Angry Canadians are rare. But Patricia Moon qualifies.



Until 2012, Moon was actually an American – albeit one who had lived in Canada for 32 years. She settled in so well that in 2008, she added Canadian citizenship to her US one.

But Moon cut ties with America three years ago, after new banking laws aimed at tax evaders required expats like her to file more thorough US tax returns. She was five years behind on the news. “I was terrified we’d lose all our money,” she says.

After back-filing years of tax returns, Moon renounced her US citizenship in 2012. It was a defiant act she describes as being one of the first canaries to leave the coalmine as US banking laws make life more difficult for American expatriates. She wasn’t pleased she had to do it.

“It was like cutting off my right arm,” to not be American any more, says Moon, who only became a Canadian citizen in 2008. “Now, I’m simply angry.”

In February this year, the US and Canadian governments signed an intergovernmental agreement to co-operate on Fatca. The Foreign Accounts Taxation Compliance Act required all foreign banks to disclose the financial information of any American with assets over $50,000 sitting in banks outside of the US.

Steep penalties add muscle to the law. If a foreign bank – not just in Canada, but anywhere – fails to report even a single US citizen as a customer to the IRS, the US Treasury department would withhold 30% of the banks’ US income as penalty.

Foreign banks, some of whom earned a reputation as tax scofflaws, are now deeply afraid of the Internal Revenue Service.

The US government is policing foreign banks aggressively as it comes down hard on any company that helps tax evaders, money launderers and other criminals.

Scared of running afoul of US banking laws, foreign banks are taking extreme steps to limit US citizens to a narrow range of services.



The result for expats has been a chaotic brew of closed bank accounts, mysterious excuses and a scramble to find local banks that would allow them to park their money.

Norton town sisters Miriam (left) and Ruth Nelson stand in front of their store and office, which is divided by the US and Canadian border. Photograph: Bob Krist/ Bob Krist/Corbis

‘You Americans are so arrogant and crazy’

Moon considers the US-Canadian Fatca agreement akin to economic sanctions on Iran and North Korea.



Moon is on the board of the Alliance to Defend Canadian Sovereignty, a non-profit that in August filed a lawsuit against the Canadian government. The group claims that Fatca legislation effectively breaks Canadian laws governing the privacy of financial information of its citizens.

“Our bank is not allowed to report financial information to our tax agency [in Canada]. So it’s absurd that the US government can get this information,” says Moon.



Others are amazed they can’t find a foreign bank that will take their money.



A year ago, Brian Dublin, an American finance professional living in Zurich, received a notice from his bank in Switzerland. The note told him that the bank no longer served US citizens.



Citing mysterious “regulatory issues”, his bankers at the Swiss institution Raiffeisein gave him 30 days to close his account.



Dublin moved his money to UBS, another Swiss bank. No shelter there either: UBS allowed him to open a checking account but required him to close down his Swiss retirement fund. He had to transfer his retirement savings of five years into a regular checking account.



The reason? Again, the answer came: “Regulatory issues”.

The ‘regulatory issues’, here, encompass the fact that banks are panicking at the prospect of the long arm of the IRS, which works through Fatca.



Fatca has caused Dublin some ribbing amongst his friends in Switzerland. “When [George W] Bush was president, they made fun of us”, he says.



Now, his Swiss friends cite Fatca as the new stand-in for overreaching American policy. “They say, you Americans are so arrogant and crazy. You think you control everything.”



And they’re right, Dublin now concedes.

‘Greed is Cool’: members of Swiss unions demonstrate in front of the headquarters of Swiss banks UBS and Credit Suisse. Photograph: ARND WIEGMANN/REUTERS

Swiss banking secrecy and the birth of a new tax law

It started with the Swiss banking scandals of 2009, when the US government aggressively went after banks that aided tax evaders. This effectively ended the reign of the famous, secretive “Swiss bank accounts” enshrined in thrillers like the Bourne Identity and James Bond films.



The US government, using its economic power, was levying a polite ransom on financial institutions across the world to reveal their rich, potentially tax-evading US clients, or else face humiliation at best and prosecution at the worst. The IRS, which lives under the US Treasury, was keen to collect the taxes that it believes it is fairly owed, mostly from wealthy Americans using offshore tax havens.



UBS settled with the US government, paying a fine of $780m for helping tax evaders. Other banks, including Credit Suisse, soon followed.

The new ‘Berlin Wall’



Enter the “regulatory issues” that have bedeviled Dublin, Besser and other Americans living overseas.



