Costa Rica is rushing through a reform to its bank secrecy regulations in order to avoid being classified as a tax haven by the OECD. It is grey-listed at the moment, pending government action. The reform on bank secrecy needs to be enacted during the first quarter of 2010. The Ministry of Finance is thus submitting a bill to Congress amending and clarifying local provisions on bank secrecy. This central American country does not have stand-alone legislation on bank secrecy, but rather a dispersed set of banking, tax and commercial provisions dealing with privacy. Costa Rica has endorsed OECD standards of transparency, and has also assumed the obligation to sign at least 12 tax-information exchange agreements in order to improve its international tax cooperation regime.
The OECD and other international observers have cited existing bank secrecy provisions as a hindrance on Costa Rica's ability to provide effective cooperation in international tax matters. Costa Rican regulations allow a local tax authority (Dirección General de la Tributación Directa) to request access to bank accounts, but only for local investigations of an administrative or judicial nature. No reference is made to those investigations stemming from authorities based overseas.
A heated debate ensued last year, when local authorities, politicians and bankers argued as to whether OECD standards required banks to relinquish client information to the tax office without a judicial order. It was originally believed that they dictated that bank secrecy should yield at an administrative request from the tax office. In this sense, the original understanding was that the current system, where the tax authority needs to seek a judicial order for the lifting of confidential data, was inconsistent with OECD standards. The reform bill was advertised as granting the tax authority with direct access to banking data, without need for judicial intervention or authorisation.
The local banking community reacted strongly against the possibility of direct orders from the tax authority, lacking judicial control. Issues of oversight and confidential data management were raised. Nevertheless, the dust cleared late last year when the government confirmed that judicial intervention and control could be maintained in the reform bill without compromising compliance with the OECD standards. No major problems are now expected with the bank secrecy reform bill, as it seems to enjoy political consensus and industry support.
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