October 3, 2016

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June 25

Surprise, Surprise! GOP Leaders Trying to Help Obama Move Job-Killing FATCA Expansion

No. 9

NOTE: Version of these items were published by Conservative Review on June 16 and Accounting Today on May 13. For another review of the relevant topics, see also “GOP Leaders Pushing Obama's Global Taxation SchemesThe New American (by Alex Newman), June 24.

Jim Jatras

The following paired analyses detail how some in the Senate Republican leadership are following their usual pattern on trade, immigration, war, and other globalist initiatives destructive of the sovereignty of the United States and the well-being of the American people.

Why Is the Senate GOP Leadership Helping Obama Pass Job-Killing Treaties?

(Conservative Review, June 16, 2016)

As Barack Obama becomes the lamest of Lame Ducks, you can count on him to take every opportunity to aim a parting shot at what’s left of the American economy and the U.S. Constitution. In recent weeks he has abused his Executive authority on guns, overtime pay, imposing gender-bending bathroom rules on states and parents, and slipping U.S. “boots on the ground” into Libya, Yemen, and Syria.

Unsurprisingly, the GOP leadership in Congress is utterly ineffective in blocking him.

Even worse, on some matters top Congressional Republicans have shown their readiness to carry Obama’s water for him. The best-known examples are the 2014 $1.1 trillion “Cromnibus” abomination (which funded Obama’s illegal actions on immigration) and approval of “Obamatrade” authority last year to expedite horrible deals like TTIP (the “Transatlantic Trade and Investment Partnership” with the European Union) and TPP (the “Trans-Pacific Partnership”), which Donald Trump rightly has called “insanity.”

Now there’s yet another monstrosity waiting in the wings. Obama and Treasury Secretary Jack Lew are trying to shoehorn the United States into a global financial reporting scheme that would trash American sovereignty, suck money out of the U.S. economy, and violate constitutional principles, such as respecting the Senate’s advice and consent to treaties and requiring warrants for searches of personal data.

Unfortunately, the Republican leadership in the Senate is lining up to help Obama and Lew do it.

At issue are seven obscure tax treaties being held up by Senators Rand Paul (R-KY) and Mike Lee (R-UT). Foreign Relations Committee Chairman Bob Corker (R-TN) is trying to pry loose Paul’s and Lee’s “hold” on the treaties and to rubber stamp them without fixing data reporting standards that violate the 4th Amendment to the U.S. Constitution. The two Senators are happy to quit blocking the pacts, which are otherwise acceptable, if they are amended to remedy that defect.

A Dear Colleague letter signed by Corker – but clearly drafted by Lew’s Treasury Department – claims to debunk Paul’s and Lee’s objections in what amounts to a rehash of Obama Administration talking points. For example, the letter (evidently prompted by my recent commentary opposing the treaties) claims blocking them won’t prevent operation of a little-known 2010 law called the “Foreign Account Tax Compliance Act” (FATCA), which the Obama administration has sought to implement using a series of unauthorized and unratified “intergovernmental agreements.” With all due respect to Chairman Corker, this claim is inaccurate. For example, Article 5(1) of the relevant agreement with Switzerland says in so many words that FATCA requests ‘shall not be made prior to the entry into force’ of a treaty the two Senators have a hold on. If that’s not blocking, what is?

From the standpoint of American jobs and foreign investment in the U.S., there is even more at stake. Since the “Panama Papers” story broke, foreign officials have accused the United States of acting as a tax haven as well as permitting states like Delaware, Nevada, and Wyoming not to disclose “beneficial ownership” of corporations. There have been calls to blacklist the United States, and even to apply sanctions against us.

Barack Obama has invited these attacks on America by his administration’s practice over the past five years of subjecting our trading partners to one-sided, costly, and humiliating FATCA demands under threat of financial sanctions. They have capitulated, in part because Obama – as noted above, with no legal authority – has promised foreign governments the U.S. would provide reciprocal data under the FATCA agreements he refuses to submit to the Senate as treaties. Now he expects Congress to make good on his imprudent and legally deficient pledges.

