The Organization for Economic Co-Operation and Development’s (“OECD”) new Common Reporting Standard (“CRS”) will allow over 100 governments to access the personal financial data of overseas account holders and owners of trusts and foundation. This article is part of a series on the new regime.
Beginning with the first inter-governmental data exchange in 2017 (retroactive to January 1, 2016), CRS will radically transform the private wealth landscape. An agreement to collect and exchange standard information, CRS was drafted by unelected policymakers in 2014, placing unprecedented power in the hands of bureaucrats unaccountable to anyone. With no oversight mechanisms in place, CRS burdens global commerce, invites data misuse and breaches, and endangers the privacy and even personal safety of account holders and families who use trusts and foundations.
CRS requires that participating national governments implement the standard, leaving these governments to build and administer their own data collection and sharing mechanisms. These systems must be coordinated and integrated within each member nation and compatible with each of the over 100 other nations’ newly-created systems worldwide. Since CRS relies on local financial institutions in each country to report on certain foreign direct or indirect account holders, each government must also decide how to compel and regulate financial institutions’ participation in the regime. The administrative costs of designing, implementing and running these data gathering and sharing systems add substantial financial burdens on global commerce. All these additional costs will necessarily be borne by the customers of financial institutions.
Besides burdening the financial system, the OECD’s approach violates basic principles of representative government and infringes on the due process and privacy rights of trust and foundation holders and beneficiaries worldwide. The OECD has justified its action as a necessary step against criminals engaged in tax evasion, money laundering and terrorism. Yet in mandating a massive, institutionalized data seizure, the OECD effectively assumed that all trust and foundation holders and all who have overseas account holdings are guilty of these offenses. Even those who established offshore trusts and foundations for legitimate purposes such as to facilitate family governance, asset protection planning, succession planning, strategic corporate planning, retirement planning, pre-migration planning, and philanthropic activities are treated as criminals.
This erosion of privacy and due process rights may have dire consequences for trust and foundation holders and beneficiaries. Without any legally enforceable mechanisms to protect collected information, families and individuals with trusts and foundations are more likely to see their data leaked or misused.
This erosion of privacy and due process rights may have dire consequences for trust and foundation holders and beneficiaries. Without any legally enforceable mechanisms to protect collected information, families and individuals with trusts and foundations are more likely to see their data leaked or misused. Major corporations and governments are susceptible to damaging breaches, as evidenced by the 2016 hack of Democratic National Committee e-mails, the 2015 hack of U.S. Federal employee records, and the 2014 JPMorgan Chase data breach. Public disclosure of one’s data can disrupt or damage familial, professional, and social relationships – sometimes irretrievably. For some, public knowledge of one’s wealth can even bring on coercive pressures including persecution, extortion, and kidnapping.
Concerned families should consult their wealth advisors to learn more about the risks posed by the CRS regime. Together with advisors, trust and foundation holders, governors and beneficiaries can evaluate any potential exposure and devise solutions that respect CRS disclosure requirements while protecting their legitimate interests. By acting expeditiously, families can comply with CRS requirements and safeguard their privacy from unelected bureaucrats.