The Los Angeles Times reports on the difficulties U.S. tax reporting requirements ("FATCA") can impose on expatriates:
Los Angeles Times article
So are people really giving up U.S. citizenship in order to avoid FATCA requirements? Anecdotally, no, if only because the U.S. tax cost of doing so is prohibitive. (An expatriating taxpayer is in many cases treated as selling all of his or her property in a taxable sale the day before expatriation.)
Expatriates are, however, very unhappy about the highly burdensome foreign reporting requirements that apply to even very small foreign accounts. The penalties, even for an inadvertent violation with no tax deficiency, can be enough to destroy a family's finances.
I can't speak for foreign banks, but after the reporting squeeze the U.S. and Swiss governments put on Swiss banks, it's no surprise if a foreign bank does not wish to deal with U.S. customers.
The FATCA requirements are surely not troubling money launderers in the least; there are plenty of jurisdictions that will not make disclosures to U.S. authorities, and I don't think money launderers usually are greatly concerned about filing accurate tax returns.
Meanwhile, the U.S. government is literally trying to dictate how other countries run their banking systems. This is exactly the kind of policy that undermines the perceived legitimacy of the U.S. tax system in the eyes of both the world and of U.S. taxpayers.
Of course, it's a desirable goal to detect money laundering and foreign jurisdiction tax evasion. However, all an excessively broad reporting requirement does is allow bad people to hide in a thicket of unnecessary reports filed by good people.
FATCA compliance should be completed by filling out two lines (per account) on a standard tax return. Additional reporting requirements should apply only where they make sense. Penalties where there is no tax evasion should be limited to an amount that reflects a reporting error, not an international money laundering conspiracy.
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