It’s important to keep in mind the seven tax treaties are themselves innocuous and even desirable from the standpoint of avoiding double taxation for Americans doing business overseas. But contrary to Chairman Corker’s letter, ratifying them without fixing their constitutional defects facilitates their use as vehicles for data reporting under the legally dubious FATCA “intergovernmental agreements,” many of which also require “reciprocal reporting” from domestic U.S. institutions to foreign governments. This would hit U.S. banks, credit unions, insurance companies, mutual funds, etc. with costs comparable to those FATCA imposes on foreign institutions, which run into the millions per financial institution (for example, Canada’s Bank of Nova Scotia alone already had spent $100 million as of 2013). Imposing the same burdens here in the U.S. would mean billions of dollars extracted from American consumers and taxpayers, spurring massive capital flight from the United States and lost jobs. That’s why U.S. credit unions have written to the Congressional leadership to oppose domestic expansion of FATCA, which would “increase regulatory burdens on American credit unions and banks without resulting in a single dollar of new tax revenue to the Treasury.”

Finally, the seven treaties are a stalking horse for another item on Obama’s and Lew’s political bucket list: a so-called “Protocol amending the Multilateral Convention on Mutual Administrative Assistance in Tax Matters” that would lock in a FATCA-like international “common reporting standard” as treaty obligation. The result would be essentially FATCA gone global—sometimes called GATCAwhich in would be set for a global tax under United Nations auspices, pressure on the U.S. to raise our domestic tax rates, and subjecting our country to the oversight of bureaucrats at the Organization for Economic Cooperation and Development and other international organizations.

Republican leaders should not provide ex post facto authority for Obama’s and Lew’s reciprocal FATCA and GATCA schemes, which would also hand embattled IRS Commissioner John Koskinen sweeping new regulatory powers. It comes as no surprise that President Obama seeks to impose these burdens on America as his parting gift. What is deplorable is that any Republican leader would help him do it. Instead of promoting Obama’s global regime, it’s time for Senate Republicans to put America first. They should join Senators Paul and Lee in ensuring these treaties are not ratified until Obama leaves office, and get ready to send President Donald Trump a FATCA repeal bill early next year.


Rand Paul’s Stand against Tax Treaties Is More Important than You Think

(Accounting Today, May 13, 2016)

President Barack Obama has now joined personally in renewed efforts to pressure Kentucky Senator Rand Paul to stop blocking the ratification of eight tax treaties pending before the U.S. Senate. Paul is sticking to his guns, and it’s important for Americans to understand why these treaties present a grave threat to our constitutional liberties.

Of the eight treaties, seven of them are bilateral agreements with various countries to facilitate cooperation to avoid double taxation and to lower compliance costs. Regrettably, these agreements also unnecessarily change the standard for providing personal financial information to law enforcement agencies from probable cause of criminal behavior, such as fraud – which Paul correctly regards as the only constitutionally permissible standard under the Fourth Amendment – to what amounts to wholesale bulk collection on the pattern of the NSA’s violations of email and phone privacy.

This is Paul’s only concern with these seven bilateral treaties. A simple amendment could conform them to constitutional standards and they could move forward expeditiously.

However, that reasonable solution is not acceptable to Secretary Jack Lew’s Treasury Department. That’s because the Department also insists on using the treaties as a Trojan Horse for one of the most dangerous and dysfunctional laws enacted under the presidency of Barack Obama: the Foreign Account Tax Compliance Act, or FATCA.

FATCA, which few Americans have ever heard of, was passed by a Democrat-controlled Congress in 2010, supposedly as a weapon against “fatcat” offshore tax evasion. Disdaining the constitutional path of investigating individuals who are suspected of wrongdoing and securing a warrant for accessing their private records, FATCA takes the NSA approach: to require all non-U.S. banks to hand over information on U.S. private persons (not corporations, by the way) absent any requirement of reasonable suspicion, due process, or a court order. If banks fail to do so, they face crippling sanctions that essentially shut them out of the American market. FATCA has led many foreign banks to deny services to Americans rather than deal with the burdens and crushing compliance costs, thus impeding U.S. business and export opportunities and risking economic harm.

