HIRE Act Forces American Expats into Financial Exile
A law recently enacted by the U.S. government has caused many foreign banks to show their expatriate American customers the door. The new law, passed in March as part of the HIRE Act, targets tax evasion by requiring foreign financial institutions to reveal the identities of their American customers with accounts of more than $50,000.
The penalty for noncompliance is steep: the Internal Revenue Service will impose a 30 percent withholding tax on all payments made within the U.S. to uncooperative foreign institutions. In many cases, the burden of policing their own clients – or the expense of refusing to do so – is enough to make banks close their doors to Americans altogether.
As a result, Americans living abroad are finding themselves with fewer and fewer options for banking and wealth management. The situation is further complicated by provisions of the Patriot Act, which impose strict identity-verification requirements on American banks and make it difficult for expats who lack a U.S. address to open accounts in the states and move their investments back into the country. Even those who maintain an American address often do not wish to make the switch, since doing so would mean tying investments to the dollar rather than the currency of the investor’s country of residence.
Instead, a growing number of expatriates are making the difficult decision to renounce their American citizenship. According to the Wall Street Journal, twice as many Americans renounced their citizenship in the fourth quarter of 2009 than in the entire year of 2008. The Wall Street Journal reports that the waiting list to renounce citizenship at the London U.S. Embassy stretches into 2012. Now that the HIRE Act has been passed into law, these trends are expected to continue.
While the HIRE Act is the newest and perhaps the most drastic piece of legislation affecting the finances of Americans living abroad, many expatriates complain that they have been targeted for years by increasingly strict laws and penalties. Because their votes are spread throughout the states, Americans living overseas lack the power of a unified voting bloc and have relatively little influence in the political process.