When Fatca was passed in the US in 2010, it was seen as a blow to tax evaders, but the law has had troubling consequences for many innocent people. Now a lawyer and his client are fighting back
Filippo Noseda cuts an unusual figure for a tax lawyer. Not only is he rather more charismatic than one might expect in this sometimes dry corner of the law, he also exhibits the refreshing countenance of a person who doesn’t take himself too seriously.
But get him on the topic of Fatca – the US’s Foreign Account Tax Compliance Act – and suddenly the fast-talking Swiss-Italian in round spectacles becomes rather more serious.
For eight years the Mishcon de Reya tax partner has been investigating Fatca and getting himself limbered up for what looks like being one of the biggest cases of his career – or indeed the career of any tax lawyer. In the coming weeks Noseda is likely to be beating a path to the High Court for a showdown with Her Majesty’s Revenue and Customs over its implementation of Fatca.
As things stand, every year the bank account data of hundreds of thousands of US citizens and associated Britons in the UK – including balances, transactions and names and addresses of the account holders – is shared with the tax authorities in the US.
The purpose of Fatca, signed into law by President Obama in 2010, is to cut down on offshore tax evasion by US citizens. In fact just $8 billion has been recovered since its introduction – nothing like the $100 billion expected.
It has also prompted outrage from both sides of the US’s political divide and a record number of overseas Americans have renounced their citizenship. It has also added fuel to the fire in the long-running debate over the US’s system of taxing people based on citizenship rather than residency, which has its roots in the 1860s and the Civil War.
But, according to Noseda, Fatca is also infringing the human rights of potentially millions of US expats and ‘accidental Americans’ worldwide. He insists that the transfer of personal financial information required by Fatca is in flagrant breach of the data protection rights of the individuals concerned. And as such he is working on a claim against HMRC under section 167 of the 2018 Data Protection Act on behalf of his client, ‘Jenny’.
Jenny, whose identity has been protected to guard her privacy, was born in the US and has lived in the UK since she was 22. She attended university here, then married a Brit and works and pays tax here. In 2016 she received a letter from her bank telling her that she was likely to have tax obligations in the US and that it would be sharing information about her and her account with HMRC, which would pass it on.
The bank ‘asked’ her to supply further details – including her US social security number, date and place of birth – or risk being ‘unbanked’ if she refused: ‘If we don’t receive the information we will be legally required to report you and your account to the tax authorities, whether or not you have US tax obligations.’
‘People call it “the OMG moment”,’ Jenny says over Zoom, in the first media interview she has given. She explains that she felt victimised and lonely: ‘It takes you down this horrible rabbit hole of tax law. It was just horrifying. I eventually filed and did what I had to do – but I never owed any tax. I never owed anything.’
Complying with the requirements cost her the equivalent of 10 per cent of her annual earnings in tax advice. And it looked like she would need to continue filing, too.
‘They had no reason to think I was cheating my tax – I live here, I work here, I bank here. It just didn’t make any sense. I just didn’t know what to do.’
Then she found out she wasn’t alone. Other Americans in the UK, even those who left the States when they were children and didn’t even have US social security numbers, were included in what critics decry as ‘bulk surveillance’.
‘The bank has no reason to be sending these people’s data to a foreign government,’ insists Jenny. ‘They’re not going to owe anything because they’ve already paid all their tax here.’ There’s another good reason why many people won’t owe anything: Fatca exempted all earnings below $107,000.
HMRC may have picked on the wrong person. As well as joining various groups on Facebook to share information, Jenny also made a Freedom of Information request to the taxman in 2018 to find out how many people were affected.
It was denied, so she appealed. It was denied again, so she appealed to the body that has the last word on data rights in the UK, the Information Commissioner’s Office (ICO). This ruled that HMRC was right to decline her requests on the grounds that the information was likely to prejudice ‘relations between the United Kingdom and any other state’.
Jenny was left fuming: ‘They said that the UK’s relationship with the US was just too important for us to adhere to your data rights,’ she laughs. What happened next was opportune.
