WASHINGTON, DC – Global Financial Integrity (GFI) applauded the Organization for Economic Cooperation and Development (OECD) today following its historic release of a new model multilateral agreement that countries will use to tackle tax evasion, money laundering, and other financial crime. GFI, a research and advocacy organization based in Washington, DC, touted this as a major victory and welcome culmination of one front in the long battle for cross-border financial transparency.
Heather Lowe, Legal Counsel and Director of Government Affairs at GFI, said of the new model agreement, “Automatic exchange of tax and financial information is essential to combating global tax evasion and money laundering. For years, the OECD recommended member-countries exchange information only upon request, a process that has proved inadequate to detect and deter cross-border financial crime. This is truly a game-changing policy shift at the highest level.”
Details of the New Standards
The new standard will require countries that sign up to the agreement to notify another signatory country if its banks and other financial institutions have accounts in the name of any of that other country’s citizens or companies. Financial institutions, a broad category of global financial players, would be required to collect and provide information about all investment income, financial assets, and account balances of their foreign account holders, in a manner similar to what the U.S. Foreign Account Tax Compliance Act (FATCA) requires. The system also incorporates elements from the European Union Savings and Tax Directive (EUSTD) and Financial Action Task Force (FATF) anti-money laundering standards.
The standard, developed in response to a mandate from the G20 (Group of 20) nations last fall, is envisioned as the basis for a new standard of multilateral information exchange, enabling governments to root out tax evaders, money launderers, and other financial criminals wherever they attempt to hide. All thirty-four OECD member countries have already agreed to the standard, and GFI encouraged the G20 to embrace the new standard at its summit this fall in Brisbane, Australia.
Importance of Implementation
GFI also applauded the new standard for its great potential benefits to developing countries as well, but cautioned that those countries will require capacity-building and technical assistance programs to properly utilize the massive influx of information the new multilateral system will generate. The OECD has already stated that it will provide additional guidance and technical data specifications for the new transparency regime, but GFI called on other intergovernmental organizations with a vested interest in curtailing the illicit financial flows devastating the developing world to contribute the aid and assistance needed to effectively implement the new standard in those countries.
Ms. Lowe added, “What we have now is a template for a multilateral treaty on the exchange of financial information, but we still have to ensure that this system does not work for OECD and G20 countries alone. Developing and middle income countries must be able to participate in the system as well if it is to be truly effective. If it lacks the flexibility necessary for developing countries to participate, we will simply see the rich countries getting richer while the poor countries continue to suffer exploitation from the same illicit financial practices that this agreement is meant to deter and expose. The G20 finance ministers should consider this issue seriously in their deliberations next week.”
Tom Cardamone, Managing Director of GFI, added, “The new system of financial information exchange must allow for a flexible approach with respect to how and when developing countries are required to provide financial information in exchange for the receipt of financial information under the treaty. The IMF, World Bank, and United Nations should get involved to provide technical assistance and help build capacity where it is needed most. We hope Australia will use its position as chair of the G20 in 2014 and begin to organize international action.”
Victory for Financial Transparency
Mr. Cardamone continued, “Just four or five years ago, it was difficult to imagine that the OECD would adopt a policy change this significant in such a short amount of time. When we first started meeting with representatives of the OECD and member-countries in 2009, this issue was not on the agenda. Today, automatic exchange is the official position of the OECD, G8, and G20. All of the individuals and organizations that helped make this happen should be commended.”