Sen. Rand Paul on Tuesday officially sued the Obama administration, seeking to stop it from enforcing a federal banking law that has led large numbers of Americans overseas to renounce their citizenship.
In a move with implications for his 2016 presidential bid, Mr. Paul joined six other plaintiffs in a suit filed by Republicans Overseas Action (ROA), arguing that the Foreign Account Tax Compliance Act (FATCA) is unconstitutional.
The lawsuit maintains Mr. Paul has unique standing as a plaintiff since it argues the Obama administration violated the right of himself and other 99 senators to advise and consent on agreements with foreign countries.
The 2010 law, passed by a Democratic Congress, has been a centerpiece of President Obama’s campaign to crack down on wealthy Americans he says have been dodging taxes by hiding their money overseas.
But it has become enormously controversial, empowering foreign banks to turn over overseas Americans’ private information to foreign governments, who then must turn it over to the Treasury Department.
The lawsuit argues the agreements the Treasury Department reached with foreign countries to gain access to Americans’ banking information violates the Constitution’s Article II, Section 2 that requires two-thirds of U.S. senators present and voting to approve a foreign treaty.
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The suit also claims the law has inflicted unprecedented hardship on American expatriates, preventing them from getting banking services overseas and causing many to renounce their citizenship to avoid onerous invasions of their privacy and financial penalties.
The lawsuit could also have a political impact as the Republican Party tries to recruit the 8.7 million U.S. citizens living and working abroad to back it in next year’s presidential elections. That would be a significant advantage for the GOP’s presidential nominee if enough absentee overseas votes are cast in swing state where small margins make large differences in awarding electoral college votes to Oval Office hopefuls.
“This lawsuit speaks volumes about the Obama administration’s lawlessness and disregard for the Constitution,” said Jim Bopp Jr., lead attorney for the plaintiffs who, collectively, have eight separate constitutional claims against the law and its enforcement mechanisms.
Mr. Bopp noted he had only one Constitutional claim in the landmark Citizens United vs. FEC case, for which he was the original architect.
A total of 1,335 Americans renounced their U.S. citizenship during the first three months of 2015, according to figures released by the IRS.
That suggests U.S. renunciations will hit another new high this year. Last year, 3,415 Americans gave up their citizenship — 15 times more than in 2008.
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“Americans overseas are suffering egregious unconstitutional violations of their privacy and are facing draconian fines by the vigorous enforcement of the law by the Obama administration,” said Mr. Bopp. “The vast majority of overseas Americans are law-abiding middle class Americans, but the Obama administration treats them all as tax cheats.”
“We want the federal court to stop Obama’s Internal Revenue Service by immediately issuing a preliminary injunction that will protect Americans overseas until a trial can be held by the court.,” Mr. Bopp said.
Critics emphasize the government overreach that they say the law’s efforts to nail tax cheaters represents.
“This lawsuit’s aim is to restore those overseas Americans’ and ’green card’ holders’ full citizenship through legal action on constitutional grounds all the way to the U.S. Supreme Court,” said ROA Vice Chairman and CEO Solomon Yue, a 15-year member of the Republican National Committee. “Those Americans have constitutional rights to the pursuit of happiness at home and broad.”
ROA notes that a study by Democrats Abroad, the overseas arm of the Democratic National Committee, shows FATCA “wages war against overseas American women and middle-class taxpayers. The ROA lawsuit fights back on behalf of all Americans overseas to guarantee them their full constitutional protections.”
Mr. Paul has long opposed FATCA and has introduced a bill to eliminate what he says are its unconstitutional provisions.
He has said the intent of the law was to “prevent tax evasion by increasing access to overseas bank accounts held by U.S. citizens. However, any law enforcement benefits have been vastly outweighed by the deleterious effects of FATCA on economic growth and the financial privacy of Americans.”
The problem he said is that FATCA “requires the financial institutions of foreign countries to register directly with the IRS, and to provide financial information on the accounts of U.S. citizens — regardless of whether or not these U.S. citizens are suspected of tax evasion.”
Mr. Paul argued that a “failure to comply with these requirements subjects that foreign financial institution to a 30 percent withholding of U.S.-derived revenues.”
This he argues has had the practical effect of forcing those institutions to relinquish any association with U.S. customers — “and to avoid direct investment in the United States. It goes without saying that overseas investment in the U.S. is an important engine of our economic growth and prosperity. FATCA endangers an estimated $25 trillion in foreign capital currently invested in the U.S.”
What may be even more troubling, he said, is that the implementation of FATCA has allowed the Treasury Department “to make independent decisions with respect to the sovereignty of foreign nations and the privacy of United States citizens. In order to implement this law, Treasury has initiated intergovernmental agreements, citing the intent to engage in reciprocal information sharing with other nations.
“But Treasury, without the consent and authority of Congress, will force U.S. financial institutions to provide the bank account information of private customers to foreign nations,” he said.
• Ralph Z. Hallow can be reached at rhallow@gmail.com.
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