US court dismisses FATCA challenges

A US district court in Ohio dismissed a challenge by US Sen. Rand Paul and several other plaintiffs seeking declaratory and injunctive relief against enforcement of the US Foreign Account Tax Compliance Act (FATCA), the intergovernmental agreements (IGAs) entered into under FATCA, and the Report of Foreign Bank and Financial Accounts (called FBAR) administered by the US Treasury’s Financial Crimes Enforcement Network (FinCEN). The court held the plaintiffs lacked standing to sue (Crawford, No. 3:15-CV-00250 (S.D. Ohio 4/26/16)).

The plaintiffs filed suit against the Treasury Department, the US Internal Revenue Service (IRS), and FinCEN. They brought eight claims before the court. The first was a challenge to the validity of the IGAs with Canada, the Czech Republic, Denmark, France, Israel, and Switzerland. The second claim addressed the information-reporting provisions imposed on foreign financial institutions (FFIs). The plaintiffs’ third claim challenged the law’s heightened reporting requirements for foreign bank accounts.

The fourth and fifth claims challenged FATCA’s 30% tax on payments to FFIs from US sources when those FFIs choose not to report to the IRS about the bank accounts of their US customers and the 30% tax imposed on recalcitrant account holders who exercise their rights not to identify themselves as US citizens or waive privacy protections afforded their accounts by foreign law.

The sixth claim challenged the penalty for “willful” failures to file an FBAR, which can be as much as the greater of $100,000 or 50% of the value of the unreported account. Finally, the seventh and eighth claims argued the information-reporting requirements of FATCA and the IGAs are unconstitutional under the Fourth Amendment of the US Constitution.

Paul, who sued in his official capacity as a US senator, and whose participation in the lawsuit brought increased attention to the proceedings, was the first plaintiff to have his claim dismissed for lack of standing. He had argued, among other things, that the failure to bring the IGAs before the US Congress to be voted upon denied him the right to advise and consent to executive action. The court held that this claim of injury was not concrete enough to confer standing, and the court noted that Paul had an adequate, nonjudicial remedy of enacting legislation to repeal the laws he objected to.

Amongst the other plaintiffs was Mark Crawford, who objected to the law’s effect on him because his brokerage firm did business with a bank that was refusing to take US citizens as clients. He also objected to disclosing the financial details of his accounts to the US government, and he feared the excessive fines imposed for willful failure to file an FBAR. All of these claims were dismissed by the court.

The first was dismissed because the action of a third party (the foreign bank) that is not part of the suit is not grounds for standing, the court said. Second, Crawford’s discomfort with the information-reporting requirements does not establish the concrete, particular harm required for standing. And third, Crawford did not allege that he had failed to file any required FBAR or that the penalty had been assessed against him; thus, he had not alleged a harm that would confer standing.

The other plaintiffs were US citizens and former US citizens currently living in foreign countries, including Canada, the Czech Republic, Israel, and Switzerland. They either objected to disclosing information to the US government or alleged harm because they could not open accounts in the foreign jurisdictions in which they lived. As in Mark Crawford’s case, the court held that all of these plaintiffs lacked standing because they failed to establish the concrete, particular harm that is a prerequisite to standing.

As a result, the court granted the defendants’ motion to dismiss the case.

Sally P. Schreiber ( is a CGMA Magazine senior editor.