This content is from: Local Insights

The end of banking secrecy

Banking secrecy was once considered the crown jewel of banking principles. Historically, it can be traced back to Switzerland, where banking secrecy was sought as a protection for investor assets, against war and banking persecutions such as the 1931 crisis, when Germans with foreign capital were criminally prosecuted and sentenced to death. Banking secrecy also served an economical purpose: to rebuild Swiss banks and part of the European economy after WWII, by offering clients trust and confidentiality.

Guatemala, along with other countries, has worked arduously in building a solid banking system, modeling modern banking practices preached under the Basel Accords and adopting anti-money laundering practices among other banking regulations. Banking secrecy in Guatemala is regulated in article 63 of the Law of Banks and Financial Groups. The rule has an exemption for information that must be revealed to the banking authorities, the Anti Money-Laundering Agency or under judicial court order.

The truth is that banking secrecy has never been absolutely impenetrable. For instance, in Switzerland the protection had to be lifted when criminal investigations took place under Swiss law related to debt collection, bankruptcy and nowadays, tax fraud. This remains the case.

The recent financial crisis and other financial scandals have triggered the US tax authorities to aggressively combat US tax avoidance and evasion through investigating offshore accounts. In 2009, UBS agreed to cooperate and reveal the identity of almost 300 US depositors. Also in 2009, the OECD in the midst of the London G20 published the most recent list of "non-cooperative and tax haven jurisdictions" composed of three main groups: a) cooperative jurisdictions that have implemented the agreed tax standard (white list); b) jurisdictions that have committed but have not yet implemented the tax standard and tax havens (grey list); and c) jurisdictions that have not committed to the internationally agreed tax standard (black list). Guatemala appears in the grey list in a sub-section called "other financial centres" which are not yet considered "tax havens" however they are still considered jurisdictions that have not yet implemented the tax standard.

The term "tax haven" has many definitions. Some may think of it as a jurisdiction that has low rates of tax or granted tax exemptions to welcome foreign investors; not exactly tax evasion. Guatemala has moderate tax rates and many tax policies not considered low. But ever since the hype of the "list", "tax haven" has been a term associated with jurisdictions with banking secrecy dispositions. To this respect, Guatemala´s legal system allows for disclosure of information under the actual banking secrecy provision, by conduct of a court order, or through the Banking regulator and the Anti-Money Laundering Agency. Court orders foro evidence processing may also be obtained through the procedure of a rogatory letter duly issued in the jurisdiction of origin and processed according to civil procedure rules in Guatemala. Under these considerations, Guatemala does not provide a "haven" for tax evaders of other jurisdictions.

Since the OECD publication, the tax and banking authorities in Guatemala have been discussing new reforms to the Law of Banks and Financial Groups of Guatemala, in order to be in sync with the OECD and be deleted from the grey list. The proposal will modify article 63, among others, in order to expand the rule to include the obligation of revealing depositor's information to the tax authority when requested through a court order and by conduct of the banking regulator. Tax fraud and tax evasion are criminal provisions already included in the Guatemalan Penal Code. And as previously stated, the possibility of obtaining a court order internally or through a rogatory letter is already part of the exemption under the actual disposition and under civil procedure rules.

On the other hand, it is not a secret that Guatemala has suffered in the past from political instability (mostly in the sixties and seventies); everyday Guatemalans worry about protecting their assets, capital and private property from corruption and other inherent country risks. I wonder if the efforts of these organisations will only benefit a few countries seeking to improve their own tax collection efforts, at the cost of weakening the legal systems of other small jurisdictions.

Desireé Matheu de Müller

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