Lawsuit in UK to challenge legality of British gov't's data-sharing under FATCA

The case will allege that by forwarding her data to the IRS, the UK's HM Revenue & Customs is breaching the American's data protection and privacy rights.

The case is the latest in a series of legal challenges to FATCA, a controversial 2010 American law that was aimed at cracking down on the use of overseas banks by U.S.-resident Americans to avoid their U.S. tax obligations. Although not the original target of FATCA, America's estimated 9 million overseas residents have been significantly impacted by the law. 

Although a number of legal challenges to FATCA have failed in the past, many opponents of the law say its "extra-territorial tax" element, which requires the active participation of other countries in a way that sees them assisting the U.S. to come after their own citizens, coupled with the cross-border sharing of personal data that FATCA compliance mandates, remain compelling legal questions. 

In this case, the American, who is asking to be identified only as "Jenny," has been a British citizen since 2010. She describes herself as married and working with deaf students at a university in the north of England,  where she is a research associate. 

She is seeking to crowd-fund her case, and is asking fellow Americans around the world to help her, with a donation page set up on the CrowdJustice.com site.

"Nobody should evade tax," Jenny says, in an explanation of her case on her CrowdJustice page. 

"My problem is not with FATCA's objective but the disproportionate nature of the measure to achieve its objective." 

Jenny is hoping to raise £50,000 to finance her lawsuit; thus far she has more than £2,000, and donations appear to be coming in steadily, almost all accompanied by a brief note written by the donor, expressing support for the cause.

First FATCA challenge over GDPR

A Mishcon de Reya partner who is handling the FATCA case, Filippo Noseda (pictured left), said the case is significant because it "is the first time that FATCA has been challenged on the basis that its implementation in the EU breaches the GDPR [EU General Data Protection Regulation] and individuals' fundamental rights enshrined in EU and UK legislation".

"The implementation of FATCA in the UK was rushed through against the advice of the European data protection authorities and even concerns raised by the European Commission," Noseda, a privacy and data-protection law specialist, added.

"The recent hacking of the tax data of the entire population of an EU member state [Bulgaria], with reverberations beyond the EU's borders, and the OECD's admission that the data stolen included data transferred between tax authorities under a system derived from FATCA, shows the importance of raising these issues."

Noseda added that the introduction of FATCA had resulted in public authorities seeking to achieve "honourable public objectives through disproportionate – and unnecessary – means.

"The result is the sharing of personal and financial information that is contrary to the principles of GDPR, which was introduced to give individuals back control of their data.

"With FATCA, there is a particular issue with sending information to a non-EEA country (the U.S.) without appropriate safeguards – in a separate case, the European Court of Justice ruled that this was illegal."

FATCA pushback growing

FATCA has been unpopular among Americans abroad almost since the moment it was signed, as it immediately led banks and other institutions to ask their American expat clients to take their business elsewhere, a problem that continues. Although there have been a number of challenges to the law over the years, anti-FATCA legal efforts appear to have increased in recent months, particularly in Europe.

Here, the approaching Dec. 31 expiration of a "grace period" that has enabled banks to not have to report the Tax Information Numbers of their American clients when providing their FATCA reports to the U.S. has been focusing growing attention on the matter.

As reported, the head of the Brussels-based European Banking Federation, which represents some 3,500 banks across Europe, warned U.S. Treasury officials in February about the problem, saying that Europe's banks were increasingly having to choose between “[continuing] to provide financial services, including basic banking services” to these European citizens who are also U.S. citizens, but who lack a TIN – “or stop doing so." 

In a letter dated Feb.22, EBF chief executive Wim Mijs cited the difficulty Europe's banks were having in particular with accommodating so-called “accidental Americans,” who are considered to be American because they were born there, typically years ago, or have at least one American parent, but who have grown up and reside in Europe, and are legal citizens of one of the EU’s 28 member states.

Although such "accidentals" typically don't think of themselves as American, and often only discover that anyone thinks they are when a bank notifies them that it needs such information as a Social Security Number in order to comply with FATCA, the U.S. expects them to file tax returns their entire lives, as long as they make over a certain amount of money, and potentially to pay tax to the U.S., because unlike any other country besides Eritrea, the U.S. taxes on the basis of citizenship rather than residency.  (American expat groups, including the American Citizens Abroad, have been stepping up their calls for this to be changed.)

