Three years now since Congress passed the HIRE Act and with it the now infamous Foreign Account Tax Compliance Act (FATCA) which would require foreign FFI's (banks mostly) to report the accounts held abroad by U.S. citizens. James Jatras calls it "the worst law most Americans have never heard of." I've referred to it as "a road to hell paved in the service of one good intention."
Its original purpose was to expose American citizens living in the U.S. who might be hiding taxable assets abroad. Somehow in the making of this law it escaped the notice of Congress that there are around 6 million "regular folks" (Americans who live and work abroad as wives, husbands, teachers, managers, nurses, and so on) who are directly and adversely impacted by it. The consequences of this law for Americans abroad are very real and hit us right where we live. In some countries Americans are being shut out of local banks since the easiest way for financial institutions (foreign to the U.S. but local to the American expat) to avoid having to comply with U.S. reporting requirements is to "fire the customer." Not easy to live anywhere without access to a basic checking account and can you imagine the surprise (and horror) of these people when this happens just because they are American citizens?
Another impact has been on Americans who are married to non-Americans (mostly women). These foreign spouses are tainted by association. Not only is their financial privacy at risk since their "American connection" means that their information may soon be shooting off to the American IRS along with their spouse's but they too can be shut out of some banking services where the local bank doesn't want to take the risk associated with a "U.S. Person." This has led to some foreign spouses telling their American wives and husbands, "You can stay married to me or you can renounce your U.S. citizenship. Pick one." In other cases we've heard about the foreign spouse has simply taken the American spouse's name off their bank accounts thus rendering her completely dependent on her husband for cash in order to go about her daily business. Where the American spouse may be an older woman (often a stay at home mother) with children who she cannot bring with her if she is forced to return to the U.S., there isn't much choice here.
There are other impacts that I won't go into here but just go over to Isaac Brock Society or check out the ACA website for more information. Needless to say these things have not received much media attention back in the U.S. There are many reasons for this. Americans who lived abroad are not exactly viewed positively by people in the American homeland. We are assumed to be either rich tax cheats or a bunch of hippy-dippy lifestyle migrants who need to stop messing around and get their asses back home. Neither of the two main political parties in the U.S. (nor American lawmakers) want to touch us with a ten-foot pole given how we are framed in the media and in the imaginations of the homeland voters. Too much political risk for an uncertain return on their investment.
Another reason that was brought to my attention recently by a friend in the U.S. is that things basically suck right now in the U.S. and homelanders are having a very hard time. There are some hopeful signs that the economy is recovering but there are still many people un- or under-employed and the fights over the budget, immigration, and many many other contentious topics are leaving an already tired and fearful American public reeling. Given that FATCA does not directly impact them right now (though I think that is going to change very soon), it's understandable that they don't want to divert any mental energy into considering the problems of people who are not actually living in the U.S. - people they tend to not like much anyway.
That said, those of who who do live outside the U.S. and are impacted by FATCA (and citizenship-based taxation) are fighting this. Aside from writing lots of letters and articles and responding to the latter on the Net, we basically have two possible courses of action: lobbying and protest.
Lobbying: There are American diaspora groups that are working on this. One is ACA (American Citizens Abroad). There is also the AARO (Association of American Residents Abroad). These are the two that are most widely known and both work within the U.S. system to try to effect change. They prepare position papers and proposals - ACA has a very fine one that argues for a system of residence-based taxation to replace the actual citizenship-based taxation system we have now. They also offer services like AARO's Tax Seminars which I've been told are excellent. Both try to mobilize Americans abroad to support initiatives like Congresswoman Carolyn B. Maloney's H.R. 597
Commission on Americans Living Abroad Act. Both were present in Washington recently to directly lobby U.S. lawmakers during Overseas American Week.
All good stuff and I'm one who supports their efforts. However, it is not clear how effective they are at mobilizing the 6 million Americans living abroad. Yes, they have access and frankly, they are the only representation we have in the belly of the beast that is the U.S. government. Some of it is a communication problem (which they are addressing with forays into social media and updated websites) but it's also a sense that they are something of a private club, the inner workings of which are completely opaque to those of us looking at them from the outside.* That is a perception that may have no basis in reality but it still matters because when one has to make a decision to join or not, that may be all one has to go on. If I may also address the elephant in the room, there are two of these organizations, so there is the question of which one to join. Anytime someone has to make a choice like that it slows down the decision-making process (or cuts it off completely). What's the difference between them? Should one join one or the other or both? It's confusing and I think an impediment to Americans abroad joining either of these organizations.
Another issue is that of direct action other than lobbying and letter-writing. Neither of these organizations call for things like demonstrations. Why is that? Well, some of it surely has to do with not annoying the American government too much. Organized protests in front of a few American embassies around the world would certainly get a lot of attention but it would most likely get the American government and public really angry, especially if the international press or foreign governments used it in ways that would not be helpful to American interests. There is also the problem that many American abroad really would rather not go public - they may have unresolved compliance issues or they may simply think that it is not wise to make themselves targets for retaliation. Okay, it's not like Obama will send a drone or the Marines to take them out but what about audits or problems getting a passport to come home and see the family, and stuff like that? And for those who have decided to quietly relinquish or renounce, what would be the point?
