Below is a copy of the submission the Democrats Abroad Global Taxation Task Force submitted to the House Financial Services Committee in advance of the hearing on Oversight of the Financial Crimes Enforcement Network taking place on April 28 at 10am EDT. The TTF strongly encourages Americans abroad to submit their own statement for the record.
Dear Chairwoman Waters, Ranking Member McHenry, and Members of the Committee:
Democrats Abroad greatly appreciates your holding this important hearing. We recognize the importance of the Financial Crimes Enforcement Network’s mission to combat money laundering and terrorist financing. Today we are submitting policy proposals based on the firsthand experiences of our 200,000 members.
Since the passage of the Currency and Foreign Transactions Reporting Act (more commonly known as the Bank Secrecy Act) in 1970, U.S. citizens living abroad (“non-residents”) have increasingly become caught up in ongoing efforts against tax evasion and malicious actors. While we recognize that battling money laundering and terrorist financing are critical priorities, substantial adjustments to FinCEN Form 114, the Report of Foreign Bank and Financial Accounts or “FBAR,” are needed to ensure that the impact to ordinary law-abiding citizens is proportional to the financial law enforcement benefits.
The FBAR is a duplicative, burdensome and confusing information report, which no longer serves a meaningful purpose given the availability to the Treasury Department of similar information from multiple other sources. FBAR information collection from U.S. citizens who reside outside the United States is an undue burden for the following reasons:
If all of the 9 million U.S. citizens who reside outside the United States actually complied fully with the FBAR filing requirements, FinCEN would be inundated with an overload of useless information about the everyday financial activities of ordinary people. This would not support FinCEN’s mission of combating money laundering, but rather drown out actual indicia of risk in a tidal wave of unnecessary information.
The GAO has called attention to the overlap and redundancy of information being fed to Treasury and called for consolidation and simplification to relieve the burden on Americans abroad. In addition, the “challenges” identified by the GAO in 2018 with “...complying with US tax reporting requirements on their foreign retirement savings” can be very onerous, often requiring expensive professional assistance, which further induces fear of punitive sanctions and stresses caused by forcing unwilling non-US spouses and business associates into US reporting further discourage compliance.
Without evidence of serving any purpose for combatting money laundering and terrorist financing activities, administering the FBAR regime is consuming resources which could be deployed to other activities, and has not shown the practical utility that is required to justify its continuation.
Our recommendations are intended to help FinCEN achieve proportionality while simultaneously improving FBAR’s effectiveness as a law enforcement tool.
At the present, FBAR reporting is redundant, disproportionate to risk, and it fails to take into account the necessities of holding foreign bank accounts when residing outside of the United States. At the same time, enforcement efforts are generally disproportionate, with FinCEN exercising little discretion and often pursuing statutory-maximum penalties even for infractions deemed non-willful. This results in highly, highly, regressive penalties that disproportionately harm the middle and working class. In some cases, fear of excessive penalties is cited as a barrier to becoming compliant for previous non-filers.
Our proposals for reform are intended to reduce paperwork burdens for both the public and FinCEN, align reporting to accounts that are large enough to pose a substantial risk relating to financial crimes, and to ensure that enforcement serves a public benefit.
We thank you for the opportunity to provide commentary and recommendations, and we encourage you to read our responses to specific questions in the annex included with our letter.
Thank you for the opportunity to provide this testimony.
Please do not hesitate to contact Rebecca Lammers of our Taxation Task Force on [email protected] with any questions about the information and recommendations provided.