At a virtual tax conference, Jenny learned of Noseda and his interest in Fatca as well as its worldwide equivalent, the Common Reporting Standard (CRS), which is administered under the auspices of the OECD in Paris. That led to a meeting with the man who was to become her tax lawyer.
It was ‘an amazing breath of fresh air’, she says. ‘He was so passionate about it, [and] hooked into it for many years – longer than I had or many of the people in the groups that I looked at had.’
But there was a problem. ‘I can’t afford Mishcon de Reya fees,’ she laughs, ‘in any way, shape or form.’ Fortunately, a thoroughly modern solution presented itself. In a first for Mishcon de Reya, the case is being crowdfunded.
The page went live on Crowdjustice.com more than a year ago and has since raised more than £92,000 towards Jenny’s legal costs. Noseda accepts the need for some intrusion on citizens’ privacy, for reasons of national security, for example.
‘When it comes to terrorism I get it,’ he says. It makes sense for MI5 or MI6 to have access to our data, ‘because they’re protecting [your] life’. Even so, ‘everyone understands’ that you have to draw the line before they encroach too far.
With HMRC, he says, the case should be even more obvious. What Noseda says next may raise hackles among some Spear’s readers – but it’s worth noting.
‘The reality is in this country there isn’t a long tradition of privacy and human rights,’ he says, noting that the law on human rights – privacy in particular – was introduced in Europe through the Convention on Human Rights, signed in 1950.
‘Now, 1950 was five years after the end of the Holocaust and three years before Stalin died, so clearly at the time continental Europe said, “Protecting the individual against the overbearing state is bloody important.”’ Privacy, in this context, then, is ‘the right’. And although there may be exceptions to it, they should be a matter of ‘strict necessity’.
However, the UK only signed up to the convention in 1998. ‘The British are quite trusting in their governments because they haven’t got the history that continental Europe has,’ he says.
Furthermore, there are the hazards of hacking to consider. Bodies like HMRC have not exactly covered themselves in glory when it comes to digital security. When you consider the type of information shared under Fatca, the potential for ‘identity theft of gigantic proportions’ is clear.
Nor, in Noseda’s view, has the ICO behaved well.
In June, in a forerunner of the legal challenge to be mounted in the High Court, the ICO rejected Jenny’s complaint against HMRC for its cooperation with Fatca under the provisions of GDPR. In Noseda’s view, that makes the ICO guilty of ‘an abdication of responsibility’ by refusing to take a position on the legality of primary legislation.
With the ICO avenue now closed, Jenny is going after HMRC for breach of data protection under GDPR and the Charter of Fundamental Human Rights of the European Union, which applied when her data was used.
Shortly before Noseda and Jenny spoke with Spear’s, their campaign suffered a setback when HMRC rejected their request to waive what are called ‘adverse party costs’.
As Noseda explains in rather demotic language: ‘Litigation in the UK is a bitch. If you lose, unlike what happens in many continental European countries, you pick up the bill of the other side. So if you take on the state in a matter that raises tax issues, constitutional issues, EU issues… I was told that my client could pick up a bill for half a million pounds.’
This has raised the stakes. But Noseda is determined to give Jenny – as well as what he regards as our fundamental human rights – their day in court.
‘It’s not about tax,’ he says. ‘It’s about data protection. The idea that the state can collect all your information… it’s just crazy.’
So what will they do now that HMRC has refused to waive adverse party costs? ‘I cannot expose Jenny to bankruptcy,’ says Noseda. ‘That’s the rational answer.’
He pauses. ‘My passionate answer is that it’s inshallah – God will provide – in the sense that so far I’ve been on the brink of disaster so many times and then a helping hand has put it back on track.’
Inshallah has worked for Noseda so far. He has been investigating, speaking, writing letters and asking awkward questions about Fatca since 2012. ‘In a way I got involved when I started my career,’ he says.
His early career as a lawyer was spent in Zurich, when it ‘was engulfed by banking secrecy’. He came to London in 2000 and ‘went from complete secrecy to complete transparency.’ Then, at Withers, he heard about Fatca.
