On Monday the Israeli Supreme Court upheld a law giving US tax authorities access to Israeli bank account information, rejecting claims by petitioners that the law violated personal privacy rights.
The court ruled that the Israeli law, passed as part of an arrangement with the United States Treasury Department, did not violate Israel’s Basic Laws of Human Dignity and Liberty.
“Privacy in modern life is very limited,” said Justice Menahem Mazuz, one of three judges who ruled on the matter. “This is nothing new, the only change is that the regulations have now been codified into law.”
The petitioners included Rinat Schreiber, a dual-citizen with an Israeli bank account, who claimed the law infringed upon her right to privacy.
Earlier this month, the court had placed a temporary injunction against the implementation of the law, which is scheduled to go in effect by September 20th.
On August 1st of this year, the Knesset gave final approval for legislation complying with the Foreign Account Tax Compliance Act (FATCA), an American law passed during President Obama’s first term in office.
Two years earlier, the Israeli government signed an intergovernmental agreement with the US, pledging to comply with the FATCA, requiring Israeli banks to adhere to American Treasury Department regulations regarding the gathering and reporting of information on customers holding American citizenship.
The FATCA, intended to hamper money-laundering schemes and tax evasion by US citizens, has drawn heavy criticism for its broad reach, as well as its application of US authority in sovereign countries.
Banks not in compliance with the FATCA face massive withholding taxes, something opponents of the law say effectively compels countries to consent to the law.
The Economist blasted the law as “extraterritoriality stunning even by Washington’s standards… using threats to outsource its financial policing.”
The law requires foreign banks to report all accounts held by American citizens – including dual citizens – or Green Card recipients, to oblige all American customers to sign declarations regarding their income and taxable status, and keep the US Treasury Department updated on all accounts for US citizens holding more than $50,000 on a regular basis.
Banks in FATCA-compliant countries like Israel are also required to verify that new customers – regardless of their citizenship – are not Americans or Green Card holders.
American citizens living in Israel have also suffered secondary effects of FATCA, with some banks – such as Bank Leumi – refusing to open new accounts to US citizens, and even closing down existing accounts for customers with less than $50,000 in their accounts.
Even some American citizens in full compliance with the new regulations say after the 2014 intergovernmental agreement, bureaucratic problems left them unable to access their bank accounts, with only small withdrawals permitted, and then only after waiting hours for bank tellers to receive authorization.
Employers, too, have become wary of the compliance costs related to FATCA and the corresponding Israeli law, which creates a strong disincentive to hiring dual US-Israeli citizens.
Justice Hanan Meltzer in part justified the law by noting its acceptance by the United States, saying this created a presumption of constitutionality.
“As long as the US law is in force, there is a presumption of constitutionality in regards to its purposes.”