Sixth Circuit Upholds Dismissal of Sen. Rand Paul’s Challenge to FATCA

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August 22, 2017

On August 18, the Sixth Circuit issued an opinion upholding the dismissal of a challenge to the Foreign Account Tax Compliance Act (FATCA) brought by Senator Rand Paul and several current and former U.S. citizens living abroad who hold foreign accounts.  In the case, Crawford v. United States Department of the Treasury, Senator Paul and his co-plaintiffs argued that FATCA’s withholding and reporting requirements imposed on individuals and foreign financial institutions (FFIs), certain intergovernmental agreements (IGAs) negotiated by the Treasury, and the requirement to file a foreign bank account report (FBAR) by U.S. persons with financial accounts that exceed $10,000 in a foreign country were unconstitutional.

In 2016, the district court dismissed the case on standing grounds (earlier coverage here).  The court evaluated the requirements necessary for Article III standing and concluded that no named plaintiff alleged actual or imminent injury from the FATCA withholding tax, and none of the named plaintiffs were FFIs subject to the requirements imposed on such entities.  Instead of asserting concrete particularized injuries, such as penalties brought for failure to comply with FATCA or FBAR requirements, the plaintiffs argued general “discomfort” with the disclosure requirements, which the court deemed too abstract and thus insufficient to confer Article III standing.

The Sixth Circuit panel upheld the dismissal on standing grounds, explaining that the injuries suffered by the account holders resulted from the independent and voluntary actions of foreign financial institutions, not the Treasury.  The court explained that no plaintiff has alleged “any actual enforcement of FATCA” or FBAR, such as a demand for individual reporting or the imposition of a penalty for noncompliance, and no plaintiff holds sufficient foreign assets to bring a pre-enforcement challenge to FATCA or has alleged an intent to violate FBAR, a prerequisite for standing to bring a pre-enforcement FBAR challenge.  The court also rejected Senator Paul’s IGA-specific claim that  he was stripped of his constitutional right to vote against the IGAs, explaining that Senator Paul can still seek repeal of or amendment to FATCA itself.  The court denied the plaintiffs leave to amend their complaint, reasoning that amendment would be futile because the facts simply do not provide them standing to bring the alleged claims.