@ADCSovereignty reaches “milestone” – End of #FATCA summary trial means the “End of the beginning”


Here are my thoughts on Day 2 of the hearing …

I note that commenters at the Isaac Brock Society continued to offer their “play by play”. For the most part the comments are interesting, accurate and  reflect the mood of what was taking place. There were two moments when the language/suggestions/statements of the Government of Canada lawyer – resulted in audible commentary (laughter/snickering) from the audience. They were:

  1. The suggestion that  nobody forced Canada to sign the IGA, that it was signed voluntarily. “Nobody had a gun to Canada’s head”. Incidentally as part of this submission the lawyer argued that Canada received significant benefits under the IGA. Q. What significant benefit? A. Well, clearly the agreement of the USA to not impose the 30% FATCA sanction. As I was listening to this, I remembered the scene from the Godfather, when Don Carleone informed somebody that “either his brains or his signature would be on the contract“. But, hey this is what passes for diplomacy in the FATCA world.
  2. Explaining that Eritrean citizenship taxation was offensive only because Eritrea was using its tax revenues to finance its military and prosecute wars. As you know, the United States does NOT UNDER ANY CIRCUMSTANCES use taxes to finance it’s military. Obviously the United States military must be financed through “local bake sales of brownies, coffee and cookies”. But no matter.

Part 1 – General – the bottom Line …

In yesterday’s post I outlined my thoughts on Day 1. This included a discussion of the lawyers on both sides and most importantly Justice Martineau. Justice Martineau continued to be the “star of the hearing”.

Through his questions (which were an attempt to understand and explore the issues), he really forced the lawyers on both sides to explain the Canada U.S. Tax Treaty, the IGA, how the IGA related (or not) to the Treaty, and aspects of U.S. citizenship taxation. Interestingly, on two separate occasions his questioning resulted in the Government lawyer agreeing that “FATCA was necessary to enforce citizenship taxation (paraphrase)”. At one point Justice Martineau seemed to be asking himself the question of whether Article XXV of the Canada U.S. Tax Treaty (the non-discrimination section) contemplated “dual citizenship”. In what appeared to be a “learning process” (on his part), Justice Martineau asked about about the treatment of “joint bank accounts” where one of the account holders was NOT a U.S. citizen. In other words, he appeared to appreciate that the primary impact of FATCA in Canada was on Canadian citizens who were resident in Canada.

The Canada U.S. Tax Treaty is called “The Convention Between Canada and the United States of America – With Respect to Taxes on Income and Capital”. Note that the purpose of the treaty is related to “Taxes on Income and Capital”. Allow me to remind you that Team Arvay was arguing that the IGA was NOT authorized by and was outside the scope of the Tax Treaty. (More on this later.)

Part 2 – What do I think Justice Martineau’s decision might be?

“Known Unknowns” – What cannot be known

I don’t know. Our “summary trial” represented the first anti-FATCA court hearing. The result will be appealed. The issue will go on for a long time. No matter who wins or loses, an appeal is certain. Justice Martineau’s decision may or may not affect the disclosure of information to the IRS. That I cannot know.

“Known Knowns” – What is clearly known

Regardless of his decision, Justice Martineau is likely to write a comprehensive decision that explores the facts and the issues. His decision will be reviewed on appeal and the contents of his decision will be a major part of the review.

I am confident that even if the Government wins round 1 (and I am not suggesting I believe this will happen), Justice Martineau’s decision is likely to include certain “findings”, “observations” and “arguments” that will be very helpful to ALL anti-FATCA and anti-CBT litigants going forward.

This means that the result of the August 4, 5 “Summary Trial Battle” will play a major role in winning the “FATCA and CBT Wars!”.

After the two day hearing it was amply clear that FATCA, CBT, the IGA are examples of U.S. territorial overreach IN THE EXTREME and a clear interference with the fiscal sovereignty of Canada.

The end of the Summary Trail, clearly represented the “End of the beginning”.

Part 3 – A real surprise – the possibly most significant part of the day …

Remembering that:

The Canada U.S. Tax Treaty is called “The Convention Between Canada and the United States of America – With Respect to Taxes on Income and Capital”. Note that the purpose of the treaty is related to “Taxes on Income and Capital”. Allow me to remind you that Team Arvay was arguing that the IGA was NOT authorized by and was outside the scope of the Tax Treaty. (More on this later.)

Assuming that the IGA is authorized by the Canada U.S. Tax Treaty and that the scope of the Tax Treaty is “Taxes on Income and Capital”, then one would think that the disclosure of information should be restricted to (think Article XVII) to information that “may be relevant”, to the calculation of taxes.

Justice Martineau raised the reasonable question of “what else all the banking information could be used for?” At this moment, our good friend Mr. FBAR made a “Cameo Appearance” at the hearing. As you know:

Taxes are under Title 26 of the laws of the United States.

