“Peaceful resistance” to FATCA will result in an alternative financial system

Cross posted from RenounceUScitizenship

Ever since the FATCA discussion started, I have always wondered:

Why would the rest of the world  comply with FATCA? I read about compliance costs. I read about trying to cut deals with the IRS. What I don’t understand is why countries don’t take a much longer term view of this. Remember:

People always overestimate what they can do in one year and underestimate what they can do in ten years.

Let’s put this into perspective. The U.S. is one of the biggest debtors in the world. Evey year it goes “cap in hand” begging other countries to buy its debt. As you know, China is one of the biggest buyers of this debt. The debtor does NOT set the terms of the arrangement! This is why, there are numerous articles (whether true or not) that China will simply not comply with FATCA. I suspect that in the short run, many countries will claim to be complying with FATCA, but will be looking for a way to bypass the U.S. financial system. They will do this because  the U.S. is a declining power (or to put it more kindly – other countries are becoming very relevant). This means that it’s survival will depend on it  becoming less of a bully and  playing more nicely (if it wants anybody to play with them at all).

Came across this interesting comment this morning by todundsteuer*, which should be a separate post. The most relevant paragraph (The post is about: Senate Bill 1813 Passport Confiscation and “Stop Taxhaven Abuse”) is:

The greatest threat to the effectiveness of both Charlie’s FATCAT and Carl’s STHA is the very real possibility that they will trigger a reaction that attempts nothing less than the establishment of an alternative world financial system parallel to that based on the Tokyo-NY-London-Frankfurt axis.

Johannesburg, Dubai, Mumbai, Jakarta, Singapore, Sao Paolo, Shanghai suggest themselves.

One highly-regulated, highly taxed, safe but stagnant and the other looser, lightly taxed, risky but freewheeling and dynamic.

Just this week China unleashed its “new yuan” – signalling its intention to make the yuan a serious world currency. The establishment of an alternative financial system CANNOT be established on one year. An alternative financial system CAN be established in ten years! Furthermore, it will not be the world’s biggest debtors who control the new world order!

Some advice to the U.S. and Senator Levin:

Stop citizenship-based taxation – Repeal FATCA!

_____________________________________________________________________________

*Here is this most insightful comment in its entirety:

todundsteuer

The “Stop Tax Havens Abuse” (Section 100201 of MAP-21) is the legislative baby of Sen. Carl Levin (D. Mich.). His original draft legislation by that name was introduced in 2009 and was much more aggressive than this comparatively mild iteration.

His original bill was aimed at the US tax code (Title 26 United States Code) and contained a list of countries that would be statutorily decreed to be what the bill defined as “offshore secrecy jurisdictions”. It did everything except authorize the 82d Airborne to take these countries “out”.

Sen. Carl was said to have been dissuaded from pursuing his original bill in favor of allowing Charlie Rangel’s FATCAT bill (Yes, the original FATCA had a ‘T’ on the end for 2009.) Charlie was then the Chairman of the House Ways and Means Committee.

FATCAT, as we all know, took the tactic of end-running governments by going after banks and the big money they represent. The theory being that if you have ‘em by the banks their hearts, minds – and governments will follow.

As we can now see, Charlie Rangel’s approach is proving prophetic. At least 5 European governments are already lined up to play ball and Israel (and, according to rumor control: China) also making noises in that direction.

Unlike Sen. Levin’s original “Stop Tax Havens Abuse” bill, the latest iteration has abandoned the anti-country approach and instead also takes the approach of threatening to kick the opponent in their banks – where it really hurts. His draft law also uses Title 31 of the USC (where the FBAR regulations are located) rather than the income tax title.

The greatest threat to the effectiveness of both Charlie’s FATCAT and Carl’s STHA is the very real possibility that they will trigger a reaction that attempts nothing less than the establishment of an alternative world financial system parallel to that based on the Tokyo-NY-London-Frankfurt axis.

Johannesburg, Dubai, Mumbai, Jakarta, Singapore, Sao Paolo, Shanghai suggest themselves.

One highly-regulated, highly taxed, safe but stagnant and the other looser, lightly taxed, risky but freewheeling and dynamic.

We shall see.

Advertisements

9 thoughts on ““Peaceful resistance” to FATCA will result in an alternative financial system

  1. The U.S. is practicing an exceptionalist approach, (ab)using the dollar’s position as the pre-eminent reserve currency. The dollar’s influence was already being gradually eroded due to the U.S.’s fiscal situation. FATCA will likely speed the process up.

  2. and thus the system risk to the financial system as we know it. Like I have said, most in America will be reading about this FATCA fiasco after the fact when the books come out later, like we read “All the Devils are here”, “Too Big to Fail”, and “The Big Short” to understand the financial melt down of 2008,

  3. This is only obliquely related, but thought I would post here as it was a discussion last night on PBS with Financial Times Journalist and DC station chief Edward Luce about the American Decline and whether or not to take a pessimistic or optimistic view on a reversal of trend.

