Is it hype, or is it real? Many U.S. citizens and lawful permanent residents (green-card holders) living overseas have heard that foreign banks are closing their accounts. Here is what actually shows up in practice, and why so many people are moving their money home.
On this page
- Are foreign banks really closing the accounts of Americans living overseas?
- What have news reports said about banks cutting off American expats?
- Does the size of the account change how a foreign bank responds?
- If foreign banks aren’t the main driver, who is closing these accounts?
- Why are U.S. citizens and green-card holders abroad choosing to close their foreign accounts?
- What reporting makes holding foreign accounts so expensive?
- What penalties are people worried about?
- Is it actually illegal for a U.S. person to hold a foreign bank account?
- Where are these assets ending up?
Are foreign banks really closing the accounts of Americans living overseas?
It is hard to know with certainty how accurate these claims are. If it has happened to you, of course you will know it. In practice, account closings have turned up in places such as Hong Kong, London, Geneva, and Zurich. But they do not appear to be a widespread practice, at least not anecdotally.
What have news reports said about banks cutting off American expats?
Several published reports have raised the issue, including:
- The Wall Street Journal, “Expats Left Frustrated as Banks Cut Services Abroad” (11 Sept 2014).
- The Wall Street Journal opinion piece by Colleen Graffy, “How to Lose Friends, Citizens and Influence.”
- 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.”
- The Association of Americans Resident Overseas, on Americans abroad being denied access to banking and investment opportunities.
- American Citizens Abroad, which compiles various news accounts of accounts being closed.
Does the size of the account change how a foreign bank responds?
It appears to. For individuals with large investment accounts, for example greater than US$1 million, banks seem to accommodate them, or at least require them to move their assets to a U.S. affiliate or branch. Those with smaller accounts, for example less than US$100,000, appear to see a broader brush stroke of closures.
If foreign banks aren’t the main driver, who is closing these accounts?
Much of it is the individual’s own decision, not the bank’s. What has been widespread in practice is a plan by individuals to close foreign financial accounts and relocate the assets to a U.S. financial institution. This includes U.S. citizens and lawful permanent residents (green-card holders) living outside the U.S. The move is the individual’s choice, not the financial institution’s.
Why are U.S. citizens and green-card holders abroad choosing to close their foreign accounts?
The reason is generally not FATCA (the Foreign Account Tax Compliance Act) itself, but a desire to reduce the compliance costs of filing and reporting on foreign accounts. FATCA seeks to co-opt foreign banks as long-arm enforcement of U.S. tax law. Even so, the driver people cite is cost, not the statute. Multiple tiers of reporting of foreign assets is now required. It can cost a small fortune to retain a good international tax adviser who is aware of these reporting requirements.
What reporting makes holding foreign accounts so expensive?
Two main layers apply to U.S. citizens and lawful permanent residents living outside the U.S.: the FBAR (the Foreign Bank Account Report) and IRS Form 8938 (Specified Foreign Financial Assets). For those with significant assets and numerous accounts, the professional fees and costs of reporting these accounts accurately can become exorbitant. That is especially true when the risk of potentially devastating civil penalties is weighed into the mix.
What penalties are people worried about?
The IRS now regularly threatens large, multiple-year 50% willfulness penalties for those who did not file an FBAR. This risk is more than just perceived. The Zwerner FBAR case is one example, and it has been described as probably a Pyrrhic victory for the government for U.S. citizens and lawful permanent residents living outside the U.S. The combination of cost, compliance burden, and penalty risk is what drives many people to act.
Is it actually illegal for a U.S. person to hold a foreign bank account?
No. There is no legal restriction for a U.S. citizen to hold foreign accounts. A U.S. citizen or lawful permanent resident 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 irony is that the practical effect pushes in the opposite direction.
Where are these assets ending up?
The practical effect, anecdotally, is that U.S. financial institutions are receiving these assets and investments. As individuals close foreign accounts to cut compliance costs and penalty risk, the money flows back into the U.S. rather than staying in their home country abroad.