Protest: Those are a few of the problems with direct action like demonstrations. But are there other options? Yes.
Pressure on local government: FATCA can't work if foreign governments don't agree to it. So some people are writing letters and lobbying not only U.S. lawmakers but also local representatives. This is most effective, of course, where the American citizen in question is a dual citizen. In Europe some people are not only talking to their local lawmakers in their country of residence but also to the European Union. The Canadians are also very active in fighting this - they are writing letters to people like Jim Flaherty, the Canadian Finance Minister, and attending forums where they can directly ask questions about what the Canadian government will do to protect its citizens. Is this working? Well, please note that Canada has not signed a FATCA intergovernmental agreement with the U.S. and that is a big problem for the U.S. government.
Litigation: It's probably not realistic for Americans to fight FATCA in U.S. courts, nor is there much hope for legal action on the international level. However, where FATCA conflicts with local law (privacy or anti-discrimination rules) there is the possibility of taking the local government to court if they allow FATCA to go forward in that country. In this letter Canadian constitutional scholar, Peter Hogg, talks about the ways that FATCA violates the Canadian Charter of Rights and Freedoms. I'd say that given the level of anger about FATCA in Canada and the growing public awareness of what this legislation means for Canadians, someone will sue the Canadian government if they try to implement it. I believe that European dual citizens will do the same.
Renunciation/relinquishment: This is still on the table for a lot of people and you have to wonder if the wave of U.S. Citizens trying to get compliant is not a sign that people are willing to submit to U.S. tax and reporting requirements, but rather prudent preparation for the day when FATCA becomes a reality in their lives and they can get to the U.S. Embassy to shed their U.S. citizenship without too much hassle (the rules are that an American must be tax compliant before he or she can renounce.) The Isaac Brock Society continues to be the place to go for information on how to go about this and more importantly they provide moral support to U.S. citizens who are living in fear, feel deep anguish over the choices they must make, and who feel a deep frustration with the American government, the American public and even those diaspora organizations I mentioned above.
The Secret Americans: Try to imagine for a moment the position of an American citizen or a U.S. person evaluating this situation and trying to formulate a personal strategy to meet it . Can't figure out which diaspora organization he or she should join (and not sure that would be a good use of money in any case). Doesn't see any hope that the U.S. government or public will wake up anytime soon. Gets upset every time he or she sees an article that implies that he is a criminal, a rich tax cheat, a Benedict Arnold, and a selfish, ungrateful, immoral human being. Sees his or her local government joining the FATCA bandwagon with great enthusiasm (the UK is a good example here). Too afraid of the U.S. government (and maybe the local one too) to go public and work for change. Doesn't see how he or she could even get compliant if he wanted to without taking terrible risks (going to jail, paying exorbitant fines, draining the retirement accounts to pay an expensive international tax lawyer and so on).
Faced with all this I think (and Peter Spiro already raised the possibility on Opinio Juris) that a lot of American citizens abroad impacted by FATCA and citizenship-based taxation are......
They are continuing to live their lives abroad with one eye on the media reports and the other on a Plan B. They won't come forward but they won't renounce either. Instead they are trying to figure out ways to get off the radar like switching over to a local credit union if their banks kick them out or allowing their spouses to take their names off the joint accounts and closing the personal ones. Stuff like that. I wouldn't underestimate their creativity - after all, adversity is the mother of invention.
Then they just put the U.S. passport in a drawer and fuhgeddaboudit. Forget about going to the States on vacation, don't register the kids with the U.S. Embassy and never EVER tell anyone in the country of residence their citizenship status unless it's absolutely necessary. Move full speed ahead with integration into the host country. No more being an unpaid ambassador or arguing the finer points of American politics with the locals - forget being an American abroad and be French, Chinese, German, Venezuelan. Cut off the American family still living in the U.S. (or tell them that they have to buy a plane ticket to come see the nieces, nephews, siblings, cousin and grandkids). Take the children out of any American cultural organizations or schools and if they are young enough, don't even tell them they are American. If they were born abroad, they may never have to know.
Is this doable? Maybe. It is a calculated risk but I think it's one that many are taking. This is not the path I've chosen but may I say that I sympathize with them and I completely understand why someone would do this. Look, folks, if the American government can't give these people a clear palatable path to follow and they don't see any way out of this terrible conundrum, then don't be surprised if they clear one for themselves using whatever resources are available to them.
And, who knows, perhaps one day things will be better and they (or their children) will be able to come out of the closet and be Americans again.
(*I just read my email and there is an outstanding letter from ACA in my inbox detailing their efforts and accomplishments in this fight. This is exactly what is needed. Bravo. Also they recently re-designed their website and I had a look when I was writing this post. Much much better. I encourage everyone to go have a look. Here's the link again: American Citizens Abroad.)