FACTA: US IRS Forces 77,000 foreign financial institutions to ‘Share’ Information; End of the US dollar standard?

This is incredible; 77,000 financial institutions have “agreed” to “share” information data with the US IRS supposedly to counter tax evasion and money laundering.

From the AP/CNBC (bold mine)

It will soon get a lot harder to use overseas accounts to hide income and assets from the Internal Revenue Service.

More than 77,000 foreign banks, investment funds and other financial institutions have agreed to share information about U.S. account holders with the IRS as part of a crackdown on offshore tax evasion, the Treasury Department announced Monday.

The list includes 515 Russian financial institutions. Russian banks had to apply directly to the IRS because the U.S. broke off negotiations with the Russian government over an information-sharing agreement because of Russia's actions in Ukraine.

Nearly 70 countries have agreed to share information from their banks as part of a U.S. law that targets Americans hiding assets overseas. Participating countries include the world's financial giants, as well as many places where Americans have traditionally hid assets, including Switzerland, the Cayman Islands and the Bahamas.

Starting in March 2015, these financial institutions have agreed to supply the IRS with names, account numbers and balances for accounts controlled by U.S. taxpayers.

Under the law, foreign banks that don't agree to share information with the IRS face steep penalties when doing business in the U.S. The law requires American banks to withhold 30 percent of certain payments to foreign banks that don't participate in the program—a significant price for access to the world's largest economy.

The 2010 law is known as FATCA, which stands for the Foreign Account Tax Compliance Act. It was designed to encourage—some say force—foreign financial institutions to share information about U.S. account holders with the IRS, making it more difficult for Americans to use overseas accounts to evade U.S. taxes.

Well this is hardly about “agreeing” since foreign banks will face “steep penalties” amounting to withholding “30% of certain payments” when doing business with the US. 

Given the US dollar as the de facto global currency standard where much of the global financial transactions revolve around US banks, the US government has been able to compel foreign banks to do its bidding.

This is imperialism enforced or imposed through the sphere of finance.

This also represents how financially desperate the US government have been to do arm serious twisting measures of foreign financial institutions.

And worst, Americans with asset overseas seem to have been presumed by FACTA and the US government as tax evaders or money launderers.

And this may not even be just about finances. This may be a part of the grand scheme of actions by cash strapped governments to end tax competition and to impose a unified global tax.

Nick Giambruno at the International explains:

FATCA’s real purpose is not to collect money, but rather to pave the way for a global FATCA, informally known as GATCA.

You see, complying with FATCA often breaks the privacy laws of other countries. To get around this problem, the US government has been negotiating bilateral agreements with pretty much every country in the world.

However, it’s not practical for each and every country to create their own version of FATCA and accompanying web of bilateral agreements. It would be a very slow and tedious process.

So to address this issue, the central planners at the G20 and OECD devised what they call a new “global standard” of automatic financial information exchange between governments (i.e., GATCA) modeled on the US’s FATCA.

In other words, unaccountable bureaucrats from these supranational institutions are foisting upon the world a FATCA on steroids.

However, GATCA would have never been possible in the first place had the US not cleared the path with FATCA.

The G20 and OECD needed the US—the sole financial superpower (for now at least)—to strong-arm and cram down the throats of the rest of the world this privacy-killing measure. There’s no other entity on the planet with the capability to do so.

The very big stick the US wielded was access to the US financial system and the world’s premier reserve currency. Don’t sign up for FATCA and forget about accessing the US dollar or US financial system, and by extension the vast majority of international trade. It wasn’t long before most of the world fell in line.

Now that FATCA has become a fait accompli, the foundation has been laid for GATCA.

Unfortunately GATCA also will likely become an irreversible reality in the not-so-distant future.

I believe it’s highly probably that the OECD, the G20, and others will sanction or otherwise blackmail countries that don’t comply with GATCA. The pressure will likely be too enormous for the vast majority of countries to bear.

In the end, this means a permanent record of every penny you have ever earned, saved, borrowed, or spent anywhere in the world will be available in an instant to be analyzed and scrutinized, and shared with any number of local and global government agencies, all regardless of any actual or suspected wrongdoing.

But wait, there’s more!

If FATCA wasn’t the end game, don’t expect GATCA to be either.

Let’s peel back the final layer of the onion.

What Comes Next

Did you really think that all these governments would go through all the trouble of creating the architecture to gather all this global financial data with GATCA and then just let it collect dust? Of course not. They’re going to leverage this data as much as they can.

It’s no secret that collectivists the world over have long fantasized about creating a global tax with a planetary taxation authority. Whether it’s the global carbon tax, a worldwide tax on financial transactions, or a UN tax on air and sea travel, all prior attempts at creating a global tax haven’t really worked, as the infrastructure for collecting the data and enforcement wasn’t in place.

