The US Expat Banking Lock-Out

There are no concrete figures indicating how many US expats have had, and continue to have, difficulties in opening foreign bank accounts and using other types of essential financial services, although a recent survey of expats conducted by Democrats Abroad, the overseas arm of the Democratic Party, suggests that 1 in 6 respondents have had their bank accounts shut. When extrapolated across the entire expat community of 7.8 million, these findings suggest that over a million Americans are being denied access to basic financial services.


Recent reports would appear to confirm that many FFIs want nothing to do with FATCA and are therefore “locking out” US customers by closing existing accounts and refusing to open new ones. And it is suggested that this is as much to do with FFIs fearing inadvertently falling short of the FATCA rules and paying a high financial and reputational price than it is the reporting requirements themselves.
Recently, the Wall Street Journal reported how a young e-commerce analyst originally from North Carolina and now working in Berlin was not permitted to open a brokerage account by a prominent German bank, even though he had a current account with the same institution. He was also refused a checking account with a smaller, local bank, and the reported reason given by the German banks for these refusals was US regulatory changes.
The Guardian newspaper also recounted last month how one American finance professional based in Zurich received a notice from his bank in Switzerland informing him that the institution no longer served US citizens because of “regulatory issues.” He also had difficulties maintaining his Swiss retirement fund.
These and other reports have described numerous other cases of US expats either having their US and foreign bank accounts closed, or being refused new accounts. And it seems that for many banks, the potential income they could earn from providing services to Americans is far outweighed by the regulatory risks of doing so. Highly-remunerated individuals are also said to be experiencing the lock-out, indicating just how nervous FFIs are of crossing the IRS.
The irony is that legislation designed to catch money launderers, tax evaders and other criminals, is forcing perfectly compliant people to lie about themselves in order to preserve their banking facilities. An increasingly-used tactic is for US expats to use a friend’s or relative’s US address to ensure that their US bank account won’t suddenly be shut because they live abroad.
Others are transferring their hard – and legitimately – earned money from their US bank accounts to one of the small number of credit unions still allowing overseas wire transfers.
American Citizens Abroad (ACA), a pressure group for US expats, says that this has been going on for a long time as a result of the ‘know your customer’ provisions in the Patriot Act and FBAR. But FATCA, it warns, is only going to make things worse.
“All these reporting requirements, and the threat of penalties if the reporting is not complete and accurate, are causing some foreign banks and other financial institutions to cut off access by Americans overseas to foreign financial tools, such as mortgages, bank accounts, insurance policies, and pension funds, all of which are essential financial tools for survival overseas,” ACA observes.
“At the same time, Patriot Act legislation currently contains know-your-client guidance that is leading US banks to close domestic US accounts held by Americans who no longer can provide a mailing address in the United States.”
ACA advocates a ‘Same Country Exception’ to alleviate the problem of lock-out. This exception would exclude the reporting of accounts owned by Americans abroad where the account is with a FFI in the same country where the individual is a resident, reducing the filing burden for FATCA on Americans as well as the identification and disclosure of these accounts by the FFI.
ACA also advocates easing Patriot Act guidance to facilitate state-side banking access for Americans overseas.
Will Congress listen to the concerns of expats? If there are enough votes in it – and the US expat community is a substantial constituency – then the answer is a definite yes. Whether this will translate into action in a deadlocked Congress is another matter.
Some commentators and finance industry insiders are of the opinion that access to financial services for US expats may improve over time once FFIs have fully understood the risks associated with FATCA. Many will hope that they are right. But that’s not much comfort for someone far from home who can’t open a bank account. In the 21^st century there’s not much you can do without one.