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Paul said he does not oppose tax agreements in general, but he feels the administration had broken from past protocols and put no constraints on the search for tax cheats. “The treaties in the past had a standard that said that you had to be committing tax fraud or that had you to be engaged in fraudulent activity, the same way every American here expects that the government’s not going to look at your bank account unless they have gone to a judge with evidence that you are cheating on your taxes,” he said.
The new treaties, he said, don’t demand any evidence before a search of records is launched. “I think there should be some evidence presented. The new standard is they can look at any of your records that may be relevant. This is a much lower standard, and I think it will be injurious to the vast majority if not the overwhelming majority of Americans who are actually innocent but just happen to be living abroad,” Paul said.Compliance in Question
The Obama administration has, in the meantime, found ways around the Senate ratification process altogether. Treasury has negotiated more than 50 “intergovernmental agreements” to share financial and tax information with other countries in its implementation of a 2010 law to curb tax evasion.
The agreements reached under the Foreign Account Tax Compliance Act (PL 111-147) strike some as thinly disguised treaties.
Rep. Bill Posey, R-Fla., a member of the House Financial Services Committee, wrote a letter to Treasury Secretary Jacob J. Lew in July calling for a FATCA enforcement moratorium. Posey questioned the Treasury’s authority to enter into such intergovernmental agreements without the Senate’s advice and consent and suggested the terms of the agreements could ultimately hurt the U.S. economy.
Paul introduced a bill (S 887) that would repeal parts of FATCA last May, saying the law “violates important privacy protections,” and Republicans made its repeal an official part of their platform in January.Names Are Sought
Justice Department officials, meanwhile, say ratifying the pending treaties would make their work chasing tax evaders much easier.
Following a guilty plea by Swiss banking giant Credit Suisse on tax evasion charges, the Justice Department said it will seek account-holder information from the bank through the treaty process. Officials at Treasury and Justice say ratifying the 2009 protocol, sent to the Senate in 2011, is critical to the effort.
Under the current treaty, U.S. officials must establish evidence of “fraud or the like” in order to obtain information, while the pending treaty would lower the bar.
“Under the protocol, it’s a relevance standard. And under the protocol, it’s a relevant standard to any tax enforcement. So it would give us information both on the civil and criminal side. The protocol would enhance our ability to get information,” Kathryn Keneally, then-assistant attorney general for Justice’s Tax Division, told the Senate Permanent Subcommittee on Investigations in February.
During that hearing, subcommittee Chairman Carl Levin, D-Mich., said the pending protocol had only “slightly better criteria than the old treaty.” He said he wants to see it ratified, but noted it would hardly be a panacea in the struggle to get account information from the often-reluctant Swiss.