How the Automatic Exchange of Information Act is denying human rights to financial privacy As we see new laws and regulations that are set to destroy financial bastions and banking privacy – and with that the tax havens of the rich and famous.
Paul Robbins, Intermediary Relationship Manager, here at IntaCapital Swiss, gives us an insight into his opinion on the new legislation that, with a single blow, will destroy hundreds of years of banking secrecy. In a rapidly changing world, more and more governments, authorities and lobby groups are placing enormous pressure on their international counter-parties to pass strict laws that are slowly depriving us of our privacy and our rights to financial secrecy. Citing the reasons as being the fight against terrorism, for some reason many groups believe that by taking away our privacy and financial secrecy will expose and deter terrorists.
Little by little laws are being passed that slowly chip and ebb away at our rights to remain private and our rights to keep our financial and banking affairs from being publicly dissected by governments and authorities. Seemingly initiated by the United States, slowly but surely countries around the world are being forced to sign up to international agreements to diminish its citizens and residents’ personal and privacy rights.
Governments and authorities around the world have thrown up little resistance to demands made by their counterparts to sign international treaties and agreements that wipe away their citizens and residents’ rights. Mainly because a huge by-product of the destruction of financial privacy and banking secrecy means that governments can track down and heavily tax offshore investments and wealth that has intelligently been set aside for a rainy day. The fact that thousands of people have held bank accounts in those private financial bastions for hundreds of years does in no way imply they did so to avoid tax or build cash to buy arms and afflict terror. The main and most common purpose of banking in those jurisdictions that supported banking secrecy – and I include Switzerland as one of the strongest – is the fact that those financial citadels can offer the account holder the soundest investment support, the most expert advice and experience and the highest security, far more superior than any of the other financial centres that do not (or did not) support banking privacy. That is the reason those jurisdictions attracted investors and subsequently over one-third of the worlds wealth in Switzerland alone.
It is often portrayed that public opinion of those who support and protect financial privacy are only the rich and super-rich. Less financially fortunate people don’t really care about their financial secrecy and rights to remain private. Well, I disagree. Banking secrecy aids sound investment foundations for both those individuals who wish to build long-term investments for their family and heirs and offers a stronghold platform for corporations laying down long-term investment strategies.
Many actions have also been taken by governments to close (or render unrecognised) those complicated trusts and financial structures that have been accused of attempting to hide wealth from tax exposure. Whilst many of us would agree that we should all pay our way and pay the taxes due, the owners of those hidden fortunes should still have their rights to their banking privacy respected and the rights to pay those taxes anonymously.
Switzerland still keeps intact that banking secrecy and has done so for hundreds of years. However, sadly it has been forced to give up the identities of its non-resident account holders to their home revenue authorities. Swiss residents still enjoy complete banking privacy and Switzerland is still one of the largest offshore wealth centres globally.
The rights to privacy in other parts of our daily life are also under attack – it’s not just the rights to financial privacy. Some years ago, George Orwell gave us a fictional account of what life would be like in 1984. I believe we all recognise the similarities of Orwell’s imagination and the world as it is today. The argument to take down and ban certain mobile communication apps that use end-to-end encryption (preventing eavesdropping), just screams at volumes that some government agencies want to spy on the content of its users. Again, citing the fight against terrorism as being the reason.
The most recent piece of legislation, the Automatic Exchange of Information Act, originally entered into force in 2015 with the first round of exchanges effected into force in 2017 and has now absorbed some 100 countries with another 8 coming into force in late 2019/2020. A total of 45 countries (labelled ‘developing nations’) have not yet set the date for their first automatic exchanges), including Montenegro.
The most recent round of countries that signed up to the Act in 2018 and that has come into effect as from January 2019 include Switzerland, Singapore, Monaco and the UAE among other infamous financial jurisdictions.
The legislation practically wipes out any banking secrecy that existed in those states. This means that if you are not resident in those states but hold bank accounts or funds therein, the competent financial / tax authority is duty bound to automatically send your information to the tax authorities in your resident state. This move is one that had been initiated some time ago, forced upon most jurisdictions and originated by the United States as a result of their ‘crack down on terror’ after the events of “September 11”, now some 18 years later conveniently morphed into a bona-fide piece of legislation under the guise to crack down on international tax-dodgers.
From our observations, those jurisdictions that have not yet offered a date for their first exchanges of information, i.e. those who are not bound by the Automatic Exchange of Information Act, are enjoying a rapid increase of investment as those who still demand complete banking privacy import their offshore wealth. One of the largest countries to benefit recently is Montenegro, where the investment climate is strong and where it offers a flat rate of tax at 10% per annum. It offers numerous benefits and incentives to new investors. So, whilst we may see the wealthiest of financial bastions lose some of its investors, smaller states such as Montenegro and the new Republic of Macedonia may bask in the financial sunshine in the foreseeable future.