FBAR is under Title 31 of the laws of the United States.

It was as though the lawyers, the judge and the audience had their collective “OMG” moment. The thought appeared to be:

Could it be true, yes could it be true, that the forced disclosure of the banking information of those “accused of being U.S. citizens”, could be used to impose FBAR penalties? Could this really be true? Well, Jonathan Lachowitz notes that this very week, the United States reaffirmed its commitment to Mr. FBAR”. (And moving back to FATCA, see also Mr. Lachowitz’s recent article and comments on the proposed FATCA SCE (Same Country Exemption).

Or to put the question more generally:

Question: Could the information disclosed under the Canada U.S. Tax Treaty (which would now include the FATCA IGA) be used for purposes beyond “Taxes on Income and Capital”?

Answer: Yes, in fact former Senator Carl Levin, in a letter written to the IRS on January 11, 2012 urges the IRS and Treasury to use “FATCA” information for all purposes. Yes, it’s true. Here is the letter:


This was reported at the Maple Sandbox Blog, which notes the following excerpt from Senator Levin’s letter:

Although FATCA is structured to address offshore tax abuse, offshore account information has significance far beyond the tax context, affecting cases involving money laundering, drug trafficking, terrorist financing, acts of corruption, financial fraud, and many other legal violations and crimes. Given the importance of offshore account disclosures, FATCA guidance and implementing rule should create account FATCA forms that are not designated as tax return information but, like FBARs, may be provided to law enforcement, regulatory, and national security communities upon request. FFIs are not, after all, U.S. taxpayers, and will not be supplying tax information on behalf of their U.S. clients; they will instead be providing information about accounts opened by U.S. persons. The U.S. Supreme Court has long held that bank account information is not inherently confidential but is subject to inspection by law enforcement and others in appropriate circumstances. Foreign account information is too important to a wide range of civil and criminal law enforcement and national security efforts to be designated as tax return information bound by Section 6103’s severe restrictions on access.

Justice Martineau (without knowing about Senator Levin) asked the reasonable question:

Would the use of FATCA disclosed information for purposes beyond “Taxes on Income and Capital” be a breach of the IGA agreement?!!!

This is a fascinating problem.

In other words – a possible U.S. Government breach of the FATCA IGA:

  1. Assume that the FATCA induced information “may be relevant” to “Taxes on Income and Capital”; but that
  2. The information is actually used to assess FBAR penalties (which are outside Title 26)

Is the use of the FATCA information to assess FBAR penalties outside the scope of the IGA and therefore a breach of the U.S. Canada IGA?

Justice Martineau asked the Government lawyer this very question, to which the Government lawyers responded with (you can’t make this up):

“Justice, I feel sorry for you having to resolve this issue.”

In conclusion …

The most important thing about the ADCS-ADSC.ca “Summary Trial” is that it happened. It is continuing. It is a true milestone. It is my hope that it will motivate people in other countries to organize their own lawsuits. It sends a strong message. It has reminded the Government of Canada (and I hope) governments around the world that:

if governments do NOT protect their citizens from outside forces, that those citizens must and will protect themselves from their governments.

Somehow, I am reminded of  President Kennedy’s Inaugural Address which included:

We dare not forget today that we are the heirs of that first revolution. Let the word go forth from this time and place, to friend and foe alike, that the torch has been passed to a new generation of Americans–born in this century, tempered by war, disciplined by a hard and bitter peace, proud of our ancient heritage–and unwilling to witness or permit the slow undoing of those human rights to which this nation has always been committed, and to which we are committed today at home and around the world.

Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe to assure the survival and the success of liberty.

This is an important message for “U.S. born people” who live outside the United States. Let the word go out …

As I finish this summary, I am reminded of how the Government lawyer characterized U.S. citizens in Canada. He implied (perhaps inadvertently) that:

U.S. citizens living in Canada are either “U.S. tax compliant” OR that they are “tax cheats”.

(This was not the actual sentence. But, it reflects the clear implication of what he said. I am adding this in response to a question from Lynne Swanson – see here.)

Is he correct? Are the only two kinds of people born in the United States? Are there more than two kinds of U.S. born people? That question is “simply above my pay grade”.

But, the world does include “two very special people” (without consideration of whether they file forms to the U.S. Government).

A special thanks to Gwen and Ginny who are two of the “specialist people” I know. Obviously your FATCA lawsuit would not have been possible without them!

John Richardson

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6 comments on “@ADCSovereignty reaches “milestone” – End of #FATCA summary trial means the “End of the beginning”
  1. Deckard1138 says:

    Hi John,

    Thank you so much for your vivid, moving and inspiring summary. This was indeed just the opening salvo of what will be a long and difficult campaign.

