Transparency - The New Normal
George Hodgson
Deputy Chief Executive
STEP Worldwide
The Growth of Offshore
• Mid-1950s – Growth of euro markets
• 1970s – $ breaks gold link, fixed exchange rates begin to
disappear
• 1979 – UK abolishes Exchange Controls
• 1980s – Exchange controls disappear through most of
developed world
25
Global Cross Border Flows, % of GDP
20
15
10
5
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
25
Assets Held Offshore, $ trillion
TJN
20
15
BIS
10
IMF
5
0
1999
2005
2010
Policy Responds to Fill the Gaps
• 1980s – Multilateral Convention on Mutual Administrative
Assistance on Tax matters. FATF formed
• 1990s – G-7 debate on Harmful Tax Practices & Tax Havens,
OECD report on Harmful tax Competition
• 2000s – EU Savings Tax Directive, OECD Global Forum
created, TIEA programme launched – with blacklist, UBS
fine for assisting US tax evasion, UK/Liechtenstein LDF
• 2010s – FATCA, UK CD/OT IGAs, US/Swiss amnesty, Swiss
sign Multilateral Convention, CRS launched, UK public
corporate register of beneficial ownership, EU proposals
for equivalent trust register
New Strands - The Risk Based Approach, the theory
•
•
•
Only wholly new FATF Recommendation in 2012, now
being implemented
Countries must conduct National Risk Assessments &
ensure measures in place to address high risks
FIs must identify & assess risks and put effective
measures in place
Risk Based Approach – the practice
•
•
•
•
•
UK lead regulator published list of over 90 ‘high risk
jurisdictions’ – including Brazil, India and China
List withdrawn under political pressure, but…
Standard Chartered fined $300 million and barred from
dealing for ‘high risks clients’ in HK and UAE
US Treasury plans to require FIs to collect beneficial
ownership information and make it available
NB - Biggest lobby for trust registers is the banks!
The Next Stage – Looking Inside The Box?
Q: As Governments get a much clearer view of where the real
economic benefits of structures accrue, what are they likely
to do with this information?
A: Tax authorities are likely to begin to take a much more
closer interest in structures where the legal status does not
seem to match the economic reality.
Looking inside the box - 1
The Credit Suisse Case
“According to the statement of facts filed with the plea
agreement, Credit Suisse employed a variety of means to
assist U.S. clients in concealing their undeclared accounts,
including by:
•
assisting clients in using sham entities to hide
undeclared accounts;
•
soliciting IRS forms that falsely stated, under penalties
of perjury, that the sham entities were the beneficial owners
of the assets in the accounts”
Looking inside the box – 2
The Belize Case
The conspirators “devised not only a fraudulent scheme but
an elaborate corporate structure based on lies and
deceit…they set up sham companies with figureheads at the
helm in attempt to deceive US law enforcement and
regulators “
Unites Stated Attorney Lynch
Looking inside the box - 3
Developing Jurisprudence
“Something may be found to be a sham even when the
parties to it intended it to have its legal effect. That is
significant for trustees and their advisers who cannot be
satisfied that what they have done, or advised upon, is not a
sham just because the legal consequences created were
intended by the parties.”
Justice G.T. Pagone, Judge of the Federal Court of Australia
Looking inside the box - 4
UK Corporate Register Bill
Aim of Bill - “Register of people with significant control”
Definition of significant control - “X has the right to exercise,
or actually exercises, significant influence or control over the
activities of that trust or firm”
The Bottom Line
•
By 2020 we will have:
– Automatic tax information exchange between most
major economies
– Easier access to beneficial ownership information in
most major economies
– Public beneficial ownership registers in some major
economies
– A risk averse banking system increasingly wary of
dealing with anyone not participating in the above!
– Tax authorities with much clearer views of where
economic benefits accrue in structures.
Questions for practitioners
•
In a transparent world, will we see:
– Reduced client appetite for complexity?
– Reduced appetite for international diversification?
– A shift away from trusts being used for tax planning,
with focus being on inheritance planning?
– The risk appetite of the banking system becoming
an increasingly important issue for advisers to
consider?
– The nature of various structures being increasingly
challenged by tax authorities?