Is the era of banking secrecy over?
The answer to the question in our headline is a resounding no. But there has been some progress.
In April 2009 G20 leaders in London committed to tackling tax havens, declaring that “the era of banking secrecy is over.” The G20mandated the OECD, the club of rich countries, to do something about it.
How serious were they? Given that the large majority of secrecy jurisdictions are rich-country members of the G20 or OECD -- extreme caution was warranted. Would they simply pay lip service to reform, and continue with business as usual?
Well, the glass is half full.
At least to start with, we saw little concrete action. But over time, rising public outrage amid the global financial crisis, and the rise of a new breed of tax justice campaigns in many countries, forced leaders to start taking the issues seriously.
In June 2013 G8 leaders in a declaration in Lough Erne, Scotland, officially endorsed the principle of automatic information exchange (see our dedicated web page on this), a concept long pushed by the Tax Justice Network. Though the statement was devoid of specifics, and raised many further questions, things slowly began to happen behind the scenes.
Although the original 2009 statement used odd terminology -- "banking secrecy" is just one of a number of different "flavours of secrecy" -- this was soon overtaken by events.
The European Union, which had been operating weak regional systems of automatic information exchange since 2005, notably the EU Savings Tax Directive (EUSTD,) began to try and push through powerful Amendments to close loopholes and broaden its scope. In February 2014 the OECD first presented a new global standard for information exchange, the Common Reporting Standard (CRS,) a technically quite strong and broad system of automatic information exchange, though with several major flaws and a relative lack of access for developing countries. The European Union subsequently has allowed the CRS to supersede EUSTD and this is now in the process of being rolled out.
The United States, for its part, has been developing its own programme, the Foreign Account Tax Act (FATCA) instead of the CRS. The problem is that FATCA, while also quite technically strong, is a rather unilateral system of automatic information exchange designed above all to obtain information on U.S. taxpayers abroad, with relatively little information exchanged in the other direction. So the U.S. stays a tax haven, and undermines global co-operation, as our USA special report explains.
As of October 16, 2015, 61 countries had signed the agreement committing them to the CRS, and first automatic exchange of information under the CRS was due to take place in 2017.
These agreements will temper, but by no means eliminate 'banking secrecy' (and the several other flavours of secrecy.) For one thing, the CRS will only have patchy coverage: not only is the U.S. a rather recalcitrant player in the global schemes, but many other countries such as Switzerland or Bahamas are being picky about which countries they'll exchange information with, and putting all sorts of obstacles in the way.
What is more, the CRS contains many loopholes and flaws, and it needs to be backed up by public registries of shell companies, trusts, and other entities and arrangements which are traditionally used for secrecy purposes. There are particular fears that as pressure grows on banking secrecy, shell companies, information-exchange secrecy, and so on, some of this activity will shift into the exceedingly slippery area of trusts, where little serious action has been taken.
Switzerland as an example
Finally, a look at Switzerland is revealing. Its Banking Secrecy Law, originally put in place in 1934, is still firmly in place, and indeed Switzerland has recently been persecuting whistleblowers, using what appears to be extra-judicial means, wielding this law as a club. As our Switzerland special report explains, Switzerland is a participant in the CRS, and this will significantly boost its transparency -- but it has been carving out all sorts of exceptions from it and, as usual, the most vulnerable developing countries are being left out.
In short, 'banking secrecy' and other forms of secrecy are alive and well.