FATCA, enacted by Democrats in 2010, is an indiscriminate information dragnet requiring — under threat of extraterritorial sanctions — all non-U.S. financial institutions (banks, credit unions, insurance companies, investment and pension funds, etc.) in every country in the world to report data on all specified U.S. accounts to the IRS.
No proof or even suspicion of wrongdoing is required. The 2016 Republican Platform rightly called for FATCA’s repeal as an unconstitutional “warrantless seizure of personal financial information without reasonable suspicion or probable cause.”
FATCA supposedly is aimed at “fat cat” American tax cheats with money stashed abroad but does not include a single provision targeting actual tax evasion.
It has not yielded significant revenue recovery while imposing crushing compliance costs worldwide. FATCA’s only beneficiaries are the army of lawyers, accountants and software vendors who are making a fortune on it, with the costs passed onto consumers. It is a perfect example of the kind of wasteful, indiscriminate and counterproductive regulation Trump has promised to roll back.
Repeal of FATCA is a must-include item in a tax reform package Congress will send to President Trump’s desk in 2017. But while that package takes shape, there is something the incoming administration can do on its own authority as soon as the new president takes office, consistent with Trump’s pledge to reverse his predecessor’s extravagant abuse of his executive authority: He can nullify a series of unconstitutional fake treaties that outgoing Treasury Secretary Jack Lew (and before him, Timothy Geithner) used as a mechanism to implement FATCA.
This requires some short explanation. In addition to its other defects, FATCA is also one of the worst-drafted pieces of legislation this veteran of over 17 years working at the U.S. Senate has ever seen. Evidently no one noticed prior to enactment that the law’s central requirement — that hundreds of thousands of foreign firms outside of U.S. jurisdiction in almost 200 countries turn personal data directly over to the IRS — would be unenforceable under most countries’ privacy laws. Even supporters of FATCA concede it is “wholly unachievable” as written.
Accordingly, after FATCA became law, the Obama Treasury Department figured out that the only way it could work at all would be to pressure foreign governments to enforce it against their own citizens and to abrogate their domestic privacy protection laws to do so.
This was done through a series of bilateral “intergovernmental agreements” for which Treasury has no statutory authority, under either FATCA itself or any other law. While these agreements read like treaties and are duly ratified as such by foreign “partner” governments, they are not submitted to the U.S. Senate for its advice and consent under the U.S. Constitution.
In short, these agreements are purely distilled examples of Obama and his underlings using their respective pens and phones to create the appearance of legality where none exists. Dozens of such agreements have been signed and more are in the works.
But wait, it gets even worse! As a sweetener to induce countries to agree to sacrifice their sovereignty and to place their financial sectors under Internal Revenue Service (IRS) supervision, Treasury offered, also without statutory authority, “reciprocal reporting” from domestic U.S. institutions to foreign governments.
This would hit U.S. banks, credit unions, insurance companies, mutual funds, etc. with costs comparable to those FATCA inflicts abroad, extracting billions of dollars from American consumers and taxpayers and spurring job-killing capital flight from the United States.
Several attempts by the Obama administration to sneak through legislation for FATCA reciprocity have been blocked in Congress. But as long as the law remains on the books and the implementing agreements remain in force, they hang like a sword of Damocles waiting for the next Democratic administration to press forward.
The illegitimate FATCA agreements include a provision for one year’s notice of termination, which Trump’s Treasury secretary can issue upon taking office.
Even better, the Trump White House’s Office of Management and Budget could also immediately issue a determination declaring the agreements null and void on the grounds that the Obama administration had exceeded its legal authority in making the agreements in the first place.
That would effectively gut FATCA and put foreign governments on notice that the U.S. is pulling the plug on it, pending enactment of a tax reform bill that includes final repeal of what I have called “the worst law most Americans have never heard of.”
James George Jatras is a former U.S. diplomat and foreign policy adviser to the Senate GOP leadership. He edits www.RepealFATCA.com and recently published a major study, “How American Media Serves as a Transmission Belt for Wars of Choice.”
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