Potential major precedent seen, as Dutch court rules in favor of 'unintentionally American' pilot Ariës

Unless it's overturned, yesterday's decision is seen as putting de Volksbank – as well as other banks in the Netherlands, and potentially elsewhere in Europe – in conflict with certain requirements set forth in the American tax evasion-prevention legislation known as FATCA, which the Netherlands and other countries around the world have agreed to enforce.

The decision overturns a lower court ruling issued last December, and is the latest in a series of decisions that have been made over the past two years that Ronald Ariës, a retired KLM pilot, has sought to maintain his de Volksbank accounts, while at the same time declining to provide the bank with a U.S. TIN, such as a Social Security Number, even though it had told him he had to.

In addition to prohibiting de Volksbank from terminating Ariës's bank accounts, as long as his balance remains under US$50,000, the court ordered the company to pay his court costs, which it said are estimated "to date" at €1,896.83 (US$2,148).

In order to obtain a U.S. TIN, the U.S.-born Ariës would have to enter into the U.S. tax system in a way that he has never had to do until now, as he has lived all but the first of his 63 years in the Netherlands, as a Dutch citizen, like his parents.

It would also formally establish him as a U.S. citizen and taxpayer in such a way that he would have to undertake additional costly and burdensome relinquishment procedures in order to exit the system, which Ariës has said in the past that he didn't feel he should be obliged to do, citing his "enormous sense of injustice". 

The problem for banks and other financial institutions outside of the U.S. is that FATCA (the Foreign account Tax Compliance Act) makes it risky for them to accept or keep U.S. citizens as clients if they fail to provide the U.S. with a U.S. TIN or Certificate of Loss of Nationality (CLN) for each of their U.S. citizen account-holders.

At the same time, though, an EU law known as the Payment Accounts Directive requires EU banks to provide a basic bank account to any EU citizen who wishes to have one. 

By mid-afternoon today, it wasn't known whether de Volksbank would challenge the ruling, which was issued by the Central Netherlands Court in Amersfoort. A bank spokesperson said only that de Volksbank was "currently studying the verdict". 

 For his part,  Ariës – pictured left, in the cockpit of an A330 – said he felt a "great sense of relief" as a result of the ruling, and added that he saw it as "a beginning" in the quest by accidental Americans like him to begin to be treated like the regular citizens of the countries in which they live that they are.

"But FATCA isn't yet gone, and until it is, that means I, and others like me, cannot hold US$50,000 in our bank accounts," he added. 

"One thing that particularly pleased me about this latest ruling, though, is that the judge accepted, at last, that my refusal to obtain a U.S. TIN did not mean, as the bank attempted to claim, that I could be assumed to be evading tax and/or guilty of money laundering." 

Ariës added that at least one legal expert he'd spoken with had said that Dutch banks were unlikely to challenge yesterday's court ruling, because it gave them an excuse that they could cite in the event that the U.S. tried to insist that they provide TINs or CLNs for those of their accidental American account-holders whose bank accounts remained below the US$50,000 minimum.

FATCA's unintended consequences

Although FATCA, signed into law in 2010 by President Obama, was primarily conceived as a means of ensuring that wealthy Americans living in the U.S. didn't use banks and other financial institutions outside of the country, such as in Switzerland, to avoid their U.S. tax obligations, it has hit "accidental Americans" (or "unintentional Americans" as the Dutch sometimes refer to them) particularly hard.

That's because few of these "accidentals" realized that they were even considered to be U.S. citizens – let alone were seen to have tax-reporting obligations to the country in which they, like Ariës, may have been born, but never lived nor worked – until their bank or other financial services provider began asking them for a TIN. Typically the banks have been doing this whenever they spotted a U.S.-born account-holder whose U.S. tax-identification data they lacked.

The European Banking Federation has estimated that there are nearly 300,000 accidental Americans in the EU, of which as many as 46,000 are thought to live in, and be citizens of, the Netherlands. 

Regular American expats have also been struggling for years as a result of the unintended consequences of FATCA, as few realized that they were expected to file U.S. tax returns every year, nor Foreign Bank Account Reports, until it began to be enforced.

Recently, as banks and financial institutions have sought to reduce their costs, under pressure to become more price-competitive, growing numbers of such ordinary expats have also been told that they must take their bank and other financial accounts elsewhere, as these businesses have decided to stop accepting any American citizens as account-holders. Among the most recent institutions to do this has been FlatexDEGIRO AG, a publicly-traded, Frankfurt-based online brokerage firm.

Even U.S. banks often don't want American expat clients, according to the findings of a survey carried out towards the end of 2020 by the Association of Americans Resident Overseas. 

Exception to FATCA for balances below US$50,000 cited

In yesterday's ruling, which may be viewed by clicking here, Justice J. P. Verboom reveals that a key factor in his decision to require de Volksbank to allow Ariës to keep his two current accounts and single savings account open was the fact that an exception in the FATCA legislation provides for "an exception [to the TIN/CLN requirement] for bank accounts opened after July 1, 2014, with a balance of less than US$50,000 at the end of the calendar year reported by the financial institution". 

Justice Verboom added: "It has been established that the (combined) balances of [Ariës]'s bank accounts opened after that date have at some point exceeded the US$50,000 limit, but that they have been below that limit for some time now." 