    In this interview he is talking about his book. “It is time to start thinking, America.”

    If you are interested, here is the link…

    http://www.pbs.org/newshour/bb/entertainment/jan-june12/edwardluce_04-19.html

  4. Victoria has an interesting post “Some Perspective on FATCA” on her blog from Tuesday..including a draft article by Itai Grinber (Georgetown University Law Center) entitled “Beyond FATCA: An Evolutionary Moment for the International Tax System.” He is an Associate Professor, Georgetown University Law Center. Until the summer of 2011, the author served in the Office of International Tax Counsel at the United States Department of the Treasury. In that capacity he was substantially involved in FATCA from its inception, and also represented the United States at the OECD and at the Global Forum on Transparency and Exchange of Information for Tax Purposes. The draft is 64 pp and I am about 1/4 of the way through. The main idea (so far) is that all the major countries of the world are concerned about cross-border tax evasion and there are several different models that are developing:

    “Beyond FATCA: An Evolutionary Moment for the International Tax System” Draft of January 27, 2012

    “In the last few years, the global landscape has changed radically. Interest in automatic information exchange grew in parallel to the mounting universal acceptance of information exchange upon request as a global norm. Since 2007, three models have
    emerged: the OECD’s authorized intermediary project, the EU’s Directive on Administrative Cooperation in the Field of Taxation and proposed revision of the EUSD, and the United States’ FATCA legislation.
    A fourth model, the Swiss anonymous withholding model,
    presents an even sharper contrast. Instead of offering an information reporting solution, this approach emphasizes anonymity in combination with a withholding regime for
    collecting revenue from non-resident account holders.
    However, focusing on the inconsistencies and conflicts between the emerging systems obscures their commonality, which is far more important than their differences. All four models share a key feature that the literature has yet to recognize: each requires domestic financial institutions to routinely provide cross-border administrative assistance to a sovereign outside the country in which the financial institution is located, and thereby
    serve as cross-border tax intermediaries. This alone is a critically important achievement. Countries are agreeing to a higher level of international tax cooperation and demanding that multinational financial institutions play an additional role in tax collection. In some sense this is a reclamation of sovereign authority over cross-border asset management, and in another sense it is an acknowledgement that multinational financial institutions are
    a necessary part of the mechanics of tax collection in a globalized economy.”

    “At present it is unclear whether the world is on the path towards automatic information exchange, anonymous withholding, or some combination thereof.”

    The author states the paper makes three contributions with the third being:

    “The paper addresses how to reconcile the emerging and incongruent proposals for automatic information reporting in a manner that will promote the emergence of a
    multilateral automatic information reporting system.”

    So it may be that FATCA is only part of this developing system and our resistance may play a major part in determining how effective (or not) it turns out to be.

  5. Here is an article that seems to be saying that US banks are not ready to do their part in the so-called ‘reciprocal’ exchange of information under FATCA.
    http://www.risk.net/operational-risk-and-regulation/news/2169061/fatca-reciprocity-splits-industry-opinion
    “Fatca reciprocity splits industry opinion”
    Published online only
    Source: Operational Risk & Regulation
    Author: Jessica Meek
    19 Apr 2012

    “Reporting requirements such as those under Fatca reciprocity make waves and divide opinion in the industry”

    “The reciprocity element of the US Foreign Account Tax Compliance Act (Fatca) is causing ripples in the financial industry. In a joint statement, released alongside the draft regulations earlier this year, the US and five other large economies – Germany, Spain, Italy, the UK and France – stated that the US is willing to reciprocate automatically collecting and exchanging information on accounts held in US financial instutions by residents of these five nations. But opinion is split on how seriously banks in the US are taking the issue.”

    “I’m not sure there’s been a lot of thought yet on fulfilling the US mandate when France for example passes reverse Fatca and wants us to scan accounts in our institutions,” says Susan Grbic, New York-based director of US accounting firm WeiserMazars. “Presumably they’re thinking a lot more at this moment about their obligations as US withholding agents. I think that’s really the much bigger picture right now.””

  6. @Justme

    From: The Sovereign Individual – James Dale Davidson – talking about the fall of the Roman Empire:

    “Part of the problem was that Rome was already so degenerated by the later decades of the fifth century that its “fall” genuinely eluded the notice of most people who lived through it.”

    When people write the history of the U.S. empire, I think it is likely that FATCA, Obama, Levin, et al, will get more than an honorable mention. That doesn’t mean that others won’t be seen as contributors. But FATCA is the most self destructive thing that any country could inflict upon itself.

  7. Pingback: U.S. seeks to impose FATCA on the rest of the world – will the world really comply? | The Isaac Brock Society

  8. Pingback: U.S. seeks to impose FATCA on the rest of the world – will the world really comply? « Renounce U.S. Citizenship – Be Free

Comments are closed.