The original Fatca law conjures an image of wealthy American individuals sipping cocktails on a beach somewhere with large offshore accounts filled with untaxed capital. But expats were never the targets, say experts. But Fatca’s impact has hit many of the seven million American expatriates who are not sipping umbrella-decorated drinks on exclusive beaches.



“Americans living abroad were not originally the primary target of Fatca,” says University of Virginia Law School professor Ruth Mason about the law, “which was designed principally to prevent offshore tax evasion by resident Americans.”



Expatriates such as Dublin spend several hours each year filing their US tax returns. Americans living overseas can exclude $100,000 a year of income from US taxes, according to David McKeegan, an international tax expert.

Many are caught by surprise. There has been no visible communication campaign to alert the millions of expatriates that they may be tax cheats.

“People are learning about this through websites, media, word of mouth and so forth. Where is the US government is in all this?” asks Victoria Ferauge, a Seattle native living in Paris who blogs about tax laws.

‘If they find out he’s married to an American, they might tell him to get lost’



Genevieve Besser, a dual German-American citizen and a communications consultant in Germany, says that among expats in Germany, the preferred term for the legislation is ‘Berlin Wall’.



“It’s shameful and humiliating that a country so free is so restricting,” she says.

Besser says her bank, ING-DiBa, told her that that it did not work with Americans anymore.



Besser was a co-signer on her daughter’s bank account. ING-DiBa closed it down because of Besser’s German-American dual citizenship.



Her husband had to take her name off their joint investment account. His checking accounts have so far been left untouched.



“But if they find out he’s married to an American, they might tell him to get lost,” Besser says.

Besser’s investment options are severely restricted as an expatriate forcing her to invest in financial products such as individual stocks instead of mutual funds. “I’m shut out because I live abroad,” she says.

The complications have become so prevalent that, as a last resort, thousands of Americans have asked US Consulates abroad to cancel their citizenship. In 2013, 2,999 Americans renounced their citizenship; in 2014 so far, it’s a little more than 1,500 people.



Possibly to stem the tide, the state department raised the fee for citizenship renunciation fourfold on September 12, from $450 to $2,350. Officials seem to be hoping the steep fee will discourage more people from giving up their passports.

Says Dublin: “For many years I’ve paid $500 for my blue passport. But it becomes a very expensive thing to have.”

American expatriates who have not taken the extreme move of renouncing are taking the rather precarious approach of waiting and watching for new legislation instead of complying with the current law.

“They just don’t pay [taxes] and hope it goes away”, says Besser.

The French Parliament recently voted to approve an intergovernmental agreement between the US and French governments on the implementation of Fatca. Photograph: ERIC FEFERBERG/AFP/Getty Images

‘My bank will not answer questions’



On a Skype call with a reporter, Victoria Ferauge sits in her sunlit Paris house, smoking the occasional cigarette, and following the day’s French Parliament session with particular interest. Ferauge, a Seattle-born American married to a Frenchman, has been following and blogging about US tax laws for the last three years.

On this Thursday afternoon, France’s parliament is voting to approve an inter-governmental agreement with the US on Fatca compliance.

“A vast majority of Americans suddenly woke up to what’s going on,” Verauge says. She relates stories of fellow expatriates who have had to take their names off joint accounts – some holding small family inheritances – because banks would not accept US customers.



“My bank will not answer questions,” she says about her enquiries regarding their Fatca compliance.



Verauge is preparing to move to Osaka, but she has doubts how the law will play out in Japan. She is infuriated to be put in the position of suddenly finding herself in a foreign country and not having a dollar she can spend.



“I will give up my citizenship if it came to that.”

The woes of the accidental Americans

Even those Canadians who might be called ‘accidental Americans’ don’t like the long arm of the IRS.



Courtney Welch’s Canadian bank found out that he was, in spite of possessing a Canadian passport for the last 41 years, a dual citizen of US and Canada. He was naturalised as a child when his parents moved to Canada, but retains a dual-American citizenship because he was a minor.

To avoid breaking any laws, Welch will have to renounce his US citizenship and file five years’ worth of tax returns as well as possibly thousands of dollars to the US government in taxes on income he earned in Canada. He will have to foot bills for airplane flights and miss out on wages – and that’s not counting the $2,350 fee to renounce a citizenship he never assumed in the first place.

Welch, who has no intentions of living in the US, finds the idea that he has to pay taxes to the US government ridiculous.



“I feel about the same obligation to file US tax papers as you would if the supreme court of Uruguay all of a sudden decided you were a citizen and had to file a tax return there,” he tells the Guardian.