Tax-Expatriation

USCs and LPRs Who Are Having Their Non-U.S. Accounts Closed: Is it hype or is it real?

Posted on November 9, 2014

Is it hype or is it real?

It’s difficult to know with certainty how accurate are the various claims that U.S. citizens overseas are having their accounts closed by foreign financial institutions. If it has happened to you, of course you will know it.  See for instance the following reports, just to name a few:

Wall Street Journal: Expats Left Frustrated as Banks Cut Services Abroad Americans Overseas Struggle With Implications of Crackdown on Money Laundering and Tax Evasion (11 Sept 2014)

Wall Street Journal – Opinion (Colleen Graffy): How to Lose Friends, Citizens and Influence; The U.S. Foreign Account Tax Compliance Act seeks to co-opt foreign banks as long-arm enforcement

Association of Americans Resident Overseas: Americans Abroad are Denied Access to Banking and Investment Opportunities

Time Magazine: Swiss Banks Tell American Expats to Empty Their Accounts

The Huffington Post (Aug 2014) – Expatriate Tax Sense or Broad-Brush Overreach: The U.S. Foreign Account Tax Compliance Act (FATCA)

The New York Times (April 2013) Overseas Finances Can Trip Up Americans Abroad

and

American Citizens Abroad which compiles various news accounts of accounts being closed. 

Anecdotally, I have certainly seen it in my practice, in places such as Hong Kong, London, Geneva and Zurich, but I can’t say I have seen it as a widespread practice.  Indeed, for those individuals with large investment accounts (e.g., greater than US$1M, the banks seem to accommodate, or at least require them to move their assets to their U.S. affiliate or branch).  I suspect those with smaller accounts of less than US$100,000, are seeing a broader brush stroke closing these accounts.

For good practical advice about maintaining or opening foreign accounts, I recommend you read:

I can say that what I have seen in practice is a widespread plan by individuals to close foreign financial accounts and relocate the assets to a U.S. financial institution.  This is not the decision of the financial institution, but rather the individual.  The reason is not FATCA, per se, but a desire to reduce the compliance costs of filing and reporting on these foreign accounts. See,  Nuances of FBAR – Foreign Bank Account Report Filings – for USCs and LPRs living outside the U.S.

Multiple tiers of reporting of foreign assets is now required and it can cost a small fortune to have a good international tax adviser who is aware of these reporting requirements.  See,  USCs and LPRs residing outside the U.S. – and IRS Form 8938 [Specified Foreign Financial Assets]

For those with significant assets and numerous accounts, the professional fees and costs of reporting accurately these accounts can become exorbitant (especially when the risks of potentially devastating civil penalties are weighed into the mix).  See,  Why the Zwerner FBAR Case is Probably a Pyrrhic Victory for the Government – for USCs and LPRs Living Outside the U.S. (Part II)

At the end of the day, the practical affect I have seen (anecdotally) is a widespread desire to close foreign accounts and move them to the U.S.; not because of FATCA, but because of the costs and compliance and risk (more than just perceived – considering the IRS now regularly threatens large multiple year 50% willfulness penalties for those who did not file an FBAR) of being penalized by the IRS.

I find this ironic, since there is no legal restriction for a USC to hold foreign accounts and indeed a USC or LPR residing outside the U.S., will generally find it easier from a lifestyle and personal financial management perspective to have an account in their home country.  The affect, however, is that U.S. financial institutions are receiving these assets and investments.

I will post a survey this week to ask individuals if they have had their non-U.S. bank accounts closed.