FATCA Is Stealing Your Freedom

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On March 18, 2010, the American people lost their freedom.

The year prior, Senator Max Baucus (D-MT) and Representative Charles Rangel (D-NY) introduced the Foreign Account Tax Compliance Act of 2009 to Congress. When the bill failed to get traction, they got creative.

An appropriations bill sponsored by Senator Harry Reid (D-NV) known as the HIRE Act (Hiring Incentives to Restore Employment) was scheduled for a vote around the same time.

Often referred to as the "jobs bill," these clever politicians knew Congress would pass the act given the recession affecting the economy. So they piggybacked it.

The Foreign Account Tax Compliance Act (FATCA) was added as an amendment and signed into law by President Obama on March 18, 2010.

If, like most Americans, you're not intimately familiar with the law... don't worry - I doubt that Congress fully understood what they were signing either.

FATCA was designed so the IRS could collect missing tax revenues being hidden overseas.

No surprise there. Almost every law passed today does one of two things - increase taxes or decrease personal liberties.

Congress really outdid themselves with FATCA by simultaneously achieving both.

In order to locate the suspected hidden accounts and make sure Uncle Sam is getting his cut, the law takes breathtakingly drastic measures to keep tabs on U.S persons, both resident and non-resident.

The Foreign Account Tax Compliance Act requires United States persons (including those living outside the U.S.) to have the full details of their non-U.S. financial accounts reported to the Financial Crimes Enforcement Network on an annual basis.

Yes. Financial Crimes Enforcement Network.

Additionally, and here's the even crazier part, the law also requires foreign financial institutions (banks, stock brokers, hedge funds, pension funds, insurance companies, trusts, etc.) to provide annual reports to the Internal Revenue Service.

These reports must include the name, address, peak account balance and total debits and credits of every single account believed to be owned by a U.S. person.

You might be thinking - why would a Chinese bank comply with some U.S. banking law? What do they care?

The fine members of 111th United States Congress thought of that too.

If an institution fails to comply with FATCA rules, the U.S. will impose a 30% withholding tax on all outbound withdrawals from their American investments accounts.

So the alternative is no longer being able to invest in the American stock market. With trillions in customer investments allocated to U.S. markets, most institutions reluctantly complied.

And if it sounds like this headache is entirely directed at foreign institutions, wrong again.

All U.S. citizens (even green card holders) with foreign financial assets in excess of $50,000 are now required to complete Form 8938 and file it with their 1040. This form must detail all owned foreign accounts including amounts, locations, interest and dividends received, royalties, gains and losses.

The government might as well ask for all of our online passwords as well (as if the NSA needed them).

I could not disagree with the FATCA law any more if I tried. On principle alone it is an overreaching piece of legislation aimed at full financial transparency around the globe.

A non-profit group called American Citizens Abroad had this to say:

"FATCA constitutes a breathtaking extension of U.S. legislative overreach, purporting to impose upon every foreign financial institution, corporation and partnership the obligation to examine whether and to what extent it must adhere to the application of U.S. law."

But even those that initially supported FATCA are beginning to see the adverse effects. Most notably is the cost.

The cost to implement this massive reporting bureaucracy is estimated to be in the billions for foreign and domestic financial institutions.

According to a 2012 report by the Banking Federation and the Institute of International Bankers, it will cost the top 30 foreign banks $7.5 billion a year to sift through their accounts and identify those held by Americans.

Some estimates put that figure as high as $15 billion.

Compare that to the Congressional Joint Committee on Taxation's estimate of $792 million per year in additional tax revenue.

Congress obviously couldn't be bothered to perform a simple cost/analysis benefit study before drafting this big brother mockery of a law.

Smaller institutions with fewer U.S. account holders seem to be getting hit the worst.

Australia estimates a cost of $482 million to locate roughly 77,000 accounts owned by U.S. citizens. That's $6,270 PER ACCOUNT.

Germany is projecting a similar figure of 6,300 Euros per residing U.S. citizen.

Remember, this includes checking and savings accounts.

I worked for banks and broker dealers for years. There is almost no way these financial institutions are earning that much money on their average customer.

Despite what the White House would like you to believe, most of the Americans affected by this law are not billionaire tax evaders.

According to the Association of Certified Financial Crime Specialists, 82% of US persons filing don't even owe any U.S. taxes.

Due to these prohibitive enforcement costs imposed on foreign institutions, some economists are predicting a period of "capital flight," i.e. the rest of the world says the heck with U.S. investments.

The primary enforcement measure used to force these institutions to comply is the previously mentioned 30% withholding levied against U.S. assets. This creates a very strong incentive for foreign financial institutions to divest from American stocks and bonds and no longer transact business on U.S. exchanges.

Some foreign banks have already indicated their intention to do so.

The Japanese Banking Association's comments to the U.S. Treasury could not have been more clear:

"In the event that the implementation of FATCA is not practically feasible for the Japanese financial services industry, it would result in substantial confusion in the industry and could ultimately lead Japanese financial institutions to withdraw their investment from U.S. financial assets."

If this becomes a global trend, our financial markets could face a serious collapse.

Foreign investment in U.S. securities exceeds $10 trillion according to the Bureau of Economic Analysis.

That's more than half the market capitalization of the Nasdaq and NYSE combined.

Making the United States less attractive for foreign investment puts the wealth of millions of Americans at risk.

The only country that might be excited about this legislation is China.

China has the possibility to circumvent FATCA by passing foreign currency transactions through government-owned banks, as this category of bank is exempted from FATCA regulations.

This provides China with a unique competitive advantage over publicly and privately owned banks in the rest of the world.

It also provides the Chinese nation an opportunity to transform the Yuan into a more attractive reserve currency for international transactions.

It is well documented that the Chinese want to develop an alternative to the U.S. dollar domination in international transactions. FATCA provides the Chinese with a perfect platform for doing just that.

If FATCA remains in effect, the United States will continue to suffer.

A very possible consequence of this law will be the creation of a two-tier banking system - an upper tier of the larger financial institutions who can afford to comply with the FATCA legislation and continue to deal with U.S. financial institutions and a lower tier, which will refuse to do so.

The latter group will create a new underground banking system for precisely the undesirable transactions that the legislation was designed to curb in the first place.

FATCA is not a Republican issue. It is not a Democrat issue. FATCA is an American issue and the latest step in the federal government's campaign to strip the financial liberty of the U.S. population and maintain control on our nation's wealth.

It's no wonder the number of Americans giving up the U.S. citizenship has risen by more than 6-fold.