US Expats Get Dear John Letters From Their Banks

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US banks are freezing accounts and investments for American expats to avoid the cost of money laundering and tax avoidance laws.

Hundreds of expats have had letters from Fidelity, Wells-Fargo, Merrill Lynch, Morgan Stanley and other Us financial institutions to notify them that their accounts are closed.

The banks say strict US know-your-customer rules and the Foreign Account Tax Compliance Act (FATCA) are too expensive to meet – even for customers with millions of dollars in their accounts.

The know-your-customer rules demand the financial institutions separate transactions that are not ‘normal’ and may indicate money laundering.

FATCA requires banks to tell the US Internal Revenue Service about account balances and investments held by American customers.

What the letters say

US financial institutions generally have a reciprocal duty to report the account details of foreign nationals to the IRS, which then transmits the data on to foreign tax authorities.

They also must monitor their customers who live overseas to ensure they are keeping to the local regulator’s rules as well – and they may be different from those in the US, creating a dual compliance burden.

The time and cost involved in compliance has led many financial institutions to ditch non-profitable customers by letter and email.

The Merrill Lynch letters say:“We have conducted an extensive review of our non-US resident client business to determine whether we had the ability to continue to effectively serve your wealth and investment needs under increasing business requirements and regulatory restrictions.

“Having completed this analysis, we believe you would be better served by a firm or firms that can meet your comprehensive wealth and investment management needs. Therefore, we will no longer be servicing your Merrill Lynch Wealth Management account(s) and/or credit facilities effective <date>”

Dilemma for American expats

Customers are then asked to choose to transfer their accounts elsewhere or to have the money sent to them.

Taking the first option means investments are transferred without tax consequences or early drawdown penalties, but few financial institutions are willing to take on American customers because of the compliance consequences.

Besides American expats, thousands of so-called ‘Accidental Americans’ have been caught in the compliance net because their parents were US citizens, even if they have never set foot in the country.

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3 COMMENTS

  1. U.S. tax and compliance laws apply Kafkaesque double taxation on U.S. persons tax resident overseas.

    There are extra U.S. penalties, tax, and disincentives for money, accounts, pensions, and investments in countries other than the US; even if you live permanently overseas and your accounts are local to you and you already pay a fair share of tax to the country you live in, often at higher rates than U.S. taxes.

    In an increasingly global and mobile world the US should not punish US persons living, working overseas, and expanding US influence and trade overseas.

    Once resident overseas the U.S. provides zero resident services and local protection of property and individual rights in exchange for the double taxation. Thus the double tax claim is unjust.

    “Territorial taxation” for INDIVIDUALS with bill in Congress shortly will remedy.

    Any U.S. persons overseas must visit the message boards of The Isaac Brock Society, purpleexpatorg, Facebook Citizenship Based Taxation and American Expatriates Groups, citizenshiptaxation dot ca, and FixTheTaxTreaty dot org

  2. Lisa, thanks for the article. Please substantiate that US banks are reporting expat accounts back to their resident countries. From what we understand, banks are cancelling US expat bank accounts because of KYC regulations and the realization that they cannot solicit money from places where they have no license. What does that have to do with FATCA? Please substantiate.

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