Dr Vaughn James
Dr Vaughn James

The Foreign Account Tax Compliance Act (FATCA): Restoring Balance to the United States Tax Laws, or an Example of Unbridled American Imperialism?


Last week, we recalled the Great Capitulation as CARICOM bowed to the OECD's efforts to arrest the flight of capital from high-tax to low-tax jurisdictions. One by one, the CARICOM countries surrendered their sovereignty and enacted legislation desired by the OECD. While such legislation made the OECD and the U.S. Congressional Republicans happy, it did not satisfy the Congressional Democrats. Those Democrats sought one thing, and one thing only: governmental intrusion into people's investment decisions and the obeisance of every other country, with an emphasis on Third World countries. Part III of our series will chronicle how the U.S. Congressional democrats went about achieving their goal.

Senator Carl Levin – the Man of the Hour

For several years, U.S. Senator Carl Levin (Democrat-Michigan), has been fixated on so-called tax havens. Levin is currently the Chairman of both the Senate Armed Services Committee and the Permanent Subcommittee on Investigations of the Homeland Security and Governmental Affairs Committee. Levin's website boasts that "[t]hrough his role on the Permanent Subcommittee on Investigations, Senator Levin continues to lead investigations into abusive tax shelters and offshore tax havens used by businesses and individuals to dodge payment of their U.S. taxes."

Dominicans are well-aware of Levin's work. On February 5, 2001, Levin, the then-Ranking Democrat on the Subcommittee, released the results of a year-long investigation by his subcommittee staff on how U.S. banks were being used by foreign banks to launder the proceeds of criminal activity. The report labeled Dominica "a small bank secrecy jurisdiction in the Caribbean" and asserted that one of the island's offshore banks had moved more than $85 million through U.S. banks, "including millions of dollars associated with money laundering, financial frauds and illegal gambling operations on the Internet." The bank protested the claim, arguing that certain "bureaucrats ha[d] used the far-reaching powers of the United States government to obtain incomplete information, [and had] use[d] it in an intrusive and sensational fashion to draw conclusions that [were] neither warranted nor accurate."

Notwithstanding the bank's protestations, the Dominican government ordered the bank's license revoked and appointed the accounting firm, PricewaterhouseCoopers, to oversee the liquidation of the bank's assets. The bank's closure was yet another blow to the struggling Dominican economy.

But Levin is not concerned about flagging economies of small, Third World countries. His website says this about tax havens:

Offshore tax havens and secrecy jurisdictions today hold trillions of dollars in assets. While these jurisdictions claim to offer clients financial privacy, limited regulation, and low taxes, too often these jurisdictions have instead become havens for tax evasion, financial fraud, and money laundering. A sophisticated offshore industry, composed of a cadre of international professionals including tax attorneys, accountants, bankers, brokers, corporate service providers, and trust administrators, aggressively promotes offshore jurisdictions to U.S. citizens as a means to avoid taxes and creditors in their home jurisdictions.

These professionals, many of whom are located or do business in the United States, advise and assist U.S. citizens on opening offshore accounts, establishing sham trusts and shell corporations, hiding assets offshore, and making secret use of their offshore assets here at home. Experts estimate that Americans now have more than $1 trillion in assets offshore and illegally evade between $40 and $70 billion in U.S. taxes each year through the use of offshore tax schemes. U.S. corporations are estimated to illegally evade another $30 billion in taxes each year through offshore tax dodgers. America's working people bear the burden of this $100 billion tax gap.

The website then goes on to tout Senator Levin's work over the years. It makes no mention of the 2001 attack on Dominica that drove off an offshore bank and led the masses to believe that the Cinderella of the West had become a haven for money launderers. It does, however, boast that in November 2003, the Subcommittee conducted two days of hearings that "pulled back the curtain and provided an inside look at how respected accounting firms, banks, investment advisors, and lawyers have become high-powered engines behind the design and sale of abusive tax shelters." The website continues: "The hearings and an associated report found a corporate culture that pressured CPAs and lawyers to become tax product salespersons, pushed executives to sell, sell, sell to meet revenue goals, and overruled the few who didn't want to go along."

Next, the website recounts that in August 2006, the Subcommittee conducted another round of hearings "to expose and combat abusive tax practices." The report associated with the hearings "detailed six case histories that revealed how Americans use offshore trusts, corporations, and tax shelters to evade payment of their taxes." The website reveals that the "Subcommittee report makes a number of recommendations to combat these abusive tax practices."

In addition to his work on the Subcommittee on Investigations, Senator Levin has on three occasions introduced a tax haven bill in the Senate. His proposal is termed the Stop Tax Haven Abuse Act. In 2007, his co-sponsors were Senator Norm Coleman (Republican-Minnesota) and Senator Barack Obama (Democrat-Illinois). Senator Levin described the proposed legislation as "a bill to end abusive off-shore tax havens that deprive the U.S. Treasury billions of dollars a year, a loss that increases the tax burden on honest taxpayers." The measure was referred to a Senate committee where it died the death it deserved. Of importance to CARICOM nationals, the bill called for the reintroduction of the tax blacklist, with membership thereon similar to what pertained on the OECD's blacklist.

Undaunted by his failure of 2007, on July 12, 2011, Levin introduced in the Senate a new version of the Stop Tax Haven Abuse Act. His website boasts that this time around, the bill included "powerful new tools to combat offshore and tax shelter abuses, raise revenues, and eliminate incentives to send U.S. profits and jobs offshore." Once again, the bill died in committee.

Still unfazed, on September 19, 2013, Levin introduced another updated version of the bill in the Senate. Observers believe the measure has a zero percent chance of being passed by the Senate.

Levin Fails: Baucus and Rangel Come to Bat

Levin's insistence on getting his Stop Tax Haven Abuse Act passed into law may well be a case of overkill. Indeed, his proposed legislation may no longer be necessary. Congress has already enacted a statute that will have the same effect – minus the blacklisting of several Third World jurisdictions, including many CARICOM members. While Levin was pushing his bill that was going nowhere, two other Democrats proposed alternative legislation. On October 27, 2009, Senator Max Baucus (Democrat-Montana) introduced FATCA in the Senate. That same day, Representative Charles Rangel (Democrat-New York) introduced the bill in the House. The Senate referred its bill to the Senate Finance Committee for consideration; the House referred its version to the powerful House Ways and Means Committee. By a vote of 70-28, the Senate version passed the chamber on February 24, 2010. Meanwhile, the House version passed the House as the Hiring Incentives to Restore Employment Act, Title V, Subtitle A, on March 4, 2010, with an amendment. On March 17, 2010, the Senate agreed to the House amendment. On March 18, President Barack Obama, the man who, while a Senator co-sponsored Senator Levin's first version of his Stop Tax Haven Abuse Act, signed the measure into law.


The Democrats had won. America now had a statute in place to arrest the flight of capital from the United States to low-tax jurisdictions. In our next installment, we shall discuss the provisions of this draconian piece of legislation and the timeline for its implementation.

(FATCA and You is a Five-Part Series by Vaughn E. James, MBA, JD, Ph.D.

Dr. Vaughn E. James is a former Calypso and Roadmarch King of Dominica, and former President of the Dominica Calypso Association. A member of the Dominica Calypso Music Hall of Fame, he is currently an Endowed Professor (The Judge Robert H. Bean Professor of Law) at Texas Tech University School of Law in Lubbock, Texas. He is the former Director of the Texas Tech University Tax Clinic, and the Incoming Director of the Texas Tech University Master of Laws Program. He teaches International Taxation, Federal Income Taxation, Federal Estate and Gift Taxation, Elder Law, and Law & Religion).