Originally published on Forbes.com.
Judge Thomas Rose of the United States District Court for the Southern District of Ohio has shot down a lawsuit (Crawford v Treasury) brought by several plaintiffs including Senator Rand Paul challenging various aspects of laws and regulations requiring disclosures of foreign accounts by Americans. For what ever it is worth, probably not much, Judge Rose was appointed by George Bush in 2002.
Standing
Judge Rose turned down the claims based on standing. Standing is a pretty lawyerly concept. The essence of standing is that you can’t go to court over a generalized grievance or because you don’t like something. For that, you can write your congressman or stand in front of the White House with a sign or maybe start a blog. There are three elements to standing
First, plaintiffs must have suffered an injury in fact—an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical. Second, there must be a causal connection between the injury and the conduct complained of—the injury has to be fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court. Third, it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.
To have standing you need to be asserting that something was done to you. It is a frustrating concept. An example that I have followed pretty closely is the special tax treatment of cash housing allowances paid to “ministers of the gospel”. The constitutionality of this provision is highly dubious, but it has not been addressed by the courts, because people who feel aggrieved by it don’t have standing.
Rather than looking at the fine points of determining standing, which is a little beyond me, this particular decision is of interest to me as a kind of catalog of what troubles people about laws and regulations regarding disclosure of foreign transactions. So here are the high points.
Separation Of Powers
The most prominent plaintiff was Senator Rand Paul. His objection was to the Intergovernmental Agreements(IGAs) that the US has entered into with several governments (Canada, Czech Republic, Israel, France, Denmark, and Switzerland).
Senator Paul now suffers, and will continue to suffer, the concrete and particularized injury of not being able to vote against the FATCA IGAs, which injury was caused by the unconstitutional and illegal action creating the IGAs, and which injury will be redressed by the IGAs being held beyond constitutional and statutory authority.
The essence of that is that the IGAs are like treaties, which have to be approved by the Senate. The IGAs do refer to treaties in their preambles. There is an interesting constitutional question here as to what extent the executive can enter into agreements with foreign powers without explicit approval from the Senate. Interesting as the question might be, it does not get Senator Paul standing.
Senator Paul has neither been authorized to sue on behalf of the Senate nor can he base his standing on a more generalized interest in “vindication of the rule of law.” A legislator does not hold any legally protected interest in proper application of the law that is distinct from the interest held by every member of the public.
Trouble Opening Accounts
Mark Crawford objects to the Foreign Account Tax Compliance Act (FATCA) and the requirement to annually file the Report of Foreign Bank and Financial Accounts (FBAR). He has three problems. His brokerage company cannot open accounts for Americans (including himself), because of a relationship with a bank that has a policy against taking American clients (presumably because it is such a PIA). He does not want the details of his accounts disclosed to the US Government. He thinks the fines for failing to file FBARs are unconstitutionally excessive. I really sympathize with the third grievance. The chance that a missed FBAR will cause excessive penalties is a source of nightmares – that and spiders, really hate spiders.
Privacy Concerns
Roger Johnson is a US citizen who lives in the Czech Republic. His wife, Katerina Johnson, is a Czech citizen. They object to the IGA with the Czech Republic. Ms. Johnson strongly objects to having her financial affairs disclosed to the US government, which has led to the couple separating their assets. Like Mr. Crawford, they are scared by the FBAR fines.
Oh Canada!
Stephen Kish is a dual citizen of the United States and Canada residing in Toronto. He too is married to someone who does not want the US government having its nose in her business. The court notes that the fact that he has suffered “discord” in his marriage is too vague and indirect of a harm to establish standing. I wonder if the judge has ever suffered “discord in marriage”. It can be pretty tough.
Renouncing Your Citizenship
Daniel Kuettel , now a Swiss citizen, renounced his US citizenship because FATCA made it difficult for him to refinance his mortgage. He has issues with the FBAR requirement still falling on his minor daughter, who is too young to renounce.
Implied Threats
Donna-Lane Nelson is another Swiss citizen who renounced her US citizenship, because a Swiss bank “offered investment opportunities not available to her as an American”, according to the decision (See Note). She resents the questions she gets from banks about her status as an ex-American and payments to her daughter, who lives in the United States. That doesn’t get her standing.