‘I hate not understanding stuff, so I studied it,’ he recalls. ‘When I read it, I got a eureka moment… this is great… it got my support because I really hated the banking in Switzerland.’ But as he developed a sense of the quantity of data involved, Noseda began to notice an elephant in the room: ‘What happens if it gets hacked?’
He then began to think about data protection and was amazed to discover that people weren’t talking about it, even though it was enshrined in the EU charter.
‘People say that if you are against the excesses of Fatca and CRS then you absolutely must be in favour of tax evasion,’ Noseda tells me. That’s missing the point, he believes. ‘It’s about democracy, about the difference between not being surveilled by the state – or being surveilled by the state on a Chinese model.’
If, as Noseda hopes, the High Court finds in Jenny’s favour, then there will be significant ramifications. First the behaviour of HMRC and the administration of Fatca will be declared to be incompatible with GDPR and EU law (since the infringements occurred from 2017 to 2019, when the UK was still under EU law). That would lead to a renegotiation of Fatca and the development of a new system.
And that’s just the beginning. ‘If I win it will have a knock-on effect for Crown dependencies and overseas territories because the BVI, Bermuda… they’re going to say, “Hang on a second, if it’s illegal in the UK it’s illegal here as well,”’ says Noseda.
Then there’s Europe, where details of 8.7 million accounts have been shared. This throws a spanner into the works for the EU, regardless of whether or not the UK has left the jurisdiction of the European Court of Justice (which is scheduled to take happen on 31 December).
‘Politically, this is a global issue,’ says the lawyer. ‘The EU is part of this mess. We can’t have two rules applying here.’ And while the case law is ‘in its infancy’, there is the glimmer of compensation for those who have suffered because of Fatca.
‘If our data is worth something then I could potentially do a class action against HMRC on behalf of every American in respect of which HMRC collected data,’ says Noseda. When a tax lawyer dares to dream, that’s what it looks like. But it’s clearly been a hard road for Noseda, even with the backing of his firm.
‘Unfortunately I’m stuck,’ he says, ‘in the sense that I would like to put the case down sometimes.’ But he can’t. ‘I think that in a way I’m sucked so deeply into it that I find it difficult to walk away from it.’
Noseda has an effortless look about him, but the campaign has been onerous. ‘Luckily, my clients do cut me some slack,’ he confides, ‘and generally seem to understand that I’m doing something which I think and they think is worthy. I did have some sleepless nights and money is my biggest concern.’
Why don’t more people support the crowdfunding appeal? Clearly it’s a source of frustration. ‘I can’t understand how people cannot commit if they feel strongly about this, if they moan about this, if they pay tens of thousands of pounds to restructure their affairs,’ says Noseda.
‘Why not give £200? I simply don’t understand it. It’s all very depressing.’ Jenny shares the sentiment – and that can be draining. ‘I’m doing this for more than just myself,’ she says. ‘I’m just an example of one person who’s going through this.’
The irony of ironies is that the US would never stand for this. ‘If they were doing it from a US bank to the US government that would be illegal – that’s against the Fourth Amendment,’ says Jenny. It’s a point that has been made by American politicians, including the conservative Republican US senator Rand Paul.
Moreover, as Noseda explains, Fatca is lopsided. ‘Of course, finding tax evasion is a public interest, but I’m not entirely sure that helping Uncle Sam with its tax evasion without getting anything in return is in the public interest of the UK,’ he says, pointing out that it costs European banks millions to implement it.
‘That might be a question that the court can help to decide.’ For Jenny’s part, the goal is simple. ‘I hope,’ she says, ‘to achieve a solution from HMRC and the ICO that upholds our data protection rights and stops them breaching all the different aspects of GDPR, such as data minimisation and necessity and proportionality. They should not be allowing bulk surveillance of our personal and financial data, and certainly not sending it to a foreign government.’
Put like that, it’s difficult to disagree.
Original photography by David Harrison
This piece is from issue 77 of Spear’s magazine, out now. Click here to buy and subscribe
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