The number of such "accidentals" has been estimated at as many as 300,000 across the EU, based on European Parliament data, of which around 40,000 are said to be in France.

As reported, France’s top administrative court, the Conseil d'Etat, ruled in July that the way France currently implements FATCA did not violate the privacy of dual French/American citizens, and didn’t need to be changed or scrapped, dealing a blow to the Paris-based Accidental Americans Association.

However, the AAA’s president, Fabien Lehagre, pictured during a demonstration last year in Paris, has said that his organization plans imminently to seek to file a complaint with the European Commission, in the hopes of eventually getting a ruling from the EU's Court of Justice. 

Referring to Jenny's case, Lehagre said today: "This new legal challenge is good news. I hope others will be soon to follow, because it is high time to stop the injustices inherent in the extra-territorial application of U.S. laws."

Another example of a disgruntled-American-expat-driven pushback against FATCA, as reported exclusively here in March, involved a Freedom of Information request filed in the UK by a U.S.-born British citizen who sought to know the "extent of... the annual disclosure of British taxpayer information to the U.S. Internal Revenue Service, as per FATCA's requirements."

Even though similar information – which would have revealed the scale of HMRC's involvement in its FATCA reporting efforts and potentially set a benchmark against which the American government's reciprocal information reporting efforts might be measured  – had recently been granted to individuals using FOI requests in Canada in Australia, UK officials rejected the British citizen's request twice, and the time for filing a further appeal has now passed.

However, a source familiar with the case said the GDPR regulations weren't in force during the entire time covered by that FOI request, which is also thought to have been an issue in a 2018  challenge to HMRC over data protection concerns in connection with the Common Reporting Standard, a global version of FATCA introduced by the Organisation for Co-Operation and Development that the UK is a signatory to (although the U.S. isn't). That matter was brought by an EU national domiciled in Italy who was reported to have an "international background" and who had spent several years in the UK and during that time set up a UK bank account, which at the time of her complaint to the UK's Information Commissioner's Office, she still had, according to a Financial Times report at the time.  

Long-running Canadian
anti-FATCA case dismissed

Among the various legal attempts to derail FATCA that – so far – have not succeeded was a case brought in Canada's Federal Court by two dual Canadian/U.S. citizens. As reported, it was dismissed in July, on grounds that the Inter-governmental Agreement under which FATCA is implemented in Canada did not breach Canada’s Charter of Rights and Freedoms, which protects Canadian citizens from the “unreasonable seizure” of their financial information and guarantees them equality under law regardless “of their citizenship or their national or ethnic origin”. (Those responsible for bringing that case said they would appeal.) 

Other efforts, in France, the U.S. and Israel, have also not been successful, at least so far. 

Noseda said his client "is aware of the challenges ahead," but said there were reasons to think that this time it could be different.

Referring to the U.S. legal challenge, led by Kentucky Senator Rand Paul, which ended in April 2018 after the U.S. Supreme Court refused to consider revisiting a lower court decision, Noseda noted that the U.S. court had "rejected" the plaintiffs' arguments, "on the basis that the U.S. Constitution does not provide any legitimate expectation of privacy in financial documents".

"However, that decision also shows the lower standard of data protection in the U.S. on which FATCA is based," Noseda noted.

As for an attempt to challenge FATCA in France, Noseda went on, it failed as well "because the court did not consider fully the disproportionate nature of FATCA."  

A spokesperson for UK Finance, which represents the UK's banking industry, noted that all financial institutions in the UK "are legally obliged to collect and share information with HMRC on bank accounts held by U.S. citizens" under an agreement between the U.S. and the UK, and that, for this reason, UK banks  "have been contacting customers to request certain information including Tax Identification Numbers.

“We continue to liaise with our members, HM Revenue & Customs, HM Treasury and the U.S. Internal Revenue Service, and are supporting the European Banking Federation‘s work in this area, including on the approach to U.S. citizens living in Europe who don’t have Tax Identification Numbers.

“We would encourage any customers with U.S. citizenship who have concerns to get in touch with their bank.”

 The spokesperson added that more information on the agreement between the U.S. and the UK as it pertains to FATCA, can be found on HMRC's website. 

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