Thousands of Americans abroad are giving up their citizenship as the implementation of a complex new tax law causes banks to shut down accounts for US expatriates

The US government’s new tax regulation, FATCA, has pushed many American abroad to comply with complex tax requirements or give up their citizenship.

The US government’s new tax regulation, FATCA, has pushed many American abroad to comply with complex tax requirements or give up their citizenship. Photograph: Efrem Lukatsky/AP

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.

‘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.

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