The discretionary decisions or future discretionary decisions of a foreign bank do not create standing. Furthermore, as identified above, fear of a hypothetical harm that may or may not occur if she had not renounced her citizenship is not sufficient to constitute concrete harm.
Looking Out For Clients
Mark Zell is a dual citizen of the United States and Israel currently living in Israel. Besides the FBAR issues that others mentioned, he feels that as an attorney he has been mistreated by Israeli banks and his compliance with a client’s wish to avoid FATCA reporting requirements potentially subject the client to 30% withholding.
Separating Sheep From Goats
The recent release of the Panama papers brought to the fore the issue of people stashing assets offshore for a variety of reasons, tax evasion not being the least. FACTCA and the FBAR requirements are among the measures created to deal with those issues. On the other hand, they impose real hardships on people, particularly expatriates, who are really not trying to get away with anything. That is the aspect of this litigation that generates the most sympathy on my part.
A similar phenomenon shows up in an area of taxation with which I am much more familiar – partnerships. An off-the-shelf partnership agreement will have numerous provisions that are close to impenetrable to ordinary mortals, that sometimes produce unintended business result. Those provisions are there to address regulations that were meant to fight abusive tax shelters. They make life complicated for people who are really not trying to get away with anything. On the other hand, it gives people work, so maybe I should not complain too much.
Other Coverage
In a press release James Bopp, the attorney for the plaintiffs has indicated that an appeal should be expected.
James Bopp, Jr., the lead lawyer for the Plaintiffs and General Counsel for Republicans Over-seas, states the following: “The Court refused to permit us to amend the complaint to fix the Court’s alleged problems it found originally in our complaint and then dismissed our case. The Court’s theory is that it is the fault of the banks for refusing to do business with American citizens, not the fault of FATCA which causes the banks to do it. This is like blaming the bank cashier for robbing the bank when the robber puts a gun to her head and she gives him the bank’s cash. That cannot be correct.”
Law360 covered the decision.
Of one plaintiff, Judge Rose wrote, “discomfort with the information reporting requirements of FATCA does not establish the concrete, particularized harm that confers standing.” Similarly, he ruled, Paul’s complaint that he was unable to vote on the wide-reaching intergovernmental agreements the Treasury negotiates under FATCA “is based on a loss of political power, not a loss of any private right.”
Patricia Moon has something on The Isaac Brock Society site.
Leaving aside the “legal gobbledygook”, Judge Rose is saying two things:
1. The plaintiffs simply do not have any “standing” to sue. This means that because of who the plaintiffs are and/or the way they have (not) been affected by the laws in question, they do NOT have the right to ask the court for relief.
2. In the event that one or more of the plaintiffs DID have standing, it would make no difference anyway. Why not? Well, because the United States Government has caused NO harm to the plaintiffs. Any harm suffered by the plaintiffs was caused by the actions taken by Foreign Financial Institutions. (Don’t forget the claim of Obama lawyers that if any harm has been suffered (which they deny), that harm is the result of “self-inflicted wounds“.)
Major-General Sir Isaac Brock gets a lot of credit for thwarting a US invasion of Canada during the War of 1812. The Isaac Brock Society is concerned about the treatment of US persons who live in Canada and abroad noting that the US is one of only two countries that taxes its citizens on their worldwide income. The other is Eritrea.
I may be missing something, but the tax blogosphere does not seem to have picked up on this decision. Regardless of the legal issues, which are arcane, it raises very important issues for expatriates.
Correction
A previous version of this post included a misidentified picture of Ron Paul and referred to Ron Paul as one of the plaintiffs.
Note
I received a note from Rick Adams that the judge’s characterization of Donna-Lane Nelson’s reasons for renouncing US citizenship was based on a misreading of her original complaint. The brief reads:
After FATCA was enacted, Donna-Lane’s local bank in Switzerland, notified her that she would not be able to open a new account if she ever closed her existing one because she was an American. Fearing that she would eventually not be able to bank in the country where she lived, she decided to relinquish her US citizenship.