IT HAS become a lot less comfortable to be an American with an undisclosed offshore bank account in recent years, thanks to the federal prosecutors who have harried foreign moneymen and lawyers suspected of aiding tax evasion, particularly in Switzerland. Now life is also about to get harder for non-Americans who dodge their fiscal obligations at home by stuffing savings in American banks. Forced to offer some degree of reciprocity as it hounds other countries for information on American tax cheats, the Internal Revenue Service (IRS) drew up a rule in 2012 that would, for the first time, force American banks to cough up data on “non-resident aliens” who hold accounts with them. This would then be passed on to tax authorities in the account-holders’ home countries.

This gave rise to much huffing and puffing from banks which hold a lot of Latin American money, for instance in Miami's financial district (pictured). The banking associations of Florida and Texas jointly sued the feds, claiming the regulation was overly burdensome and could lead to massive capital flight because legitimate customers might fear their information would be disclosed to, and misused by, rogue governments. This week, a federal court in the District of Columbia threw out the challenge, clearing the way for the new rule to take effect in March.

The banking associations had argued in their motion for summary judgment that the rule violated both the Administrative Procedure Act and the Regulatory Flexibility Act. They contended that the IRS had got its economics wrong and that the new requirement would cause more harm to banks than the agency had foreseen. In making their case that it might spark enough capital flight to destabilise local banks and economies, they pointed to the case of Canada, the only country that already has a reciprocal bank information-exchange agreement with the United States. When that pact took effect in 2000, they argued, large sums were pulled from American banks by panicky Canadians.

In a 23-page ruling, Judge James Boasberg swatted aside these arguments, writing that the IRS had “reasonably concluded that the regulations will improve US tax compliance, deter foreign and domestic tax evasion, impose a minimal reporting burden on banks, and not cause any rational actor—other than a tax evader—to withdraw his funds from US accounts.” The judge accepted the IRS’s contention that the alleged Canadian capital flight was “a fiction”: though the amount of Canadian interest-bearing deposits dipped after the reporting requirements were issued, they bounced back shortly afterwards. The court also noted that the IRS will only pass information on to the 70 countries with which it has information-exchange agreements. These require signatories to store information responsibly and treat it as secret.

It’s unclear how much money could be affected. The IRS has estimated that foreign individuals have up to $400 billion in American accounts. Miami’s financial centre has the most to fear, though it has become less accommodating towards dirty money over the past decade, and a good deal of what remains is thought to have been moved out of banks and into local property. The court ruling also marks a defeat for the numerous senior Florida and Texas politicians who threw their weight behind the banks, among them Marco Rubio, a United States senator with presidential ambitions, who introduced a bill to kill the regulation.

Had opponents been successful, the government would have found it harder to get other countries to go along with the Foreign Account Tax Compliance Act (FATCA), a law passed in 2010 that requires financial institutions in other countries to report to the IRS funds held by American customers. FATCA, which is due to come into force in July after several delays, has supercharged the expansion of a network of bilateral tax-information accords, leaving the tax-shy with far fewer places to hide. America has done much of the stick-wielding to make this happen. The court’s ruling this week ensures it will also be able to offer some carrots.