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Counting the financial cost of being an American exile living abroad

July the 4th is two days away. Domestic citizens of the United States, from the flat vast farmlands to the high Sierras, and the sophisticated East Coast, look forward to celebrating another independence day in a long line of celebrations.

American citizens, dual nationals with the United States, and other related US persons living and working abroad are not sharing that same euphoric feeling. Increasingly isolated financially and shunned by foreign banking and investment institutions, they are facing bleak prospects for the future.

FATCA comes to town. The reason for this wholesale dumping of financial accounts owned by US citizens living in foreign countries by foreign financial institutions is directly attributable to the latest United States Giant Bear Initiative, FATCA (Foreign Accounts Tax Compliance Act). In simple plain English - leaving out the almost incomprehensible complex verbiage of US Internal Revenue Tax Code for sanity's sake - the United States is using the proverbial carrot and stick approach to force foreign banks to segregate US persons (citizens, multinationals with US citizenship, green card holders, residents for income tax purposes and others). In a complex expensive process, those US citizen's accounts derived from many sources (trusts, foreign mutual funds, life insurance, etc) are reported upstream to United States Internal Revenue Service: account numbers, highest balance, transactions, activity, owners. The carrot: co-operate and your foreign financial institution can continue to do business in United States capital markets. The stick: push back, and for every incident of non-compliance, the US through its intermediaries will withhold 30 percent of every transaction activity proceeds.

Needless to say, foreign banking associations, investment firms, and many others are in full polite protest mode, which means that underneath those polite words, the language is probably blue. The cost to implement this initiative is disturbingly expensive for what really is a forced US tax policing proxy. Consequently, many foreign financial institutions have quietly decided on a third alternative. They are inviting US citizens to withdraw their accounts, or aggressively throwing them out. Some are also informing their remaining non-US citizen investment clientele that the institution's portfolio management allocations will no longer include US securities. US banks onshore also are not accepting US citizen accounts if the individual resides outside of the United States.

No Place LeftThere are then, for thousands of ordinary people, living ordinary lives outside the United States little or no alternatives remaining to place an investment, purchase life insurance, accumulate a pension, or even deposit funds and pay every day expenses. Financial planning is an oxymoron. How can you plan when you cannot invest anything for the future, but have to live on cash under the mattress. Regrettably, these lonely US citizens are finding out what it truly means to be called 'the ugly Americans'. The effect on loyal individuals, many of whom have lived abroad most of their lives, is absolutely disastrous.

US citizens abroad who have unintentionally been non-compliant with the circuitous requirements of the US IRS FBAR (Report of Foreign Banks and Financial Accounts), are facing additional financial hurdles more on FBARs in another commentary.

Here are some of their stories, excerpted from Dan Mitchell's June 20, 2011 column in the Center for Freedom and Prosperity blog and from the American Citizens Abroad website. Please see the full story on his blog - listed below.

l From an American living in Belgium - “…my portfolio of investments held at their bank was blocked…He advised me that as of that date, I could no longer trade, but could only hold, sell or transfer my portfolio. I was banned from trading in either US stocks or all others.”

l From a retired teacher in Germany - “I was denied the policy because I am an American citizen. My agent very clearly said that he could sell the policy that I wanted to any other nationality, except me-because I was American!”

l From an American married to a European - “I have been unable to gain legal advice in Switzerland regarding US Wills and Guardianships because [bank redacted] lawyers are 'not permitted to speak to Americans about legal, tax or banking matters in specific terms.'”

l From an American married to a European - “The company who has been holding my modest UK share portfolio wrote to me in September 2010 saying they were closing my account. They were removing all US persons from their client base due to the increased reporting and audit costs placed on them by the FATCA legislation.”

l From an American in Europe with a foreign spouse - “They sent me a letter saying: Our records show that you are an American citizen. Because of various strict new American rules regarding securities accounts held by American shareholders, we are closing such accounts including yours.”

l From an American assigned overseas by his company “I was extremely surprised and outraged by the fact that not one bank (including foreign branches of US banks!) would allow me to open a simple savings account to pay my rent and bills. All of the banks cited my US citizenship and the difficulties they experience with the US government.”

l From an American in Spain - “I have been forced to close a US bank account due to being an overseas citizen and cannot open new bank or brokerage accounts in the US. I am also being denied the opening of new brokerage accounts in Spain.”

And from the American Citizens Abroad website who have already taken these issues to the President and US Congress.- in 2009.

American Citizens Abroad (ACA) has written a concerned letter to President Obama to highlight the unintended and extremely negative effects which recently changed or proposed US banking and taxation laws are having on US citizens living overseas. Three letters were mailed by ACA on Friday 17 July 2009 - one to President Obama, one to Secretary of the Treasury Geithner and one to Chairman Volcker of the Tax Panel.

The situation has become so untenable that ACA has sent pleas to correct the situation to President Obama, as well as Secretary of the Treasury Geithner and Chairman Volcker of the President's Task Force on Tax Reform.

US citizens living abroad are being deprived of normal banking services, both overseas and in the United States, merely because they are American citizens. US laws and regulations which harass US citizens overseas and treat them as automatic tax evaders actually harm the country overall.

The letters mentioned “the perfect storm which is currently brewing against the estimated five million Americans who live and work abroad.” and that a combination of existing and proposed US policies is making their banking and personal situation untenable.

Two of the four policies described are:

First, the proposed reinforced Qualified Intermediary (QI) regulations are so draconian that banks overseas are getting rid of American clients rather than face the administrative hassle and the perceived legal risks of complying.

Second, the Patriot Act, in 2001, tightened the Know-Your-Customer (KYC) regulations. Many US banks have decided that this KYC clause cannot be fulfilled if the customer lives overseas. Consequently, these banks are closing accounts of US citizens on the sole ground of their overseas addresses.

In the current global economic environment, more countries than just the United States are seeking to ensure that all citizens pay their fair tax share. US citizens who live abroad face constant reporting and taxation demands of more than one government - a hurdle with ever increasing scope. Eliminating multiple citizenships will simplify their lives.

For many, financially and emotionally, it has all become just too hard.

Instead of celebrating, truth, life and the American Way, they are turning their backs on the United States. They feel abandoned by their country. They are leaving their US citizenship in the dustbin of old memories.


Next week Part 2 of the Lonely American.

© Copyright Martha Harris Myron All Rights Reserved Southampton Bermuda

Martha Myron, JP CPA CFP(US) TEP is an international Certified Financial Planner™ practitioner in private wealth management. She specializes in independent fee-only cross border investment, tax, estate, and strategic retirement planning services for Bermuda residents with United States and multi-national connections, and US citizens living and working abroad. She is a Masters in Law candidate in International Tax and Financial Planning and the Bermuda country contact at the American Citizens Abroad Tax Advisory Council.

For more information contact mmyron[AT] or 296 3528 at Patterson Partners Ltd.

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Published July 02, 2011 at 9:00 am (Updated July 02, 2011 at 9:14 am)

Counting the financial cost of being an American exile living abroad

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