Conventional wisdom has taken a beating recently especially for domestic and international politics. Who would have predicted six months ago that Republican House Majority Leader Eric Cantor would be defeated in a primary, Russia would have annexed Crimea and is threatening to invade the Ukraine, and Iraq would be sliding toward a sectarian war? The failure of conventional wisdom may have a link with securities operations because insiders say that any repeal of the Foreign Account Tax Compliance Act (FATCA) will fail. To which I say: No so fast.
For starters, major media outlets have been consistently missing big stories, particularly the profound political undertows such as the Tea Party and the Occupy Wall Street movements. It’s no surprise then that media groups have not paid much attention to a new Republican group working on a legal challenge to the constitutionality of the controversial legislation to stop offshore tax evasion. However, the Tea Party supporters that unseated Cantor were missed by the mainstream media although they now have the attention of the media elites; I guess even the titans cannot ignore an earthquake.
As my story on the new strategy of the GOP notes, the ongoing battle by the Republicans to undo FATCA has gotten the support of James Bopp, Jr., a lawyer known for his independence and for successfully arguing against the McCain-Feingold campaign finance reforms before the U.S. Supreme Court in the Citizens United v. Federal Election Commission case. Bopp and Solomon Yue, a Republican National Committee member from Oregon, are leading the anti-FATCA battle and are willing to step on major toes to build support. At the same time, the FATCA fight has gotten the support of heavy hitters within the GOP such as Tea Party favorite U.S. Sen. Rand Paul (R-Ky.) and mainstream Republicans.
The apparent Republican unity on the issue, however, has not coalesced into a successful legislative strategy to undo FATCA as those efforts have been stalled in Congress and would likely be vetoed by Obama. The legislative efforts have been rendered moot because, as Yue has argued, the GOP would need to control the House, Senate and White House, which they might achieve by 2016, before they can repeal FATCA. However, Yue and his supporters preferred to take action before the mid-term and presidential elections and created the legal action fund, Republicans Overseas Action, Inc. (ROA).
Simultaneously, some prominent names in the financial services industry are beginning to voice their support for a repeal of FATCA. For instance, Nigel Green, founder and CEO of the deVere Group, an independent financial advisory firm, released a statement that characterizes Bopp’s involvement as the “the tipping point” for the anti-FATCA push.
If there is any GOP support for FATCA, though, it may come as an economic sanction against Russia as the crisis in the Ukraine deepens. Sen. John McCain (R-Ariz.) foresees the possibility of using FATCA as a sanction against Russia. McCain and fellow U.S. Sen. Carl Levin (D-Mich.), chairman of the Senate Armed Services Committee, urged the Treasury Secretary Jack Lew in April to put negotiations over an intergovernmental agreement with Russia on hold indefinitely. They also urged that the U.S. refrain from returning to the negotiating table until Russia steps back from its aggressive stance toward the Ukraine.
“We should not be negotiating with the Russians to help them avoid FATCA’s sanctions at a time when Russian forces are threatening and continuing to destabilize Ukraine,” the senators said in their joint letter. FATCA could prove to be “a powerful, non-military option” that when combined with other financial sanctions that could help prevent Russia from invading the Ukraine, the senators said. The 30% withholding penalty of FATCA could hurt Russian firms and individuals
Subsequently, Yue has speculated that the McCain-Levin letter has antagonized Vladimir Putin, president of Russia, and he now opposes all support for FATCA, which may help the ROA cause. It may also be proof that FATCA could be an effective weapon against Russian aggression.
If the anti-FATCA forces take on the FATCA-as-a-sanction group, the GOP may be facing another internal struggle at a time when such strife is beginning to take its toll.
These political developments are truly remarkable considering that FATCA was initially known as an arcane U.S. government push via the Treasury Department to allow the IRS to begin taxing foreign assets and offshore accounts that have previously gone undeclared. Somewhere along the way, the FATCA initiative became a phenomenon.
In the trenches, banks and other securities firms are rushing to register with the IRS, complete know your customer due diligence chores, fill out all the proper forms, revamp systems and procedures — all by July 1, 2014 to avoid imposing a 30% withholding penalty upon clients for noncompliance. In parallel to these efforts, vendors are rushing to provide systems, services and tools; celebrities are renouncing their U.S. citizenship to protect assets; foreign banks are in turmoil about American customers; the smug IRS is offering some perfunctory relief for this year and next; about 75 countries and regions have signed on with the IRS (or are willing to); and a major political party is hoping to pull the rug out from under all of this activity.
FATCA has definitely become a potential train wreck that would be too fascinating to miss.
Need a Reprint?
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