AARO Survey on Denial of Financial Services
Survey conducted between July and October, 2014
In recent months, reports have been rife in the press concerning closure by both foreign and domestic financial institutions of accounts held by Americans living abroad. Following conversations in Washington DC in March 2014 with representatives of the American Bankers Association and the House Joint Committee on Taxation, AARO conducted a survey of its members to gather information on the types of financial services that were being denied to American citizens. The AARO survey was limited in both scope and number of responses but not surprisingly coincides with the results of two much larger surveys conducted in 2012 and 2014 by Democrats Abroad. Virtually no demographic data was requested in the AARO survey, contrary to those of Democrats Abroad, though the AARO survey did find that 18% of the respondents had lived overseas for less than 10 years and 30% over 35 years; the breakdown was even between US citizen and dual national respondents.
Fifty-nine responses were received to the AARO survey but in many cases, respondents gave more than one answer.
This was the case for the question on the specific institutions which had denied some type of service. Seventy-eight instances were cited at a total of 33 different banks: Fidelity Investments (US) led the list with 21%, followed by ING Direct (France) with 10%, Wells Fargo and Merrill Lynch (US) each with 6%, and JP Morgan Chase and Bank of America each with 5% of the total.
This was the case for the question on the specific institutions which had denied some type of service. Seventy-eight instances were cited at a total of 33 different banks: Fidelity Investments (US) led the list with 21%, followed by ING Direct (France) with 10%, Wells Fargo and Merrill Lynch (US) each with 6%, and JP Morgan Chase and Bank of America each with 5% of the total. Half of the banks cited are American banks and 77% of them are global institutions, as opposed to local banks. In addition to the US-based banks in San Francisco, Chicago, Boston, New York, Texas, Indiana, Connecticut, Maryland, Oklahoma, California, North Carolina and Ohio, 24% of those cited were in France (where AARO is based, generating the highest proportion of responses) and 25% in 8 other countries (3 instances involved online banks).
A total of 93 cases of denied financial services were reported: 37% involved banks, 38% brokers, and 20% mutual funds. In over half of all cases (52%), the respondents were existing clients renewing an existing service, rather than requesting a new service; 9 were potential new clients of the institutions in question.
Of the services denied, the majority (27%) involved share trading, followed by checking accounts (15%), savings accounts (13%), and Exchange Traded Funds (9%) (the Democrats Abroad survey showed an equal breakdown between checking, savings and brokerage accounts). As to when the incidents occurred, all but three took place in or after 2010 (when FATCA became law) and 50% took place in 2014.
The reasons given by the institutions were most often FATCA-related: in addition to specifically “FATCA’ (23%) and “no longer servicing U.S. taxpayers’ (19%), 38% cited reasons equivalent to: “resident address of customer is located outside the U.S. and the bank is no longer making overseas transfers’. For 10% of respondents, the reason given was “Know Your Customer’ rules in the United States, stemming from the Patriot Act.
Based even on a small sample like the AARO “denial of financial services’ survey, the trend is clear to closing of existing accounts, refusal to open new accounts, and denial of access to brokerage services in both the United States and other countries, meaning that people are losing savings and retirement accounts, often involving financial loss when funds must be transferred out of tax-deferred investment accounts.
With respect to the denial of service on the part of American banks and brokerages to citizens non-resident in the US, the prime reason appears to be “Know Your Customer’ rules. Like any responsible advocacy organization, AARO supports all efforts to curb tax fraud. It has, however, in the past, proposed that solutions to “KYC’ rules in the United States should be easy to devise for overseas residents: providing proof of US citizenship or fiscal domiciliation in the host country, perhaps even authentication of the signature by a local bank or authority.
With respect to closure of financial accounts abroad, however, there is no doubt that the underlying reason in the vast majority of cases is FATCA and the extensive and costly reporting it requires of foreign financial institutions which have American clients. In the absence of a repeal of FATCA or of an exemption for US citizens fiscally domiciled in another country (the “same country exception’ that AARO has long advocated, exempting the accounts that Americans must have in order to live and work in another country, and which are already reported to the tax authorities in that country), Americans will continue to be unwelcome in banks around the world and will increasingly suffer from a loss of the financial services which are essential to conducting their business in today’s global economy.
* Full list of banks cited:
Fidelity Investments (United States)
ING Direct (France)
Wells Fargo (United States)
JP Morgan Chase (United States)
Bank of America (United States)
Union Bank of Switzerland (UBS)
Barclays (United Kingdom)
T. Rowe Price Services, Inc (United States)
Vanguard (United States)
Deutsche Bank (France)
Capital One Bank (United States)
The Fort Sill National Bank (United States)
Société Générale (France)
Banque Raiffeisen (Luxembourg)
Crédit Agricole (France)
Halifax (United Kingdom)
La Banque Postale Gestion Privée
American Community Bank
AXA Banque (France)
Capital City Bank
B for Bank