March 4

Enforce Canadian Law, Not FATCA

NOTE: The following commentary appeared in the Toronto Star online on March 3, 2014, and in the print edition on March 4, 2014. Below is the text as submitted, including source links that do not appear in the published version.

Canadian visitors to Washington sometimes wonder why their embassy stands at the foot of Capitol Hill.

The answer? To be close to where Canada’s laws are made.

Case in point, on February 5 Jim Flaherty's Finance Ministry announced a so-called “intergovernmental agreement” to enforce FATCA, the U.S. “Foreign Account Tax Compliance Act,” in Canada.

Supposedly aimed at American tax cheats, FATCA was enacted in 2010 and is set to go into effect on July 1, 2014. But instead of singling out suspected tax evaders, FATCA creates an NSA-style information dragnet requiring every non-U.S. financial institution in the world (banks, credit unions, insurance companies, etc.) to report data on all specified U.S. accounts to the Internal Revenue Service (IRS).

How can foreign (including Canadian) institutions outside U.S. jurisdiction be forced to comply? Simple: economic sanctions. A Canadian bank deemed “recalcitrant” would be subjected to 30% “withholding” from all U.S.-sourced payments. Given America’s weight in global finance, the risk of such extrajudicial reprisal has terrified banks and governments worldwide.

Still, even FATCA’s advocates concede that direct enforcement is “wholly unachievable” due to privacy protection laws in many countries that don’t allow personal data to be sent to unauthorized recipients. Thus, the February 5 agreement not only permits Canadian institutions to comply with FATCA despite privacy laws but will require them to collect the information demanded and report it to the Canada Revenue Agency for transfer to the IRS.

The Harper Government’s defense of turning the CRA and Canadian banks into agents of the U.S. government runs as follows:

The Government and Canadian banks tried lobbying the Americans against FATCA, but that didn’t work. Threatened with 30% withholding sanctions, we negotiated the best deal obtainable to protect personal privacy, minimize costs, and receive reciprocal reporting from the U.S.

The problem is, no part of this excuse is true:

Canada’s capitulation to this expensive, invasive, and anti-sovereign demand is unnecessary. Canada has many tools to resist FATCA, from World Trade Organization and legal challenges to reciprocal, dollar-for-dollar withholding of payments to U.S. institutions. A “No” from Canada could itself doom FATCA in light of growing U.S. domestic opposition. A FATCA repeal bill has been introduced by Senator Rand Paul, a leading 2016 presidential prospect. The Republican Party, which recently approved a resolution advocating FATCA repeal, will continue to control the House and likely will capture the Senate this year.

To their credit, New Democrats Tom Mulcair and Murray Rankin, Liberals Ted Hsu and Scott Brison, and Green Elizabeth May have challenged the Harper Government on FATCA. Conservatives have done all Canadians a disservice by finalizing the agreement in secret. The least they can do now is to give it a full airing in Parliament, followed by lifting party discipline to allow Conservative MPs to help vote it down.

James George Jatras is a former U.S. diplomat and U.S. Senate staffer. Now a Washington-based government and media relations specialist, he edits