In 2010, the US Congress enacted the Foreign Account Tax Compliance Act, (FATCA), to crack down on tax evasion by Americans with assets abroad. The law requires foreign banks to report on accounts held by US citizens to the Internal Revenue Service (IRS). FATCA threatens foreign banks with fines if they fail to disclose American accounts. That has made it very hard for some American abroad to open bank accounts. According to a 2014 survey by Democrats Abroad, one in six US expats has faced involuntary closure of an account.
It may be increasingly hard to get into the US, but try getting out. A baby born in the US and who has lived outside the country for substantially their whole life, who has no American social security number, no passport, and no knowledge of the English language, is still covered by the same extraterritorial laws as all other US citizens. Fabien Lehagre was born in the US in 1984. His parents soon divorced and he arrived in France with his French father in 1986. He grew up and studied in France, and now works in Paris.
In 2014, Lehagre received a letter from his bank asking him for his American tax identification number (TIN). Having no idea that he was a US taxpayer, Lehagre first thought there had been a mistake. But he then discovered that he had acquired American citizenship at birth, and consequently was supposed to declare all his revenues to the IRS. Lehagre decided to start a campaign against FACTA, which he believes France should renounce. He started the Association of Accidental Americans (AAA) in 2017. The AAA’s goal is to fight the application in France of FATCA and the principle of Citizenship-Based Taxation (CBT), which is taxation based on citizenship instead of the country of residence.
Paying Dues to Uncle Sam
CBT is virtually unique to the US, although the Eritrean diaspora which also has to pay a tax based on citizenship rather than residence will sympathise. The system dates back to the US Civil War when Congress deemed that citizens abroad were avoiding their dues during their hour of need, so should be taxed. The system never went away. Americans abroad have never wielded any significant political influence, and domestic political leaders have remained resolutely indifferent to the issue.
Lehagre and his supporters are making a serious attempt to dent that indifference. The AAA has filed a demand to the Conseil d’Etat, France’s highest administrative court, to cancel the application of a decree authorising automatic information exchange on banking accounts between France and the US. The lawyers involved are paid from the subscription fees coming from the AAA’s membership, which now stands at 680.
There are three possible outcomes at the Conseil d’Etat, Lehagre says. The case could be accepted, which would leave French banks with an obligation to report information to the US authorities without any legal mechanism for doing so. This would expose them to the risk of substantial US fines. The Conseil d’Etat could also refuse the AAA’s claim. Lehagre told me that he expects the most likely outcome is a referral by the Conseil d’Etat to the European Court of Justice. This would lead to the issue being broadened to the whole of the European Union, and would extend the risks to the whole of the European banking sector. Lehagre expects the Conseil d’Etat to consider the matter in the first half of 2019.
The easy thing would be just to pay the fees involved in renouncing US citizenship. This varies according to the individual case but can be very expensive: Lehagre estimates the typical cost at between 15,000 and 20,000 euros. But it’s more than just a question of money for Lehagre and his members. It has become a question of principle. Because of extra-territorial legislation, US citizens, wherever they live, are victims of the application by financial institutions of the 1933 Securities Act, which leads to them being refused access to certain financial products, such as fonds commun de placement (FCP) and multi-support life insurance policies. Lehagre argues that even after giving up citizenship, accidental Americans can still face discrimination when they apply for online banking services.
Lehagre hopes that the French Banking Federation will be able to put pressure on the US government, which has yet to give an official response. He has lobbied French Finance Minister Bruno Le Maire and EU finance commissioner Pierre Moscovici to raise the matter with the US. “The issue can be quickly solved if the US has the will to do so,” he says.