However, that could all change with GATCA, which could provide a platform to make the disturbing dream of a global tax a reality.

Yet what the governments desires and how the public reacts are two different matters.    

There will be serious unintended repercussions on this.  Signs of these has already been surfacing.

While it may be true that initially foreign banks will accommodate the US IRS, these institutions are most likely to shy away from accepting business from US citizens.

Here is an example, from CNN Money (September 2013) [bold mine]

The U.S. Foreign Account Tax Compliance Act, which requires businesses to report all assets held by Americans, aims to recoup the hundreds of billions the U.S. says it loses each year from tax evasion. But it's also leading global banks big and small to dump U.S. customers rather than wrestle with the complicated law.

This absurd ‘imperialist’ regulation will also create barriers for US citizens investing abroad. Another example from SwissInfo.ch (May 2013)

Yet Bartolini admitted he had heard of various problems, such as claims Americans were being pushed out of business deals and prevented from climbing the corporate ladder allegedly due to their US nationality and perceptions about tax reporting and FATCA. If a foreign corporation has a ten per cent ownership by an American, under Fatca the firm is obliged to report that ownership to the US.

Not only that there has been a negative spillover to US-foreign intermarriages. From the same article…

Facta is also causing tensions within mixed couples, say critics. If financial assets are jointly held, FATCA requires the disclosure of the identity of the non-US spouse.

“My Bernese husband is furious,” said Salvisberg, who has to report to the IRS how much money her husband had in his account last year. “He says it’s none of their business what he has in his account. He’s absolutely right but if I don’t report it’s a criminal act.”

And FACTA has prompted a record exodus or renunciation of US citizenship. From Forbes: (February 2014) (bold mine, bold italics original)

America is a great land and lures immigrants worldwide, yet record numbers of U.S. citizens and permanent residents are giving up their citizenship or residency. For all the immigrant arrivals the trickle the other direction is increasing. The number is still small, with the “published” expatriates for the quarter 630 for the last quarter of 2013.

That brings the total number to 2,999 for all of 2013. The previous record high for a year was 1,781 set in 2011. It’s a 221% increase over the 932 who left in 2012. You can call it a shaming or a public record, but the Treasury Department is required to publish a quarterly list of Americans who renounced their U.S. Citizenship or terminated their long-term U.S. residency. The public outing puts Americans on notice who relinquished their rights.

Those seem like tiny numbers, yet the total thus far for 2013 is 2,369. See Number of Taxpayers Who Renounced U.S. Citizenship Skyrockets to All-Time Record High, quoting Andrew Mitchel. Under U.S. tax law, it is not relevant why someone expatriates. Whether the expatriation was motivated by tax avoidance or something else used to matter, but the law was changed in 2004….

The coup de grace is FATCA, which is ramping up now worldwide. It requires an annual Form 8938 to be filed with income tax returns for foreign assets meeting a threshold. And foreign banks are sufficiently worried about keeping the IRS happy that many simply do not want American account holders. Americans abroad can be pariahs shunned by banks for daily banking activities.

If the world will vastly reduce doing business and or hiring of US citizens, as well as, if more and more productive Americans ditch their citizenship, then the demand for the US dollar and US dollar based assets will materially decline. By erecting global financial barriers, FACTA, thus, represents financial protectionism.

The US government hardly recognizes that FACTA extrapolates to a death warrant of the US dollar as the world’s currency reserve.

Don’t worry, be happy; stocks are bound for the heavens!

Americans Are Ditching Citizenship in Record Numbers, Part 2

As I noted last May, the rate of wealthy Americans renouncing on their citizenship due to deepening political repression and the prospect of higher taxes, has been accelerating. Facebook co-founder Eduardo Saverin and celebrity Tina Turner embodies this hastening trend. 

Amazingly, despite the stiff or the punitive exit tax or expatriation tax, the rate exodus has nearly doubled from 670 from the first quarter to last quarter's 1,131.

Sovereign Man’s Simon Black explains:

A massive 1,131 individuals renounced their US citizenship last quarter, according to data that has yet to be officially released (though I was able to procure an advanced copy).

This is a HUGE jump.

Compared to the same quarter last year in which 188 people renounced their US citizenship, this year’s number is over SIX TIMES higher.

Not to mention, it’s 66.5% higher than last quarter’s 679 renunciations.

This brings the total number of renunciations so far this year to 1,810.

While still embryonic, it’s difficult to ignore this trend– more and more people are starting to renounce their US citizenship.

After all, the number of people who renounced citizenship this past quarter is roughly the same as the number of people who renounced for the previous four quarters COMBINED.

"Nationalism" losing its luster… Again from Mr. Black

This movement shouldn’t be that surprising for a species that began as nomadic hunter gatherers, or for a society that was founded by foreigner settlers in search of a better life.

Yet, in a rather anomalous twist, the emotional ties we have for our passports are incredibly strong.

