Not an end to secrecy, but a first step in the right direction

October 30th, 2014

5761956488_abc5734fc7_zA multitude of officials are heralding a new cross-border tax information exchange crafted by the Organization for Economic Cooperation and Development (OECD) as the end of tax evasion as we know it. Unfortunately, the truth may be a bit more ambiguous.

Wolfgang Schaeuble, Germany’s finance head, stated unequivocally that “banking secrecy in its old form has had its day.” Others, from George Osborne of the United Kingdom to Michel Sapinof France echoed similar praises.

While the reforms, which were discussed at a Berlin conference this week, are a big step in the direction of real financial transparency, the Tax Justice Network, a member of the FTC, has released a new report detailing their concerns with the plan, and why it’s vital that we continue to push for stronger and more inclusive measures. 

The OECD plan on automatic exchange of financial information is aimed at cutting down on individuals and companies hiding their money in foreign bank accounts. Currently, countries enter into bilateral agreements that are often “on request”, meaning that if a country believes individuals are hiding money in other jurisdictions, and thus evading taxes, the authorities must put in a request for the information.

This bureaucratic and time consuming process often ends in no information sharing at all, especially when the money is held in highly-secretive jurisdictions. The new system would allow for the exchange of this information automatically at designated intervals, but there’s some concern that developing and low income countries may be left out of the exchange, and they’re often among those most affected by illicit financial flows.

Markus Meinzer, one of the report’s authors, states his caution:

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.

Meinzer, along with Andres Knobel, highlight many of their concerns in the full report, which you can download here.

Image used under Creative Commons Licensing / Flickr User Gobierno de Chile

Written by Christian Freymeyer

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