Common Reporting Standards (CRS): Is the Jury Still Out

by Martine Véronique Rhoda

Not surprisingly, the overriding theme of both the formal presentations and informal discussion panels at the Mexico City STEP LatAm conference were about Common Reporting Standards (CRS).

Two members of our Alliance team attended: Louis Robinson, Alliance’s chief financial officer, and Alliance’s LatAm Trust specialist, Carlos Guzman.

Lou is an expert on complex estate and tax planning issues. He provides tax planning opportunities to both domestic and international families. Carlos brings over twenty-five years of experience structuring and administrating trusts, and during that time, he also spent seven years in the Cayman Islands.

Insights from Step LatAm 2018

Evolving Economic Environment

Common Reporting Standards mark the beginning of a new era, which Diego Zuluaga’s slide entitled THE END OF AN ERA perfectly portrayed. He wrote, and also quoted Keynes’s The Economic Consequences of the Peace, “life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages. The inhabitant of London could order, sipping his morning tea in bed, the various products of the whole earth, and reasonably expect their early delivery upon his doorstep; he could at the same moment adventure his wealth in the natural resources and new enterprises of any quarter of the world. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality.”

However, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement. Any deviation from it as aberrant, scandalous, and avoidable. It is not only STEP that is reeling in shock by the notion of CRS, but literally the whole world.

Polarizing Transparency

In Richard Hay’s presentation, THE ASSAULT ON PRIVACY. WHAT DOES IT MEAN? He describes the millennium as the start of the Fourth Industrial Revolution, the Data Revolution. Moreover, it is this Data Revolution which will allow governments with relative ease to scrutinize our every move.

In the summer of 2016, The Financial Times wrote an excellent article explaining that as of September 2016, more than 100 countries had promised to start exchanging the information of our bank balances, our stock holdings and dividends, our capital income, and the list goes on!

Under CRS, information will be automatically transferred to governments, and the OECD hailed it as “the first potentially global tax transparency, that would eventually eradicate the tax evader.”

In this new era, the polarization of global wealth has never been so accentuated. Diego Zuluaga’s slide, AND WE MADE POVERTY HISTORY, demonstrates the evolution of extreme poverty, disproportionately concentrated in specific global regions over the last thirty years.

In addition, governments are seeing ballooning budget deficits, and in the western world, the painful experience of Brexit, the ongoing demise of the Italian economy, and dare I say it the potential collapse of the EU.

In this economic cycle, and in this democracy, governments have never been so severely strapped for cash, and therefore the economic result of this cycle is now CRS. A growing number of politicians are adhering to the view that CRS will supposedly be the miracle solution to restoring the redistribution of wealth in global economies. In turn, this has led to the revival of the new Populist Politician, and one existing example is New Zealand’s, Jacinda Arden.

Another example of the Populist Politician is the Labour candidate Jeremy Corbyn, where there is now a very real threat that he will be the next new UK Prime Minister. In the short term at least, CRS will make these politicians of the “people” very popular, and let’s face it, being a global economic visionary does not win votes.

Two years on and how has CRS evolved since the summer of 2016?

The STEP LatAm Mexico City conference highlighted one crucial point: CRS, still remains, in essence, a theory. There is still very little empirical evidence. However, those presenting were keen to expose the vast pitfalls that CRS implies in practice, and there was evidence of some resistance to it.

Filippo Noseda’s slide entitled, LETTER TO THE OECD, 12th DECEMBER 2016 poignantly points out that “The WP wishes to reiterate its strong concerns regarding the repercussions on fundamental rights of mechanisms entailing major data processing and exchange operations such as those envisaged by the CRS. Additional concerns concerning the security of massive automatic data processing have been raised by recent reports in the media of high-profile cyber-attacks.”

Noseda’s subsequent slide entitled EUROPEAN COURT OF JUSTICE reiterates that CRS overtly abuses our human rights. “Legislation permitting the public authorities to have access on a generalized basis to the content of electronic communication must be regarded as compromising the essence of the fundamental right to respect of private life. Legislation that authorizes storage of all the personal data on a generalized basis, without any differentiation, limitation or exception is not limited to what is strictly necessary.”

What little empirical evidence there was, was highlighted by both the Spanish and English speakers in Mexico City. Namely the privacy concerns in Latin America. Global data released showed that Columbia was ranked 4th, and Brazil 5th, for identity theft.

The number of cyber-attacks had doubled in all of Latin America in 2017. There was also LatAm data that showed that hackers had stolen 28 million Taringa (a retailer like Amazon) users’ details.
Moreover, finally, how are governments and public bodies (such as tax authorities processing) translating and interpreting all our data? Quite simply, for the moment at least, they cannot cope with the sheer volume of data. A quote from a government official, “My government cannot cope with the data they receive.”

“Privacy does not equal criminality”

Against this backdrop, Carlos Guzman and Louis Robinson of Alliance Trust Company of Nevada were extremely busy. LatAm clients, particularly Mexicans and Brazilians, due to their own political instability, perceive the U.S. offshore jurisdictions as the real, new alternative safe havens.

Carlos Guzman estimated that there were more than 100 U.S. participants at STEP LatAm in Mexico City, compared to the Panama conference a few years ago where there were only 15 U.S. attendees and still also a sharp rise from last year’s Cartagena’s conference of about 30 U.S. attendees.

Louis Robinson noted that previously extremely competitive pricing had driven demand for trusts, but in this era of digitalization, and fear of being exposed, LatAm clients were prepared to pay more for stability, privacy, and for more efficient trust structures. Of course, I am biased, but that does not deter from the fact that Alliance has followed the correct strategy and invested heavily in its infrastructure and technology.

I will leave you with one thought: What is more important, asset protection or asset performance, and more importantly will asset protection drive asset performance in the new world of global transparency?