FATCA & Foreign Bank Accounts: Has the U.S. Overreacted?

by Scott D. Michel & H. David Rosenbloom

For the last three years, the U.S. government has mounted aggressive enforcement efforts against American taxpayers who have undeclared funds in foreign accounts, as well as the banks, bankers, financial and legal advisers, and even family members who may have assisted the taxpayers or facilitated their concealment of assets from the tax collector.

We have seen secret informants and whistleblowers from in and outside the United States, stolen foreign bank data, criminal indictments and civil tax audits, enhancements in bilateral and multilateral information exchange, and two special IRS settlement initiatives to encourage Americans to make voluntary disclosures of unreported foreign accounts. For the first time in history, the IRS and the Tax Division of the U.S. Justice Department overcame sacrosanct Swiss bank secrecy, dealing a heavy blow to the notion that Switzerland, or any other country with strict financial privacy rules, could offer a haven from U.S. tax laws. These efforts are continuing, and the United States has been joined in ferreting out undeclared assets by many other countries, most notably Germany, Britain, Italy, Canada, and South Korea.