Yesterday AsianInvestor received a message from a political lobbyist in Washington, DC named Jim Jatras, referencing our story ‘Hong Kong fires back at Fatca’ and efforts by a variety of industry groups in Asia to lobby the US Treasury and the IRS on the proposed tax law.

He notes that Treasury’s role is to enforce its statutory mandate, and any adjustments it can make are minimal. Similarly, it is not well appreciated outside of the United States that political opposition to Fatca is growing inside the country.

“Outside a handful of legislators who slipped it into the 2010 ‘Hire Act’ with no debate and a few Treasury officials tasked with enforcing it, hardly anyone here has even heard of Fatca,” Jatras says. The looming costs to domestic financial institutions are just beginning to be understood.

Jatras, a former policy analyst for the Republican leadership in the US Senate and a former US diplomat, says he is communicating with the Senate Committee on Finance and the House Committee on Ways and Means, which have jurisdiction over this proposed legislation.

“The window for impacted industries to delay Fatca’s enforcement and to set the stage for its repeal not only has not closed – it really is just beginning to open,” Jatras says. “If Hong Kong interests want to ‘fire back’ at Fatca, they have to aim at the right target: Congress.”

The Foreign Account Tax Compliance Act was enacted in 2010 as an attempt to raise revenues from deadbeat American taxpayers using foreign (European) banks to evade their obligations.

Fatca requires every foreign financial institution in the world to collect data on American-owned assets it and its clients hold, and report those to the Internal Revenue Service, a branch of Treasury. Any FIIs not in compliance will suffer a 30% withholding penalty on any US-derived income. The draft enforcement rules run to nearly 400 pages, and the net catches virtually every institution unless they completely sever all counterparty ties with US banks and brokers.

At the same time, the Treasury announced in principle a ‘partnership’ with five European Union governments to require their financial groups to report this information to their own governments, who then pass it on to the US – in return, the US passes on similar information about those governments’ own citizens.

Jatras notes this means that Fatca’s costs will fall on American institutions as well as foreign ones, and the risk that some investments in the US are pulled out as a result. This means US financial groups as well as broader business interests could suffer as a result of Fatca. US citizens may also find their own data privacy as compromised as what Fatca demands from foreigners.

Jatras says foreign ‘partner’ governments are starting to wonder whether such agreements will really spare their banks and asset managers from Fatca compliance costs. Jatras says all these agreements do is outsource the IRS’s work to foreign governments, as they will need to report from multiple countries, not just their own.

Although a Congressional committee estimates Fatca’s revenue benefit to the Treasury will be $1 billion per annum, no one has actually done a study to compare that with the costs to US, let alone foreign, financial institutions of complying. Jatras says Congress is only now dimly aware of the true costs of compliance, to say nothing of consequences if investment in the US economy declines – a real threat, as BlackRock told us.

Finally, Jatras says Fatca is hardly set in concrete. The list of losers is growing: American expatriates, dual nationals, resident aliens, American consumers of financial and investment services, domestic workers in industries dependent upon foreign investment, and anyone who feels Fatca intrudes on their privacy. Jatras says this long list makes Fatca vulnerable to multiple points of lobbying. And this is a big election year.

AsianInvestor also wonders whether Fatca, if passed in something close to its present form, would withstand a legal assault if taken to the US Supreme Court. But perhaps it doesn't need to be left to that. Interested parties can track down Jatras at the firm Squire Sanders Public Advocacy in Washington, DC.