OECD Standard for Exchange of Financial info - boon or future problem?

Thursday, 20 February, 2014

As we expect our readers know, an OECD report has been published on a new global standard for countries/tax havens to exchange tax information with one another. It marks a progressive step in the fight against global money laundering and tax evasion; this level of agreement and cooperation from the G20 ought to be lauded, as it's not common. 

Some context, in the words of the OECD press release (forgive us):

“G20 Leaders at their meeting in Russia in September 2013 fully endorsed the OECD proposal for a truly global model of automatic exchange and invited the OECD working with G20 countries to present such a new single standard for automatic exchange of information in time for the February 2014 meeting of the G20 Finance Ministers and Central Bank Governors.

The standard contained in this report and released in preparation for that meeting calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. It sets out the financial account information to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions. Part I of this report gives an overview of the standard. Part II contains the text of the Model Competent Authority Agreement (CAA) and the Common Reporting and Due Diligence Standards (CRS) that together make up the standard.

The new standard draws extensively on earlier work of the OECD in the area of automatic exchange of information. It incorporates progress made within the European Union, as well as global anti-money laundering standards, with the intergovernmental implementation of the US Foreign Account Tax Compliance Act (FATCA) having acted as a catalyst for the move towards automatic exchange of information in a multilateral context."

However - while it contains many positive elements, tax advocacy organisation Tax Justice Network critiques it as “far short of what the world’s citizens desperately need.” (link via the Business & Human Rights Network). It is, they say, “likely to result in developing countries being excluded because they are expected to provide ‘reciprocal’ information exchange, even though pretty much all active tax havens are in rich countries, and many developing countries would need to sacrifice scarce resources to set up the arrangements to collect the information to be exchanged.” they also assess it as loophole-ridden and with our sanctions for “recalcitrant jurisdictions.”

To provide some context for these concerns you could do worse than read of an official UN statement on how "illicit financial outflows from Africa [are] crippling [the] continent's development," and the consequent need for the need "for global efforts to address the problem of illicit financial flows from Africa, which have crippled the continent's development over the last few decades." This OECD report is a golden opportunity to address this need and it'd be a shame were it missed; so here's hoping these concerns can be addressed.

For the full critique, including proposed solutions to the problems identified, see the Tax Justice Network press release here (pdf).