuses me that a certain type of commentator will often – sometimes rightly – be angered at the over-reach of Western powers’ foreign policy but be quieter about other, less obvious, intrusions if they happen when a more leftist government happens to be in power. And a lot of this sort of double-standard occurs with the United States.
Such critics appear to have been silent on the following issue: under the current Democrat presidency of Mr Obama, the US last year passed a stunningly badly crafted piece of legislation, known as FATCA (Foreign Account Tax Compliance Act). The law was passed at a time of what can best be described as hysteria about the amount of money that Americans were allegedly stashing abroad in places such as Switzerland, the Bahamas, the Caymans, and so forth. The major governments of the world, such as the US, Germany and UK, fondly imagine that there is, so to speak, a huge pot of gold that got lost down the back of the sofa.
What FATCA does is require any financial institution that is believed to deal with expat US citizens and Green Card holders to provide a great deal of information to the Internal Revenue Service. In other words, all manner of financial institutions, ranging from big banks to small investment boutiques, must prove to the Internal Revenue Service’s satisfaction that they have not got US citizens/GC holders on their books if they want to be unmolested by the IRS’s powers. If they have such clients or invest into the US stock market, etc, they must provide huge amounts of additional reporting data to the US. “Foreign Financial Institutions” must report investors who are taxable in the US to the US tax authorities. If they fail to do so, they pay a 30 per cent withholding tax. And proving that someone is, or might be, a US citizen might be hard, particularly if that person has been living outside the US for decades, and there is not much paperwork going back, say, 30 years.
This is a quite stunning extension of the IRS’s power around the world, affecting European, Asian, African, Latin American and other regions’ banks, who may have been blissfully unaware that some of their clients had, at any point, a US “taint”. And I am frankly astonished that not more has been said by non-US governments about this; however, given that governments such as those of Germany have resorted to the dubious practice of paying for data stolen from Swiss banks, I have no great hopes that respect for sovereignty or the rule of law applies.
The net effect of this law will be to make it even less likely that banks and other firms will want to touch Americans living outside the US due to the heavy compliance cost. The law will be a blow against globalisation and business growth, as this article at Forbes makes clear. It will be even less profitable for firms to deal with Americans if they live abroad. Those US nationals working in the City of London, for example, will find it is harder to open a bank account, manage a mutual fund or get insurance. A former US colleague of mine is in a nasty predicament. When I called the US Embassy here about the matter, I received nothing but blank ignorance.
FATCA is yet another blow against the free movement of people around the world, and will be particularly tough on the middle class, hard-working professionals who don’t have access to the flashiest lawyers and advisors. The super-rich and well-connected will, of course, be okay. I doubt that someone like the US Ambassador or military types serving abroad have even heard of it. (The US military tends not to be affected by such legislation anyway, although you can never be sure. If any serving personnel do get hit, it would be good to know the details).
It is sometimes said, by a certain type of sneering European or self-hating international travelling American, at how bad it is that all those ghastly, ignorant hicks don’t hold passports. Well, part of the reason is that getting a passport is a bureaucratic nightmare in the US. Another is that the US is a big and beautiful place with so much to see that why would any sane American want to leave for any extended period of time? But another reason is that the IRS, which is out of control, is making the process of being an expat a waking nightmare.
As for whether politicians of any kind, including the Tea Party crowd, give a flying f**k about this issue, is unclear. There may be few votes in it, but I would have more respect for supposedly libertarian-leaning GOP members such as Ron Paul, his son, or one or two others, if they could be persuaded to lobby for wholesale repeal of this atrocious piece of legislation.