    I’d like to expand on your exploration of how the release of FATCA-disclosed information might be used to enforce FBAR penalties. We’ve previously discussed the potential for even greater dissemination and application of this information by other US agencies and how that might be in direct contravention of the Article XXVII Exchange of Information provisions in the Canada-US Tax Treaty. Here is part of that section:

    Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the taxation laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the administration and enforcement in respect of, or the determination of appeals in relation to the taxes to which the Convention applies or, notwithstanding paragraph 4, in relation to taxes imposed by a political subdivision or local authority of a Contracting State that are substantially similar to the taxes covered by the Convention under Article II (Taxes Covered). Such persons or authorities shall use the information only for such purposes.

    Let’s contrast these treaty constraints with Section 6103 of the actual IRS FATCA regulations, as explored in the following article:


    By digging a deeper in the the US tax code, it becomes clear that if a US person with an account in another country believes that his or her problems with US agencies from disclosure of non-US accounts will be limited to tax issues is mistaken.

    Section 6103 could open floodgate for exchange of FATCA information

    Both of these regulations lead to the crucial provision of the US tax code, Title 26, Section 6103, which covers “confidentiality and disclosure of returns and return information.” This lengthy section opens several doors through which US government agencies, and even the US Congress, could traverse to obtain tax and bank account information the IRS will receive from foreign financial institutions (FFI) under FATCA. Section 6103(i) permits disclosure of tax “return information” to “any federal agency” for use in virtually any matter over which the agency has jurisdiction.

    The access by these US agencies, including intelligence agencies and Congress, is not limited to tax-related matters but extends to other criminal and administrative matters. Even whistleblowers who have access to tax return information may disclose it to certain committees of Congress if he or she believes the information pertains to “possible misconduct, maladministration, or taxpayer abuse.” (Title 26, USC Section 6103(f)(5)).

    John, I’d love to know your thoughts on this interpretation and its possible relevance and application to the ADCS lawsuit.

    BTW, I’ve also posted this as a comment at Isaac Brock.


  2. Lynne Swanson says:

    @John: I don’t understand why the judge’s question was an OMG moment to anyone who has been following this, I have believed ever since I read Levin’s demands that the information would be used for far more than “just” tax purposes–despite Finance Canada officials making insipid claims at Finance Committee hearings.

    Also, did the gov lawyer really say U.S. persons in Canada are either tax compliant or are tax cheats?


    • @Lynne

      The reason that the statement was (I think) a bit of an OMG moment was NOT because of the possibility of the FATCA induced information actually being used for non-tax related purposes. Rather it was the thought that, the use of the information for NON-tax purposes could/would be a BREACH of the IGA itself. In other words, the issue was NOT so much the inappropriate use of the information as the suggestion that the inappropriate use might be an actual breach of the IGA. Where I think Justice Martineau was going with this was the idea that BOTH sides of an agreement must honor the terms of the agreement.

      With respect to your second question: did the Government lawyer actually say “U.S. persons in Canada are either tax compliant or are tax cheats?” You will notice that my quotations marks were NOT around the complete sentence but around the “U.S. tax compliant” and “tax cheats”. I am NOT going to say that he used the complete sentence. But, what he said was the functional equivalent. The Government clearly regards U.S. citizens in Canada as U.S. citizens first and Canadians second.

      I think that I will clarify this a bit in the post.



  3. JC says:

    There are FATCA 8938 penalties as well as FBAR penalties. Perhaps theoretically one can get both fines on the same account.

    And what was the reply to the Crown’s assertion of the “benefits” for Canada of the IGA being avoidance of 30% witholdings? Hopefully the judge was not left with this impression. In the comment to the metro article I suggested some alternatives for the Canadian government instead of just agreeing to it all.

    Was the Bopp suit mentioned?


  4. Trish Moon says:

    I don’t think anyone should have the impression that anyone could possibly understand the issues as well as expats-so the OMG moment was more about the lawyers and the judge. Justice Martineau was truly impressive. He asked such relevant questions-and my impression was that he was not terribly thrilled with the defendants’ lawyer. I did not come away from this with any idea that J. Martineau fell for the idea that the IGA was a great deal for Canada. This would be hard to convey but he was affected by our presence in the courtroom. He got that this was about people – Canadians. I don’t mean he had a bias but more like he seemed to sense the big picture in spite of the nitpicking about whether the IGA was a treaty, how to read the Treaty, etc…
    Yes Lynne, he did. Among other bizarre things.
    There was a lot of going on about the difference between assessment and collection. I don’t know how much of all the motions and testimony people have been reading but this issue of the IRS serving levies on CDN banks with branches in the US is definitely something to be researched and considered. It was not discussed as far as I recall, in the proceedings but in Rob Wood’s testimony, it was indicated that the banks might/would follow comply regardless….


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