The Emergence of Multilateral AEI

Abstract

This chapter explains that the Foreign Account Tax Compliance Act (FATCA) has its origins in the longstanding efforts of anti-tax haven activists within the Democratic Party. These activists utilized testimony from a whistleblower and a former Union Bank of Switzerland (UBS) private banker to prepare a report on the bank's illegal offshore business with US clients. To increase publicity, they held a corresponding Senate hearing, which eventually triggered the UBS scandal. Shortly afterward, Barack Obama entered office. The scandal, his cordial relationship with Democratic anti-tax haven activists, and personal interest in the issue made combating tax evasion and avoidance a top priority for his administration. In contrast to proposed anti-avoidance measures potentially affecting US multinationals, legislation requesting more transparency from foreign banks serving US clients easily passed Congress. The result was FATCA, a law threatening foreign financial institutions unwilling to report account data of US clients with a 30 percent withholding tax on payments from US sources.