The Big Reveal: The OECD's Common Reporting Standard

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 The Common Reporting Standard is a new global information reporting system, signed up to at this point by more than 100 countries and beginning to come into force this year, which aims to provide for the automatic exchange of financial account information.

Its origins lie in the 2008 global financial crisis, which also spawned America’s earlier information exchange scheme, FATCA. (FATCA still exists, and is the reason the US says it won’t be participating in the CRS.)

Geoff Cook, a former banking industry executive who this year is marking his tenth anniversary as chief executive of Jersey Finance, considers the CRS, and how it inevitably will reshape the cross border financial services world – if not necessarily causing much to change in Jersey itself…

Global transparency in financial services probably wasn’t the first thing on people’s minds as they woke up on the first day of 2017.

Nevertheless, the first day of January this year marked a pivotal moment in the way information relating to international financial flows are to be handled, going forward.

The fact that right now the authorities in 54 countries – the “early adopters” – are for the very first time sharing tax information automatically under the OECD’s Common Reporting Standard (CRS) is a remarkable achievement, and a reflection of just how far global transparency has come.

By this time next year, more than 100 countries will be operating under the regime, something that might well have been impossible to imagine a decade or so ago.

That’s because it really represents a sea change, with respect to how authorities around the world are able to monitor their residents’ financial affairs. Going forward, if there is any dubious activity going on in any of the participating countries and jurisdictions, CRS will root it out. That’s the idea.

At the same time, it should also, once and for all, put to rest some of the speculative allegations about illegal activity that are often levelled at certain international financial centres, including Jersey.

From Jersey’s point of view, we have long argued that that sort of business simply doesn’t exist here. We’re confident about that, because our front-end defences and tax evasion and anti-money laundering checks are among the strongest in the world – meaning it is nigh on impossible for non-disclosed money to get through Jersey’s financial system.

So although other jurisdictions may be bracing for outflows, here in Jersey, we don’t expect there to be a sudden exodus of assets as a result of the CRS.

Mandatory disclosure

Banks and other financial services firms in Jersey, for example, already require investors to explain the source and origin of their money, and who they are; and if there’s any suspicion at all that there is an element of non-disclosed money involved, there’s a legal obligation to report it.

Jersey’s response to beneficial ownership disclosure

While the world moves inexorably in the direction of automatic information disclosure, as provided for under the Common Reporting Standard and the US’s FATCA, another global disclosure movement is being mooted – that of beneficial ownership disclosure.

Jersey is among a number of jurisdictions that wholeheartedly support the idea of beneficial ownership registers, but believe that they do not need to be accessible to the public in order for their full usefulness to be achieved.

Jersey says it has in fact been collecting information about beneficial owners since 1989, and that its existing beneficial ownership register is in line with Financial Action Task Force standards, as well as being “subject to strict and robust validation by regulated professionals”.

“In order to combat tax evasion, money laundering and terrorist financing, it is important to know the individual who is ultimately behind every company,” Jersey Finance, the non-profit organisation which promotes Jersey’s financial services industry, says, explaining the island’s position on the matter.

Jersey opposes the idea of a public register of beneficial ownership, however, for a number of reasons, which Jersey Finance spells out in a three-page factsheet on its website.

These include the fact that public registers that relied on self-reporting of relevant ownership data by corporate entities, such as a scheme that the UK proposed in 2013, would likely be ineffective, since “people misusing companies for the purposes of engaging in criminal activity are unlikely to comply”; and because the first jurisdictions to adopt public beneficial ownership registers would likely suffer an exodus of businesses, as so few places currently have them now.

Also, “corporate structures frequently involve groups comprising parent, subsidiary and affiliated entities in multiple jurisdictions, and so unless each of these jurisdictions had a public register in place, finding out who the beneficial owners are would not be possible”.

Like other commentators on the matter, Jersey Finance also notes that there is a risk that the introduction of public beneficial ownership registers could play into the hands of criminals, by revealing individual personal and family assets.

“With public registers making personal, and, by extension, family information readily available, legitimate concerns exist, particularly in certain cultures, in relation to physical safety, with kidnap and ransom risks being heightened.

“Therefore, not only may public registers prove ineffective in tackling the crimes they supposedly target, but they could give rise to different types of criminal activity.”

The Jersey Finance factsheet on beneficial ownership may be read and downloaded by clicking here. 

If this information isn’t reported, and issues regarding monies held by the Jersey company arise later, the company will be considered to be complicit in helping to facilitate illegal activity, and that could result in 15 years in prison for the individual or individuals involved.

That’s quite a sanction. And in fact, people, we find, take this onboard, and therefore won’t do it – it’s too risky.

Also, for more than a decade now, Jersey has offered on-request information exchange, which has proven an effective means of international cooperation, while also helping to ensure that assets are held in and managed through Jersey are of a high quality.

In fact, Jersey’s first tax information exchange agreement (TIEA) was signed in 2002 – 15 years ago – with the US, and we now have some 39 TIEAs and 12 double tax agreements.

But what the global move to the CRS’s automatic information exchange will mean, going forward, is that there simply won’t be a piece of business in any of those jurisdictions signed up to it, including Jersey, that won’t be known about by the investor’s home tax authority.

In other words, any country wanting to know about the tax affairs of a resident will have full and direct sight of all of their arrangements, as long as they, and the country in which the individual has their assets, are CRS signatories.

And for those of us here on the early-CRS-adopting island of Jersey, what this means in essence is that Jersey is now able to demonstrate unequivocally what it has been saying all along, which is that it is not the safe haven for illegal money that some lobby groups have persisted in claiming that it is.

What’s more, our tax regime, as it applies to non-resident, international investors, may at last be seen clearly for what it is: a simple, honest and transparent system, not based on tax deals or treaties, that makes sure people pay the right amount of tax in the right place at the right time.

Meanwhile, because Jersey financial services businesses have been exchanging information with the UK for some time now, under a similar regime to the CRS, Jersey institutions may well be ahead of many located in other jurisdictions that haven’t already had to develop an automatic information exchange system and culture.

We see this as offering some scope for Jersey to potentially become a centre of excellence in international reporting, given the experience Jersey businesses now have in collecting, managing and sharing such data.

‘We’re ready’

In Jersey, therefore, far from worrying about what CRS disclosure will mean for our future, we are looking forward to the “big reveal”, which we know will prove what we’ve been saying all along – which is that the undocumented assets and unlawful schemes certain critics have alleged are housed here, in fact, don’t exist.

CRS? In Jersey, we say, “we’re ready”.

CRS FACT BOX

In its early days, the Common Reporting Standard was often referred to informally as “GATCA”, as in, “Global Account Tax Compliance Act”, because it was seen as an attempt to do globally what FATCA had done for the US, which was to oblige non-US financial services entities to report to the US tax authorities on the accounts of any Americans they happened to have worth more than US$50,000.

“GATCA” isn’t heard as much now, because the CRS in fact is not just a global version of FATCA, and because more people have become familiar with the CRS.

Financial services businesses in more than 100 countries, in fact, from Albania to Vanuatu are in the process of gearing up to begin collecting details of bank balances, interest, dividends and income from insurance products earned by those of their clients who are living in a different country from the institution in question.

Even now, according to press reports, billions of dollars and other currencies are in motion across the globe, as investors shift their assets about, in some cases in response to the various pre-CRS tax amnesty schemes that have sprung up over the past two years.

One outstanding question, some say, could end up being the US, which has not signed up to the CRS, and where its own information exchange scheme, FATCA, is under pressure to be repealed.

 

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