The End of Bank Secrecy? A new TJN report

A new (preliminary) report from the Tax Justice Network

‘The end of bank secrecy?’
Bridging the gap to effective automatic information exchange

Leading finance ministers are meeting in Berlin this week to initiate a new global standard for the automatic information exchange of tax data.

In a preliminary report,[1] Tax Justice Network evaluates the OECD’s common reporting standard, due to be enshrined in a new multilateral competent authority agreement at the Berlin summit.

Report authors Markus Meinzer and Andres Knobel[2] argue that the new global standard will not end bank secrecy, but it is a first step towards rolling it back.  Meinzer and Knobel reveal that this voluntary scheme, resting on confidentiality requirements and mutual reciprocity, is likely to exclude many developing countries.   Automatic information exchange will only be fully effective when all jurisdictions participate in the scheme and when sanctions are imposed for non-compliance.

Meinzer and Knobel’s preliminary report:

• summarises the scope of the common reporting standard, including financial institutions that will be required to collect information and which will be exempt; indicates what information will be collected and what will remain secret; and explains which entities, legal arrangements and individuals are covered and which are excluded;
• reveals several loopholes in the new arrangements, including: the entities, trusts and foundations behind which individuals may hide; high minimum thresholds for beneficial ownership; limited account balance information; and the “principle of specialty”, which will prevent data from being used to fight corruption and money-laundering;
• demonstrates how the demand for full reciprocity is likely to exclude low-income developing countries; how subjective confidentiality requirements will allow each jurisdiction to cherry-pick with whom to exchange information; and why the lack of a global multilateral agreement for all jurisdictions to sign up to represents a lost opportunity.

Quotes

Markus Meinzer, Tax Justice Network analyst, said:

Leading finance ministers are right to claim historic progress with this landmark agreement for automatic tax information exchange. However, it is not acceptable if signatories can arbitrarily refuse to provide data to other signatories without giving a public explanation. If this elective scheme lays the foundations for a future world system, there’s a large risk that real progress will be much slower than early adopters would have us believe.

Andres Knobel, Tax Justice Network analyst, said:

The new OECD standard on automatic information exchange is a big first step towards tackling illicit financial flows. However, serious obstacles to the inclusion of developing countries and a number of unresolved loopholes will prevent its effectiveness, allowing rich individuals with plenty of options to avoid reporting. Moreover, its narrow focus on tax evasion represents a missed opportunity in the fight against corruption and money laundering.

For further comments, please contact:

Markus Meinzer: +49 178 340 5673 [email protected]

Andres Knobel: +54 911 6008 3197 [email protected]

[1] The report is a draft legal and political analysis of the CRS and its Commentaries published on July 21st, 2014, taking into account public developments as of 23 October 2014. After incorporating feedback and comments by experts and partners, the report’s authors plan to finalise their analysis after the multilateral competent authority agreement has been signed.

[2] Meinzer and Knobel compile the Financial Secrecy Index for the Tax Justice Network.