To enforce FATCA, Treasury has concocted a series of so-called “Intergovernmental Agreements” (IGAs) with foreign governments to provide for “exchange” of private financial information. These IGAs are not authorized under FATCA or any other law, nor are they treaties submitted to the Senate for advice and consent under the U.S. Constitution. They are at best legally dubious. Nonetheless, in the IGAs with many countries Treasury has promised that the U.S. will report “reciprocal” information from American banks for foreign governments, something the Obama administration currently has no legal authority to do but repeatedly has requested from Congress.

Because the IGAs designate tax treaty mechanisms for FATCA information “exchange,” Paul’s holding up the bilateral treaties also impedes indiscriminate FATCA reporting. Conversely, if the treaties were amended to allow information transfer only under the probable cause standard, the higher constitutional standard would govern. That, not double tax relief, is why Treasury is so desperate to approve these treaties without amendment.

That this is Treasury’s real agenda is further confirmed by the eighth treaty the Senator is foiling, a so-called “Protocol amending the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.” The Protocol, along with a follow-up “Competent Authority” agreement, is an initiative of the G20 and the Organization for Economic Co-operation and Development (OECD), with the support, unsurprisingly, of the Obama Administration.

Unlike the seven bilateral tax treaties, the Protocol cannot be repaired. It is utterly inconsistent with any concept of American sovereignty or Americans’ constitutional protections. Ratification of the Protocol would mean acceptance by the United States as a treaty obligation of an international “common reporting standard,” which is essentially FATCA gone global – sometimes called GATCA. Ratifying the Protocol arguably would also provide Treasury with backdoor legal authority to issue regulations requiring FATCA-like reporting to foreign governments by U.S. domestic banks, credit unions, insurance companies, mutual funds, etc. This would mean billions of dollars in costs passed on to American taxpayers and consumers, as well as mandating the delivery of private data to authoritarian and corrupt governments, including China, Saudi Arabia, Mexico, and Nigeria.

Citing “tax evasion” is no more an excuse for trashing constitutional protections than invoking terrorism. Senator Paul insists that, no less than email and phone metadata, details of our financial affairs – among the most private of any individual’s possessions – must remain confidential. As Paul stated in his hold letter to Majority Leader Mitch McConnell, “An individual’s bank account is the epitome of who they are as a private citizen; a bank account reveals where someone is shopping, what foods they like, the medicines they’re taking, the doctors they’re visiting, and the places they’re traveling.”

Make no mistake: if today governments can disregard privacy because accounts happen to be held in another country, tomorrow they will do the same domestically under the misguided “third party doctrine” (which Paul has challenged in court with respect to cell phones).

For that reason, the Senator is right to insist that the OECD Protocol is dead on arrival. The other seven tax treaties should proceed with one simple but essential fix.

It is noteworthy that in both this Congress and the previous one Paul has introduced legislation to repeal FATCA and also is a plaintiff in a lawsuit to challenge its constitutionality (recently dismissed on a rubber-stamp standing ruling, with an appeal expected). In 2014 and 2015 respectively, the Republican National Committee unanimously passed resolutions to repeal FATCA and stop GATCA. Early in 2017, Congress needs to send a FATCA repeal bill to President Donald Trump for his signature, finally getting rid of “the worst law most Americans have never heard of.”

Jim Jatras, [email him] is a former US diplomat and foreign policy adviser to the Senate GOP leadership.He is a supporter of Donald Trump. Jatras comments on financial and foreign policy topics and on U.S. politics in his publication TheJIM!gram, a feature of www.RepealFATCA.com and www.jimjatras.com. Tweet him at @JimJatras.

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