The case had been brought by the Florida Bankers Association and the Texas Bankers Association, which have argued that the Foreign Account Tax Compliance Act, signed into law in 2010 and aimed at cracking down on the use of foreign bank accounts by Americans seeking to avoid paying US tax, violated certain laws and were overly burdensome and costly.
But in a 23-page judgment handed down last week, US District Court for the District of Columbia Judge James E Boasberg found in favour of the Internal Revenue Service and US Treasury.
He cited the importance of "reciprocity" in international tax matters between countries, and questioned the reasons the banks would lose clients, as they claimed, since no "rational actor, other than a tax evader" would be expected to withdraw his or her business from a bank because of the new reporting requirements.
The ruling in the case, Florida Bankers Association v US Department of the Treasury, is being seen as a victory for the Obama administration, which has been struggling to convince a growing number of US politicians and special interest groups that FATCA is worth the investment in costly reporting infrastructure that is necessary for it to be put in place, by the US government, foreign financial institutions and foreign governments.
Given the political challenges President Obama has had with ObamaCare, his ambitious overhaul of the US healthcare system, he could do without a problematic bedding in of FATCA.
As reported, one of the most outspoken opponents of FATCA has been a Republican Senator from Kentucky, Rand Paul. In May, he introduced a bill to repeal the act, claiming that it diminished the privacy protections of Americans while at the same time being a poor tool for combating tax evasion, and also, potentially impacting foreign investment in the US.
Elements of FATCA reporting have begun, but the main implementation date, for now at least, is 1 July 2014. However, as reported by International Adviser today, a news agency in Taiwan is reporting today that there is a possibility it may be postponed again.
