Rand Paul

Rand Paul and Five Expats Sue the Feds Over FATCA

Challenge asserts that the IRS can't rifle through the bank information of Americans just because they live abroad


Prepare … to … COMPLY. ||| IRScompliance.org

As has been noted frequently in this space, the odious 2010 Foreign Account Tax Compliance Act (FATCA), which requires foreign banks in U.S.-friendly countries to cough up information about and sometimes money from their American customers, has led to the predictable result of said financial instituions treating Americans like radioactive lepers. It's not much fun to live in a country where you can't open a bank account, and so record numbers of U.S. citizens—more than 14 per day, at last count—are simply turning in their passports.

Renouncing one's citizenship can be a "gut wrenching experience," so even though many of the estimated 7.6 million Americans living abroad have thought about permanently alienating themselves from the motherland, others are looking for ways to fight back.

In mid-July, Sen. Rand Paul (R-Ky.) joined five American expatriates (who between them live in Canada, the Czech Republic, Israel, and Switzerland) in a lawsuit [PDF] against the Treasury Department, the Internal Revenue Service, and the U.S. Financial Crimes Enforcement Network. The suit challenges FATCA, among other reasons, on grounds of unconstitutional executive-branch overreach (having to do with post-FATCA bilateral agreements about bank-info-sharing between the feds and foreign governments), and for violating the Fourth and Fifth Amendment rights of citizens living abroad. From the complaint:

These provisions permit the federal government to conduct wide-ranging, indiscriminate searches of the private financial records of American citizens held by foreign financial institutions without providing any opportunity for judicial oversight. Such unbridled discretion to pry into the private financial information of American citizens violates the Fourth Amendment […]

These reporting requirements are unconstitutional to the extent that they require U.S. citizens living abroad to report more detailed information about their local bank accounts than U.S. citizens living in the United States. While the local bank accounts of citizens in the United States are only subject to reporting of the amount of interest paid to the accounts, the local bank accounts of citizens living abroad are subject to reporting of a much broader and more intrusive set of information. Citizens holding local bank accounts in foreign countries must report, or allow their bank to report, not only the amount of interest paid to their accounts but also the amount of any income, gain, loss, deduction, or credit recognized on the account; whether the account was opened or closed during the year; and the balance of the account. This violates the core principle of equal protection guaranteed by the Fifth Amendment. The fact that the accounts of U.S. citizens living abroad are maintained at foreign financial institutions is not sufficient to justify the greater intrusion into their private financial affairs.

Good on Rand Paul. For more on the suit, see Bloomberg and Power Line. Thanks to Advice Goddess Amy Alkon for the tip.

NEXT: As Republicans Go Batshit on Immigration, Democrats Turn Into Sweet Angels

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Good luck to them.

    It’s not right the U.S. government squeezes its citizens this way.

    1. It’s not right the U.S. government squeezes its citizens this way.

      I simplified it for you.

  2. I don’t buy that Rand can do more good in the Senate than the White House, but at least he’s doing some amount of good somewhere.

    1. Rand could spend 30 years in Senate. As POTUS he’s out after 8 years and becomes a caricature of himself like every ex-POTUS.

  3. I really hope this succeeds in ratcheting back the concept of the US expecting anyone, anywhere to cough up all their information just so the feds don’t miss an errant dime.

  4. *peers onto crystal ball to see what the likely ruling will be*

    I see… something about 3rd party doctrine… legitimate tax power… something else about commerce clause… and of course, because FYTW.

  5. This violates the core principle of equal protection guaranteed by the Fifth Amendment.

    And the obvious legal solution is to subject the bank accounts of those living in the U.S. to the same level of scrutiny!

    1. Simpson, you diabolical…

    2. Simpson, you diabolical…

  6. Just when I was starting to lose confidence in Rand, he goes and redeems himself. Possibly the only guy who makes me hope he makes a long career of politics.

    1. He’s good on financial liberty but a cultural conservative.

      1. And, I should add, in the pockets of the evangelicals.

  7. FATCA is nothing more than a cash grab under the guise of a money laundering tool. It is effectively impossible to open a bank account in Mexico with dollars now. Its screwed over dozens of people I know

    1. FATCA is much more than just a cash grab.

      It is a capital control.

      Sure, the IRS gets to do a one-time cashectomy on foreign account holders. But the perniciousness does not end there. FATCA effectively prevents all but the super-wealthy from establishing a bank account outside of the US.

      I know first hand that it was a simple matter in the 70s and 80s to open a bank account at a reputable bank that was not subject to US reporting requirements. It was also very simple to comply with US disclosure laws if you did.

  8. I have a feeling this suit is doomed to fail on grounds of lack of standing. Just as suits against the NSA’s data-mining projects have been remanded or dismissed for failure to prove actual damage, this one is likely to see the same result, unless the plaintiffs can somehow demonstrate they have sustained real damage from FACTA.

    1. The ex-pats should have standing as long as they (or their foreign banks) have had to turn in one of these reports. That’s the demonstrable harm needed.

      1. Not a lawyer, but even if they have standing can they demonstrate damages? And if not, they lose the suit? And does that do more harm than good when the emboldened decide to apply this to every American domestic account? Of course, the bastards are probably already poring over my bank and credit card statements…..thanks “Patriot” Act.

        1. Not a lawyer either, but if they’ve had banks turn them down or close their accounts, that’s clear damages. As for the other, that is a risk — assuming they’re not doing it already.

          Warrant? We don’t need no stinkin’ warrant!

          1. Have family properties in Mexico that law requires homeowner’s to take over management of the property (via either HOA or master association.) Many in the development want to shitcan the current management company, but will probably have to keep them because of the inability to start new Mexican accounts with dollars (all HOA fees are paid in dollars but expenses are doled out in pesos.)
            In addition, the fee for cashing American checks is 26 dollars and rising

    2. FATCA*

    3. It will also fail due to the Fuck You That’s Why clause of the Slaver Clause of the Commerce Clause.

    4. Expats can produce rejection letters that cite their would-be bank’s refusal to serve US citizens as evidence of harm.

  9. It bothers me enormously that they couldn’t slap a “T” on the end of that acronymn and just call it what it is…

  10. One possible outcome if ADCS wins the suit in Canada is, banks will have a choice whether to comply with FATCA or not, and somebody will need to open a new Canadian bank that will not comply with FATCA and will have no exposure to U.S.A. laws, no branch in the U.S.A. and no assets in the U.S.A. Cheques in Canadian dollars will still clear through the Bank of Canada, which is exempt from FATCA. Without the costs of FATCA compliance, the bank will offer better rates than its international competitors. Ideally, the bank office will be in a secure shopping mall and will have a Canada Post, where people can buy U.S.-dollar money orders if need be. That’s enough for many Canadians, especially the ones considered under U.S. law to be U.S. citizens.

    The fun part will be offering U.S.-dollar accounts and clearing U.S.-dollar payments. Options include opening a branch on El Salvador, Ecuador or Zimbabwe, countries where the U.S. dollar is the official currency and which have a central bank through which cheques can clear. Another option might be to open a correspondent bank account with the Bank of the Federated States of Micronesia, member FDIC, if they can clear U.S.-dollar cheques through the Federal Reserve system.

    We’ll see how it turns out.

  11. I see… something about 3rd party doctrine… legitimate tax power… something else about commerce clause… and of course, because FYTW.

Please to post comments

Comments are closed.