Does FATCA pose an unacceptable security risk to Americans abroad?

There has been a lot written about the problems of FATCA recently.  The financial institutions which will be subject to the new law have complained about the burden (in both time and costs) of reporting the information, and the fact that the anticipated IRS revenue receipts (estimated at $8 billion over 10 years – which is not a huge amount of money for a nation the size of the US) are probably outweighed by the costs of implementation. Americans expats (and in particular those who hold dual citizenship) are starting to appreciate the difficulties in opening bank or investment accounts overseas and are resentful of the fact that America is the only one of the leading industrialized nations which requires its citizens to pay US taxes even if they live outside the United States.

But one aspect about which there has been surprisingly little fuss is the security implications for Americans living abroad.  When FATCA becomes fully effective, foreign financial institutions will have to submit detailed annual reports on their American customers with bank accounts of more than $50,000, including cash balances, receipts, and withdrawals.

In order to meet all of the FATCA data gathering and reporting requirements FATCA will require the banks to keep data on a plethora of information including residential addresses, green card status and even the names of the Americans’ relatives.  The information is far, far more detailed than that which has been previously held by any financial institution with which I have ever had dealings.  Never before would the banks have had to gather and isolate such detailed records specifically relating to US citizens.

The US is a nation which is, post 9/11, usually somewhat obsessed with security.  And not without good reason.  It is a powerful country which has made a lot of enemies in recent years, and it usually takes the safety of its people very seriously.

Who might find it useful to have a database of all of the American residents in their territory?  Might perhaps a jihadist group in Afghanistan be interested to know where all of the US persons in Afghanistan live?  Might a South American kidnapping group be interested in a list which shows the cash balances held by US citizens in their territory, and the names of their relatives?  Might an anti-capitalist extremist be interested in being given the private and business details of a US resident business mogul near them?

Of course the data that the financial institutions gather should be kept confidential.  But bank IT systems are only as confidential as the employees who have to access them.  The IRS and HMRC (who are likely to follow the US in implementing FATCA-type legislation) know this already – indeed, they both make very good use of it by encouraging and even paying handsome cash rewards to whistle-blowers.  So if the IRS know they can get information from the banks by offering employees cash incentives to blow the whistle on wrong-doing, what on earth makes them think that Al-Qaeda can’t employ the same techniques with very different aims?   

By introducing legislation designed to stop tax cheats in their tracks, the US may be unwittingly putting at risk the lives of many of their expatriate citizens.  It seems that being seen publicly to take a tough stance on tax cheats takes a higher priority in these straightened times than the security of US citizens abroad.

The UK has a huge number of expats based in countries all over the world – including a large number of relatively unstable locations where corruption is rife.  The UK government would do well to consider this important aspect of security before deciding simply to follow a “me too” strategy and take the same route as the US.