Letter of the American Citizens Abroad (ACA)

Letter of the American Citizens Abroad (ACA)

Dear Sirs:

American Citizens Abroad (ACA), the voice of Americans overseas, is a non-profit,
non-partisan all-volunteer organization that represents the interests of Americans
living and working outside the U.S. to the Executive Branch of the U.S. Government,
the U.S. Congress, and the U.S. Federal Judiciary to insure that Americans
overseas are treated with equality and fairness. ACA keeps Americans overseas informed
and supports their role as informal representatives of the United States.
More can be learned about ACA through our Web site, www.americansabroad.org.

We are submitting this written comment to the hearings on HR 3933 which will
take place on November 5, 2009 and request that this submission be included in
the record. These comments are addressed to the four members of Congress who
jointly issued the Congressional press release of October 27, 2009 supporting HR
3933, as the close coordination between the Senate Finance Committee and the
Ways and Means Committee on this issue is apparent.

American Citizens Abroad is dismayed to see the contents of the proposed Foreign
Account Tax Compliance Act which, if passed, will create a backlash from
foreign governments in response to what is openly referred to overseas as the financial
imperialism of the United States. This legislation aims to significantly expand
the reach of the Qualified Intermediary (QI) regulations. Whereas the current QI
regulations are concerned principally with investment accounts, the Foreign Account
Tax Compliance Act would apparently cover all bank activity, including
current accounts. As stated in the joint press release, ‘‘The Foreign Account Tax
Compliance Act
would force foreign financial institutions, foreign trusts, and foreign
corporations to provide information about their U.S. accountholders, grantors,
and owners, respectively. The nonpartisan Joint Committee on Taxation has estimated
the provisions of the Foreign Account Tax Compliance Act would prevent
U.S. individuals from evading $8.5 billion in U.S. tax over the next ten years.’’ This
legislation would significantly enhance the authority of the Treasury in imposing
the QI regulations and, in fact, requires foreign financial institutions to become policemen
for the IRS. The administrative burden and costs associated with compliance
will be significant for foreign financial institutions. And the associated legal
risk is perceived as high.

As stated by Chairman Rangel in the Congressional press release, ‘‘This bill offers
foreign banks a simple choice—if you wish to access our capital markets, you have
to report on U.S. account holders. I am confident that most banks will do the right
thing and help to make bank secrecy practices a thing of the past.’’ In the same
press release, Ways and Means Select Revenue Subcommittee Chairman Neal stated:
‘‘I believe this bill provides the Treasury Department with the tools it needs to
crack down on those Americans hiding assets overseas.’’

This legislation assumes that banks will submit passively to the U.S. rules and
that business will go on as usual. But this will not be the case. UBS in Switzerland
has already announced that it will no longer accept as a client any American person
residing in the United States. Many other foreign banks are adopting the same policy
in a more discrete way.

With regard to American citizens residing abroad, a group of major UK banks has
already stated that they will close accounts of American citizens if the proposed QI
regulations of January 1, 2010 become effective. We know for a fact that Swiss,
Dutch and Spanish banks are refusing American citizens residing in their countries
as clients and are closing accounts. Do not forget that there are over 5 million
American citizens residing abroad. These people need to maintain foreign bank accounts
in the country where they reside to make current payments receive salaries
and hold their investments. The proposed legislation and reinforced QI regulations
will make it all the more difficult for overseas Americans to maintain a bank account
where they reside.

Although ACA understands and sympathizes with the efforts of the U.S. Congress
to close the door to tax cheats, you must remember that most Americans working
and living overseas are not tax cheats but are performing significant services for the
United States in representing American companies and products. The proposed legislation
specifically discriminates against one category of U.S. citizens—those residing
overseas. Imagine the uproar if Congress passed a law that all residents of New
York would have their bank accounts submitted to special investigation, including
the total of debits and credits in a year and the maximum balance in the account.
Closing accounts is just one reaction to the U.S. overreach. The United States imposing
its laws on foreign countries is creating a poisoned atmosphere which will
hinder the positive development of international trade and finance. One Swiss bank
has already publicly announced that it will no longer invest in any American securities
for any of its clients. Since that announcement, which received substantial press
coverage, and the explanation of U.S. tax legislation behind that statement, foreigners
are already beginning to divest of U.S. stocks. The U.S. Tax Code states that
if a foreigner owns more than $60,000 of U.S. securities at the time of his death,
his estate becomes subject to U.S. inheritance laws. At a time when the United
States should aim to attract foreign capital, its legislation will discourage investment
in the United States. As the United States government depends on foreign investors
to purchase a large share of Treasury bills, the threat of a significant divestment
out of the United States is not to be taken lightly.

While there is no doubt that the United States remains a financial powerhouse,
it is no longer the only option for investment purposes. With the U.S. dollar devaluing
against other currencies, many individuals are focusing investments in currencies
other than the U.S. dollar. The United States risks losing investment flows
into the country and compromising free flow of trade if people located outside of the
United States view compliance as administratively too burdensome. Furthermore,
the probable restriction on access to bank accounts overseas by American citizens
and corporations will put a restrainer on the free development of trade. The new
movement away from the U.S. stock market is just one form of backlash on American
policies, and all of the publicity linked to the bank secrecy issue has made foreigners
sensitive to the implications of any relationship with the United States.

The United States also risks facing measures of reciprocity from foreign governments.
In fact, the perspective of the United States on bank secrecy and fiscal paradises
is very hypocritical. On November 2, 2009, a Financial Secrecy Index was been
published for the first time by the International network for fiscal justice, co-founded
by the South Alliance and the Declaration of Bern. Ranking number one in the
overall index of secrecy is Delaware in the United States with a heavy weight in
international transactions. In terms of secrecy, Delaware ranks on a par with the
Cayman Islands, Bermuda and Dubai.

The U.S. one way approach has also been illustrated by the fact that when Mexico
asked for United States assistance in providing the names of Mexican citizens with
money hidden in the United States, the United States refused to collaborate. The
OECD countries are also building up forces to obtain transparency of their nationals.
This movement will extend to money held in the United States as well as to
other foreign banks.

American Citizens Abroad fears that the current Congressional approach to stop
the few thousand American citizens that evade taxes by imposing its laws on other
nations risks to open up Pandora’s box, to create suspicion and friction with many
other governments and to have a long-term negative impact on U.S. trade and commerce
in general. The costs to the United States could far exceed the $850 million
annual revenue projected to be collected by the Joint Committee on Taxation due
to the proposed HR 3933. Right now the United States should be encouraging more
foreign trade to increase the nation’s exports, not develop legislation reaching beyond
its borders, which will hinder that free movement of trade.

American Citizens Abroad supports Congress in its efforts to eliminate tax evasion,
but asks that the current legislation be revised and rewritten so as not to discriminate
against Americans living and working abroad and not to negatively impact
continued foreign investment in the US. ACA feels it imperative to warn Congress
of the serious risks for the United States related to the current drafting of
the Foreign Account Tax Compliance Act.

We thank you for your attention.

Sincerely yours,

Marylouise Serrato, Jacqueline Bugnion
Executive Director, Director

cc: Americans Abroad Caucus
The Honorable Timothy F. Geithner, Secretary of the Treasury
The Honorable Paul Volcker, Chairman, Presidential Task Force on Tax-Code Review