Rand Paul Suffers Setback In Foreign Reporting Lawsuit

This post was originally published on Forbes Oct 2, 2015

Presidential candidate Senator Rand Paul and other opponents of enforcement of the Foreign Account Tax Compliance Act (FATCA) suffered a setback this week in United States District Court as Judge Thomas Rose refused to grant preliminary injunctive relief on a number of claims in Crawford et al v United States.

The suit  challenges the validity of the Canadian, Czech, Israeli, and Swiss Inter-Governmental agreements used by the Treasury Department. The plaintiffs also object to the reporting provisions FATCA imposes on  foreign financial institutions. They object to the reports US citizens are required to make on their own accounts, the 30% withholding required on payments to foreign banks that are not cooperative and on US citizens who refuse to waive bank privacy rights. Finally, they  challenges the penalty imposed under the Bank Secrecy Act for “willful” failures to file an FBAR for foreign accounts, which can be as much as the greater of $100,000 or 50% of the value of the unreported account.

To issue a preliminary injunction, the Court has to consider whether the plaintiffs are likely to win the case on its merits, whether the plaintiff might suffer irreparable injury without injunction, whether the injunction might harm others and whether the public interest will be served by the injunction.

They Will Not Win For Want Of Standing

Although there is more to it, most of the decision is devoted to the concept of standing.  Standing is a pretty lawyerly concept.  Essentially it means that in order to succeed in a lawsuit you have to show that something is happening to you in particular.  There are three elements to standing.

First, plaintiffs must have suffered an injury in fact—an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical. Second, there must be a causal connection between the injury and the conduct complained of—the injury has to be fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court. Third, it must be likely, as opposed to merely speculative, that the injury will be redressed by favorable decision.

The Court found that for the most part the plaintiffs did not have standing.

They lack standing, as the harms they allege are remote and speculative harms, most of which would be caused by third parties, illusory, or self-inflicted. Plaintiffs' allegations also fail as a matter of law, as there is no constitutionally recognized right to privacy of bank records.

One plaintiff had trouble opening a brokerage account.  Two of them had wives who were upset about the US Government getting its nose in their business.  None of that is enough to create standing.  The really interesting discussion was about standing for Rand Paul, him being a Senator and all.

Rand Paul Wants To Have A Vote

Senator Paul seeks to base legal standing for Counts 1 and 2 in his role as a U.S. Senator, charged with the institutional task of advice and consent under the Constitution. He contends that the Inter-Governmental Agreements exceed the proper scope of Executive Branch power and should have been submitted for Senate approval.  Senator Paul is arguing that the President is usurping Congress's power by entering into the IGAs without submitting them to a vote.

That didn't do to create standing.  Senator Paul had not been authorized by the Senate to bring the action.  If Congress is really upset about this it can repeal FATCA or refuse to fund the implementation of the Inter-Governmental agreements.

In sum, Paul has alleged no injury to himself as an individual, the institutional injury he alleges is wholly abstract and widely dispersed, and his attempt to litigate this dispute at this time and in this form is contrary to historical experience.

 The Big Picture

Gabriel Zucman in his The Hidden Wealth of Nations-The Scourge of Tax Havens makes the case that as much as 8% of the world's financial wealth is squirreled away in tax havens.  The estimated number is $7.6 trillion.  His basis for making the argument is one that an accountant has to love.  When statisticians draw up national balance sheets investments by foreigners in that country are counted as liabilities and investments by the country's own citizens in other countries count as assets.  It turns out what we used to call the "big balance sheet in the sky" is out of balance with more credits than debits.

Zucman believes most of the assets are hidden to avoid taxes.  He estimates the avoided taxes worldwide annually to be $200 billion.  At any rate Zucman's proposed solution to the problem, a "worldwide registry of financial wealth" would probably make the brains of the plaintiffs in the Crawford case explode.

Other Coverage

Jack Townsend was quick to post on this decision - Court Denies Preliminary Injunction in FATCA and FBAR Challenge.  Jack does not think Crawford et al have much of a case.

The case is not particularly noteworthy from a legal perspective.  It just denied a preliminary injunction.  The likelihood of getting any ultimate relief in the case, preliminary or otherwise, is minimal.  (The pursuit of the case is more a way to make a statement and perhaps encourage those who can be encouraged by such futile statements to make contributions 

On Rand Paul's appearance as a plaintiff, he writes.

Rand Paul's appearance in this futile case is just another instance of congressmen posturing for their base rather than really trying to solve problems.

The Tax Times had a brief summary - Judge Denies Injunctive Relief for FATCA Implementation!