I don't understand how the IRS can know what you do in foreign banks

First hand experience (US citizen): When you open a bank account overseas, they ask you if you are subject to FACTA (US passport or green card). Then you are given a multi-lingual form that explains all about FACTA, and require you submit your passport (for scan/photocopy) and to sign a form acknowledging the bank will end your account details annually (at least!) to the US IRS. I confirm this is true multiple times -- different banks, different countries. Surprisingly, even ones where the service is 100% non-English (read/write/speak!), they will still bring out multi-linguage forms and do a bunch of pointing to confirm.

Funny story: Overseas, I can remember going through anti-money laundering training. The week after, I went to open a new bank account. When I told them I was a US citizen, the account rep said -- without missing a beat -- "Do you want to report?" Jeez. That question alone is probably enough to get that bank into trouble! Obviously, that person failed their own FACTA training...

The IRS requires you to report all bank accounts you have in foreign countries when you file taxes:

https://en.wikipedia.org/wiki/Foreign_Account_Tax_Compliance...

> FATCA also requires such persons to report their non-U.S. financial assets annually to the Internal Revenue Service (IRS) on form 8938, which is in addition to the older and further redundant requirement to report them annually to the Financial Crimes Enforcement Network (FinCEN) on form 114 (also known as 'FBAR')

What's ridiculous is that it also "requires" foreign banks to report details of accounts by US holders - even if the bank has no relation to the US.

Find me a bank in 2021 that doesn't clear US dollars. That is the big gotcha. This is one of the ways that the long arm of the US Treasury applies force is by restricting US dollar clearing if any banks in a jurisdiction refuse to comply. Literally: They would say to a developing country: Get that local bank in order, or we will not allow any one in your country (central bank or businesses) to trade or clear any US dollar transactions. Remember: Most US dollars overseas move by SWIFT transactions.

Because they apparently require foreign banks to report it.

Now, how do they actually enforce that supposed "obligation"? I do not know.

But it doesn’t surprise me. The US has already enforced it’s laws on foreign companies' dealing abroad merely because they had used dollars in their transactions.

They haven’t enforced it yet (for the banks, for non-compliant Americans, they have). But they’ve signed treaties with many governments to allow this, and they threaten foreign banks with fines related to any US dealings.

They say you play ball or lose access to the US banking system, which is pretty much a death sentence.

It generally doesn't, but the law says you have to tell it or face prison time.

And there are some instances of information sharing via tax treaty, but I haven't seen exact details on how it works.

Which country is this?

I'm aware of restrictions in France and Pakistan from coworkers on H-1 visas from those countries. Note that both probably do provide a way to open it if you go through some lengthy "exceptions" process, but it wasn't worth the hassle.

Basically, ever since the IRS required you to report foreign accounts (2007 or 2008), some countries have made it harder for people based in the US to get accounts. They see it as an indirect means to collect intelligence by the US.