In April, a U.S. district court in Ohio dismissed a lawsuit brought by Senator Rand Paul and several other US citizens and former citizens who were asking for relief against enforcement of FATCA, its associated intergovernmental agreements (IGAs) entered into between the US and certain foreign countries, and the notorious so-called FBAR (Form 114) and its associated penalties administered under the Bank Secrecy Act by the Financial Crimes Enforcement Network or FinCEN. The plaintiffs, predominantly overseas Americans or former Americans, alleged that they suffered significant banking difficulties (e.g., inability to open foreign accounts, or refinance mortgages with non-US banks), family disharmony with non-US spouses whose financial information was being reported to the US and foreign governments under FATCA, as well as fears of excessive fines being imposed under FBAR legislation. Senator Rand Paul, suing in his capacity as a US Senator, contended that the IGAs were invalid as they exceeded the proper scope of Executive Branch power and should have been submitted for Senate approval.
Why the Case Was Dismissed
In dismissing the case, the court did not consider the merits of FATCA, the IGAs or the FBAR report or FBAR penalties. The court determined that all of the plaintiffs, including Senator Paul, lacked what is called “standing to sue”. Generally, “standing” involves three factors: First, the plaintiff must have suffered an “injury in fact” that is, a legally protected interest must have been violated in such a manner that is concrete and particularized as well as actual or imminent. The violation cannot be merely conjectural or hypothetical. Second, there must be a causal connection between the plaintiff’s injury and the conduct complained of, such that the injury is fairly traceable to the challenged action of the defendant. Third, it must be likely, as opposed to merely speculative, that the injury will be remedied if the court renders a decision that is favorable to the plaintiff.
The district court held that the plaintiffs lacked “standing” in part because the court noted that the US government cannot be held responsible for family disharmony resulting because of privacy issues concerning FBAR and other reporting of financial affairs, as well as the decision of a financial institution to refuse US customers. In other words, the court believed such third-party actions are not fairly traceable to actions of the US government. The lower court also stated that the fears of FBAR penalties were too speculative since none of the plaintiffs had been assessed FBAR penalties and further, the court noted that Senator Paul had an adequate, non-judicial remedy of enacting legislation to repeal the laws he objected to.
On July 5 the fearless FATCA challengers, led by their attorney James Bopp, Jr. filed an appellate brief seeking to reverse the Ohio court’s earlier dismissal of their case. The case, Crawford v. U.S. Department of the Treasury, No. 16-3539 was filed in the United States Court of Appeals for the Sixth Circuit. The appellate brief, which can be found here, challenges the dismissal arguing that the plaintiffs indeed have “standing”. It also challenges the district court’s denial of plaintiffs’ request to amend their complaint. The denial was based on grounds that such an amendment is not permitted when the parties lack “standing”; the parties maintain they have the requisite “standing”.
The brief alleges that all of the plaintiffs are individuals severely affected by the challenged FATCA and FBAR provisions and IGAs. Their “banking difficulties and familial problems are caused by FATCA, IGAs, and/or FBAR”; the plaintiffs “suffer privacy-right violations because they do not want financial details of their accounts disclosed” to the governments of the US or foreign jurisdictions.
FATCA is Causing Real Harm
The brief maintains that all of the plaintiffs “now suffer, and will continue to suffer, concrete and particularized injuries to legally protected interests, which injuries are caused by the challenged government actions and will be redressed by the requested relief.” It further states that “[p]laintiffs have no adequate remedy at law and are suffering irreparable harm”. The brief also details why Americans have a reasonable expectation of privacy in their banking records, and that the risk of identity and personal information theft and security breaches are not speculative, but present real risks of immediate harm. In support of this premise, the brief, in part, quotes my earlier blog posting of August 16, 2015:
“Scam artists are reportedly actively attempting to access FATCA data held by FFIs: Scam artists posing as the IRS have fraudulently solicited financial institutions seeking account holder identities as well as financial account information. Financial institutions directly registered to comply with FATCA, and those in jurisdictions that are treated as having an IGA in effect to implement the FATCA provisions through their home governments, have already been approached by parties impersonating themselves as the IRS. The IRS now has reports of incidents from various countries and continents. . . . I believe it is just a matter of time before personal information mandated by the FATCA reporting rules will be compromised in a data breach. Virginia La Torre Jeker, “Identity Protection Services After FATCA Security Breaches. . . IRS’ Generosity Knows No Bounds!,” Aug. 16, 2015, http://blogs.angloinfo.com/us-tax/2015/08/16/identity-protection-services-after-fatca-securitybreaches-irs-generosity-knows-no-bounds/.”
James Bopp, Jr., lead lawyer for the plaintiffs as well as General Counsel for Republicans Overseas, is optimistic about the appeal. He states: “The fact that FATCA and IGAs are causing real banking problems for Americans abroad is well known. The trial court was wrong to not accept that FATCA and IGAs compel many banks to reject American’s accounts, including accounts of plaintiffs in this case. We anticipate that the appeals court will reverse the trial court so this case can proceed.”
Let’s see what the future holds. One thing is certain, FATCA is taking some serious heat. In addition to the resurrection of this very high profile lawsuit, foreign IGA partners are now starting to realize “reciprocity” of information exchange simply does not exist. It appears as only a great pretense on the part of the USA. There is more and more talk about implementing such reciprocity on the part of the US. To date, though, it’s still all talk and no action.
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