Justice Verboom goes on to note that during a recent hearing – held last month, according to Ariës – de Volksbank confirmed that his bank accounts for the past calendar year had "not [been] reported to the tax authorities because they remained below this limit."

"This not only means that Volksbank no longer has to report [Ariës] to the tax authorities at this time, but, contrary to Volksbank's assertion, Volksbank also no longer has to identify the bank accounts of [Ariës] as relevant in the context of compliance with FATCA laws and regulations.

"After all, the aforementioned provision of the FATCA treaty refers to accounts ‘not required to be reviewed, identified or reported as U.S. Reportable Accounts'. The bank accounts of [Ariës] can therefore no longer be regarded as 'U.S. Reportable Accounts' for which a US TIN must be obtained, under Article 2 paragraph 2 of the FATCA agreement ('information to be obtained and exchanged')."

Reactions to the court's decision 

Among the first organizations to respond to the news of yesterday's decision was the Netherlands Association of Accidental Americans (NLAA), which has been a visible and outspoken opponent of FATCA in the Netherlands, and which was present at last month's hearing in Ariës's case. 

"It's an important first result for a large group of accidental Americans, but we aren't finished yet," said NLAA spokesperson Rob Gerretsen. 

"This means banks can't automatically close the bank accounts of accidentals who don't have SSNs or CLNs.

"It also tells us that the Dutch Authority Financial Markets (Dutch AFM), Dutch Central Bank (DNB) and Dutch financial services complaints tribunal (KIFID) have all been wrong in their decisions in the past, which have placed the protection of Dutch financial institutions ahead of the rights of Dutch citizens.

"Now we have to continue with the fight for a structural solution, for all accidental Americans, beginning with overdue political changes that are needed to protect Dutch citizens against extraterritorial U.S. laws." 

Fabien Lehagre, the U.S. born, France-based president and founder of the Association of Accidental Americans, which has filed a number of major lawsuits on behalf of accidentals in Europe as well as the U.S. in recent years, said the Dutch court's decision was "great news" because, among other things, it "indirectly has an impact on what should be understood [to be meant by the term] 'tax evasion'.

"This will complement the line of argument that the AAA is currently developing with the Dutch data protection authority," he explained.

"This decision recognizes, for the first time, the particular situation accidental Americans find themselves in. It is only valid for the Netherlands, but it is nonetheless a real victory, as it puts Dutch banks in a situation where they will no longer be able to close the bank accounts of accidental Americans in the Netherlands [who have less than US$50,000 in their accounts].

"Congratulations to Ronald Ariës and his lawyer!"  

"Well done Ronald!" echoed Filippo Noseda, a Mishcon de Reya law firm partner who has been an early and prominent campaigner, on behalf of various clients over the years, against governmental abuses of fundamental data privacy rights and legal issues, notably on behalf of U.S.-born anti-FATCA campaigner Jenny Webster, who lives in the UK.

"This case is a testament to the courage of ordinary people who decide to take on the system," Noseda, pictured right, testifying during an EU hearing on FATCA in 2019, added.

"The threat of accounts closure is a direct result of the harsh nature of FATCA, and in the absence of any meaningful response  from the EU institutions and national governments, it took a courageous former KLM pilot to fly this case aptly and safely through the Dutch court system." 

Vincent Wellens, a partner in the Luxembourg office of the international law firm Nauta Dutilh – which is representing the AAA in a number of legal matters – said that he saw "a few important take-aways" from the decision, in addition to the fact that it was a "fantastic outcome" for Dutch accidentals. 

One, he said, was that it introduced into the debate the little-known fact that "only a fraction of accidental Americans (5%) are estimated to actually owe taxes to the U.S.," which he said was likely to be seen as proof that the current regime of FATCA reporting requirements were excessive, given that the reason they were imposed was in order to "fight against actual tax evasion."

It also was one of the first decisions thus far "to take into account the special status of the accidental Americans," he added.

"In continental Europe, there is no such thing as a judicial decision that has a precedent-setting effect on other courts in other cases, but I expect that this could be one of the elements, in addition to Fabien's and the AAA's efforts on a public policy level, that eventually will turn the tide in favor of the accidental Americans on an EU level."

Spotlight seen to return to EU and U.S. lawmakers 

As the NLAA and AAA spokespeople point out, the Dutch court's decision in the Ariës case turns the FATCA compliance spotlight back onto political efforts that have been made in the Netherlands and elsewhere in the EU to get the U.S. to agree to changes in the way non-U.S. banks and other institutions are obliged to comply with FATCA. 

As reported, the Dutch Banking Association announced last month that the date by which accidental Americans living in the Netherlands are being told that they must provide either an SSN or a CLN, if they are to avoid having their bank accounts closed, has once again been pushed back – this time to Sept. 1, 2022.

The news was conveyed by Dutch finance minister Wopke Hoekstra, as he also explained how he and his fellow Dutch government ministers were continuing to press their U.S. counterparts over the way they require Dutch banks and financial services companies to enforce FATCA, which they argue is unfair to many of their constituents, including the accidentals.

However, Hoekstra noted in his letter, dated Dec. 10, that while he and his colleagues in the government and the Dutch Banking Association remained "committed, both bilaterally and in an EU context, to get more clarity from the U.S. about the best efforts obligation for [our] banks," based on "the various talks" they have had with U.S. officials recently, "we do not expect the U.S. to make any further changes to its procedures, or to be prepared to cut costs in the foreseeable future."