Who’s not coming to dinner? Some notes on the information exchange laggards

There’s been a lot of news this week about a meeting in Berlin where finance ministers and tax bosses from 51 countries signed an agreement to implement automatic information exchange, a standard which we’ve been calling for for years and which is finally on the agenda.

Germany’s finance minister Wolfgang Schäuble was probably not so very far off the mark when he said

“Banking secrecy in its old form has had its day”

But this is just the beginning of the story. More excitable commentators have declared that “Bank secrecy is dead“, which is nonsense on many levels (not least that “banking secrecy” is just one of many flavours of financial secrecy that need to be examined here, and banking secrecy remains alive and well (if a little bruised) in places like Switzerland.)

Now then.

We have already had plenty to say about the holes and insufficiencies in current international initiatives, such as here or here.

We’d make a few further observations about what happened in Berlin.

Perhaps the biggest issue is that the United States didn’t sign up. It says that it’s got its own system – the Foreign Account Tax Compliance Act (FATCA) – which it claims is equivalent. But this is a big problem, notwithstanding the problems with having two different systems out there up and running. The United States is keen to get other countries to provide it with information, but not quite so keen on sharing information (though it does share some). Tax Haven USA is alive and well, notwithstanding exceptions made for the United States in the OECD’s system (e.g. see pp22-3 and p46 here,) apparently in an effort to entice them to join up.

As well as this, there is a bunch of countries that have not even committed to a time frame for signing up: Bahrain, Cook Islands, Nauru, Panama, and Vanuatu.

Fake residency jurisdictions are another big problem. You become a “resident” of one of these tax havens, and you’re outside the reporting system.

And there’s the fact that while the agreements signed (known as “Competent Authority Agreements,” CAA) are necessary for automatic information exchange, so as to set up the appropriate legal framework for sending and receiving information, it is not sufficient in itself to do so, because there are still various obstacles to overcome before a country can get the information it needs from another. The CAA (Section 7, para 1 and Section 5, para. 1 if you’re interested) notes that a country wishing to engage in the exercise needs to:

• Have the domestic legal framework to implement the new OECD standard on AIE (called the Common Reporting Standard or CRS);
• Have the domestic legal framework to ensure confidentiality and data protection safeguards;
• Meet the subjective “safeguards for protection of personal data” (if any), imposed by the jurisdiction sending information; and
• Be matched with the sending jurisdiction (A wants to engage in AIE with B and vice-versa) because each jurisdiction may choose with whom to engage in AIE.

  So there’s still a long way to go. But this is still progress.