What is being done?
The secrecy world is so complex and varied that there is no magic bullet that will tackle it. New and widespread public and professional awareness, backed by international co-operation, will be essential. This page outlines briefly some key areas, on each of which TJN has advocated since our establishment in 2003, and each of which has now come to occupy a central position in global policy discussions.
The true ownership or effective control of an asset, whether it be a painting, an office block or a bank account, can be masked through the use of any number of different entities and arrangements - such as trusts and offshore companies - so that it is impossible to ascertain for the public, or business partners, or law enforcement or others.
We believe it is essential that the beneficial ownership, control and accounts of companies, trusts and foundations, and their like, must be readily available on public record, and it must be explicitly required (and enforced) that financial institutions identify the ultimate beneficial owners or controllers of any company, trust or foundation seeking to open an account. Read more about trusts here, and more about company ownership, here.
Automatic Information Exchange
When the G20 in April 2009 declared that 'the era of banking secrecy is over' and mandated the OECD to lead a crackdown on secrecy jurisdictions, it pushed forwards a process of highly ineffective information exchange, where a jurisdiction wanting to find out information about its taxpayers must make a very specific request - and in effect must already know the precise information it is looking for before it even asks for it (for more details, see this TJN briefing paper, our dedicated web page on information exchange, and our financial secrecy indicator on automatic information exchange).
A far better principle, which we have long promoted, is that of automatic information exchange (AIE) - see more here. In 2013 the G8 and G20 endorsed AIE as the global standard for exchange of information and requested the OECD to develop a legal framework to implement this. In February 2014, the OECD published the “Common Reporting Standard” (CRS) which is based on FATCA IGA Model I A, although adapted to a multilateral context (e.g. reference is made to residency instead of nationality) and other changes (lower thresholds, lack of sanctions for non-compliance in contrast to FATCA’s 30% withholding tax, etc.).
One of the main problems with common reporting standard is that it lacks provisions that could facilitate implementation by developing countries. For example it does not allow for a non-reciprocal relationship between developing countries and developed countries in the early stages of implementation. This would allow developing countries to participate in information exchange whilst they are building the capacity needed to collect the information on their residents. The significance of this is that although there may be a great number of people from the developing world hiding their money in Switzerland, there are unlikely to be many Swiss citizens hiding their money in say, Sierra Leone. Despite these and other problems, the CRS still offers the best available platform for a global AIE which could eventually benefit developing countries.
Under current international accounting standards, corporations can publish their accounts on a regional or even global basis, with no country detail. It is impossible to unpick these numbers to work out what is happening in each country concerned.
Following TJN's leadership on country-by-country reporting over a decade, the OECD was mandated by the G8 and G20 groups of countries in 2013 to produce an official standard. This is now being legislated in many countries and will soon be the subject of reporting requirements. Unfortunately, the OECD only requires that data be provided privately to a single tax authority (in the multinationals' home country). This information must be made available to all tax authorities if the OECD is not to exacerbate the inequality in countries' ability to enforce their taxing rights. It must also be made public if the intended benefits in terms of the accountability of both multinationals and tax authorities is to be achieved.
The system of global financial secrecy and secrecy jurisdictions is administered by an infrastructure of private intermediaries: primarily bankers, accountants, lawyers and corporate and trust service providers. They are highly active players in the secrecy world. It is essential that international initiatives seek to target those who actively create secrecy and facilitate illicit financial flows. This can be done in various ways, such as through the creation of codes of conduct on taxation (see here and here, for example); turning tax evasion into a predicate crime for money-laundering purposes, or to make it a specified act of corruption under the United Nations Convention against Corruption (UNCAC). Additionally, policymakers should consider ensuring that wilful breaches of reporting, and of due diligence obligations, become criminal offenses.
Read more on the Tax Justice Network's web page dedicated to private intermediaries.
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