It doesn’t matter where you’re from– the United States, Sweden, New Zealand, or Venezuela… many people all over the world are inculcated from birth with a sense that their country is ‘better’ than all the others.

We grow up with the songs, the flag waving, and the parades until the concept of motherland becomes deeply rooted in our emotional cores.

Not to mention, when so many of our friends and neighbors unquestionably fall in line, it’s a powerful social reinforcement that only strengthens the bond.

We come to view our nationalities rather ironically as a big piece of our core individuality. I am an American. I am a Canadian. I am an Austrian. Instead of– I am a human being.

It has taken decades… centuries even… to reach this point. So the fact that more and more people are making the gut-wrenching decision to ditch their US passports is truly a powerful trend.

Indeed, we are all human beings regardless of the supposed social divisions caused by race or geographic boundaries.

And if we are to talk about “race”, as I earlier pointed out, we are all “Africans” by genetic origins (mtDNA and paternal Y-chromosome). 

To quote National Geographic’s lead scientist Spencer Wells on the National Geographic-IBM’s Genographic Project

You and I, in fact everyone all over the world, we’re literally African under the skin; brothers and sisters separated by a mere two thousand generations. Old-fashioned concepts of race are not only socially divisive, but scientifically wrong.

(italics mine)

The mental concept of nationalism signifies a legacy of the tribal hunter-gatherer age. Then, the dearth of division of labor and trade made man’s survival entirely dependent on the limited scope of land which sustained them, thus, social bonds among tribes and neighbors were forged to resist against intrusions by marauders. Tribalism set stage for the 'nationalist' order.

Yet as trade or voluntary exchange or markets expanded, the importance of territorial boundaries has vastly been diminished. In essence, trade knows of no boundaries. It is the politicians who create such borders and barriers to trade.

And in the understanding of the potential loss of usufruct and privileges from wangling resources from the citizenry, the political class resists such dynamic by selling "nationalism" as a way to maintain the status quo by curbing people’s ability to freely transact with each other.

Modern day nationalism represents no more than the populist justifications that bequeaths to the political class the power to tax and the power to extend political control over their respective constituents in the name of “feel good” pseudo- social belongingness.

And why are Americans are exiting? Back to Mr. Black:

So what’s driving it? Taxes… and the search for liberty.

For many, their tax bills constitute a financial breaking point. Particularly for people who spend most of their time outside of the United States and are constantly hamstrung by worldwide taxation and information disclosures, the burden for many of them has just become too much to bear.

The US government figured this out some years ago and began charging an exit tax to certain high income / high net worth expatriates seeking to renounce.

This applies to anyone whose average US tax liability over the last five years was about $150,000 (the equivalent of roughly $500,000 in taxable income in 2012 dollars), and/or has a net worth of at least $2 million on the date of expatriation. Curiously this net worth figure does not adjust with inflation.

The ironic thing is that in the “Act of July 27, 1868″, the United States Congress declared that “the right of expatriation is a natural and inherent right of all people, indispensable to the enjoyment of the rights of life, liberty, and the pursuit of happiness.”

Yet I would expect that as the number of expatriates continue to grow, this exit tax will become more and more onerous as the government tries to trap people, and their wealth, in the country.

I would like to add that aside from taxation and political repression, financial intrusion has been compounding to the incentives of Americans to exit.

The US is the only country who taxes her citizens on a worldwide basis. This means offshore Americans are taxed twice—one in the country where they operate, and second by the US government.

Yet the US government will expand the dragnet of taxation and of the intrusion of financial privacy via the Foreign Account Tax Compliance Act (FACTA).

FACTA will force Americans to disclose to the US government all foreign held financial accounts and will force domestic banks operating under the FACTA framework to share information with the US Internal Revenue Services (IRS)

So FACTA essentially will undermine the supposed 'sovereignty' of other governments as US policies now dictate (by virtue of what seems as a foreign policy erected on the premise of 'might is right') on domestic politics.

The jurisdictions covered by FACTA has now expanded to include about 83 countries, which includes, Germany, Israel, Singapore, Malaysia, Taiwan, Thailand and the Philippines.

So far only the Swiss government appear to be resisting the US overlord's FACTA framework and where Swiss banks have reportedly been shunning accounts of American citizens.

So deepening political interventions, the prospects of bigger taxes and loss of financial privacy, as well as, economic uncertainty via monetary policies, appear to motivate wealthy Americans to opt out. 

And as the taxpayer base of the US erode, the fragile fiscal balance of the US will increasingly operate under duress from the growing mismatch between revenues and expenditures. A looming debt based welfare crisis will further this trend.

Despite heavy exit taxes, the growing 'opt out' option is increasingly a disturbing sign, not only for the US political economy which should have a leash effect on the world, but importantly for the US dollar standard.