Rand Paul Suit Blasts Foreign Banking Rules

     (CN) – Sen. Rand Paul sued the Obama administration on Tuesday, claiming that federal banking laws for overseas accounts amount to a “financial surveillance program” that encourages Americans living abroad to give up their U.S. citizenship.
     The complaint from the Republican presidential hopeful and five U.S. citizens who reside overseas takes aim at the Foreign Account Tax Compliance Act (FATCA), and a series of intergovernmental agreements negotiated by the U.S. Department of the Treasury.
     Filed in Columbus, Ohio, the complaint notes that “FATCA was intended to address tax evasion by U.S. taxpayers who fail to report foreign assets located outside of the United States.”
     In practice, however, the law “is a sweeping financial surveillance program of unprecedented scope that allows the Internal Revenue Service to peer into the financial affairs of any U.S. citizen with a foreign bank account,” Rand contends.
     Congress passed the law in 2010 when Democrats were in power to crack down on wealthy Americans dodging taxes by keeping their money in overseas accounts.
     FACTA allows the Internal Revenue Service to collect information about U.S. citizens’ account balances and transactions, information it cannot collect on U.S. citizens living domestically. The law requires foreign banks to report citizens’ account information to the IRS even when the agency has no reason to suspect that citizen of violating U.S. tax laws.
     Rand says implementing the law has been enormously expensive for financial institutions.
     “The cost of implementing FATCA has been estimated to cost large banks approximately $100 million each to become fully compliant and around $8 billion total system-wide,” the complaint states. “Four years after it was first passed, financial institutions are still working to make themselves compliant, but are finding that it is costing more than they originally anticipated.”
     In some cases, the cost of implementing the law are far more than the amount of extra revenue it is expected to collect for the Treasury, according to the complaint.
     “The disjunction between FATCA’s costs and benefits is perhaps best illustrated by the Australian experience where experts estimate that FATCA will extract an additional $20 million in revenue for the U.S. at an estimated implementation cost of around $1 billion,” the complaint says.
     Such costs have caused many foreign financial institutions to refuse to open savings or checking accounts for U.S. citizens abroad, and even closing existing accounts, leaving Americans overseas without access to basic financial services, according to the complaint..
     “For some Americans living abroad, FATCA’s burdens have become so heavy that they are choosing to relinquish their US citizenship just so they can avoid the crushing weight of this unprecedented law,” the complaint states. “Indeed, record numbers of Americans have relinquished their U.S. citizenship in the five years since FATCA’s passage.”
     Rand and the other plaintiffs claim that 3,415 Americans gave up their citizenship last year – 15 times the number in 2008. This year is on track to beat that record high, as 1,335 Americans renounced their citizenship during the first three months of 2015, according to the complaint.
     The lawsuit also targets the intergovernment agreements that the Obama administration has signed with several foreign countries, including Switzerland and Israel, which override FATCA. Rand claims that these executive agreements exceed the scope of the president’s constitutional powers.
     The lawsuit seeks an injunction against the enforcement of FATCA and the independent intergovernment agreements, and a declaration that they are unconstitutional.
     “Americans overseas are suffering egregious unconstitutional violations of their privacy and are facing draconian fines by the vigorous enforcement of the law by the Obama administration,” the plaintiffs’ attorney, Jim Bopp Jr., told the Washington Times.
     “The vast majority of overseas Americans are law-abiding middle class Americans, but the Obama administration treats them all as tax cheats,” Bopp added.

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