By John Galt
December 15, 2011 – 22:30 ET
On March 29, 2010, I published the following commentary on the old version of this website:
This was tied Title V, section 1471 of the H.I.R.E. Act of 2010,Foreign Account Tax Compliance Act (FATCA), a vile piece of legislation laden with pork and a clause which many commentators like myself who trumpeted the warning that this was the initialization of capital controls in the United States. I received some chastising opinions that there was no way that this would impact anyone who wishes to move their funds overseas and the fears raised by my entry above and ZeroHedge’s analysis was overblown.
Fast forward to Der Spiegel publishing a story last night which should erase any ideas that in fact the United States is not engaged in the act of limiting the ability of the wealthy overseas:
Within this damning piece which proves the original concerns of this author correct, the following excerpts should create a sense of deep concern if not panic as the law does not go into effect officially until January 1, 2013:
According to a report in the Wednesday edition of the Financial Times Deutschland, several European banks have elected to no longer serve American securities investors due to stricter reporting requirements pushed through last year by the administration of President Barack Obama.
German financial institution HypoVereinsbank has informed its customers that it will no longer offer certain services to its US-based clients or to US citizens as of Jan. 1. Deutsche Bank told the paper that it already cancelled such accounts held by American citizens in the middle of 2011. Germany’s second largest bank, Commerzbank, is considering a similar move. Customers with normal checking or savings accounts in Germany are not affected, however.
British banking giant HSBC has also reported that it will no longer serve US investors as has the Swiss bank Credit Suisse.
The reason for the sudden reticence to serve American clients is the Foreign Account Tax Compliance Act (FATCA), which was passed in 2010 and will go into effect in January of 2013. The act requires all foreign banks to identify and report on US citizens with accounts holding more than $50,000 in an effort to clamp down on tax evasion. If banks refuse to comply, they could face a punitive 30 percent withholding tax on all payments from the US. The law is expected to increase tax revenues by $8 billion over the next 10 years.
Thus the figures are so low that anyone who was considering moving overseas as doctor, engineer, or investing in overseas ventures directly within those nations is now finding out that Americans and their dollars are not wanted. What makes this story doubly shocking is that in the midst of the worst liquidity crunch in European history since the two World Wars, banks which are dying for capital will not accept it because they must yield some level of control to the Internal Revenue Service or worse, settle penalties by losing revenue streams from operations in the states while audits are performed on said American accounts in their institution.
Needless to say, this de facto imposition of capital controls will not only begin to cripple American’s abilities to seek returns on direct overseas investment, it will reduce the flow of capital and credit thus antagonizing an already crippling credit crunch which will accelerate into 2012 and quite possibly create the desire to cease operations within the U.S. for some financial institutions. The story might appear minor and another “cry me a river for the millionaires” moment, but in reality the tit-for-tat retaliation for acts such as the HIRE Act’s FATCA provisions could eventually stifle liquidity flow between the U.S. and Europe thus exacerbating the crisis even further and destroying economic growth for years to come.