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Automatic Exchange of Information, International Taxation & Counter Financial Terrorism: The Transcript

Automatic Exchange of Information, International Taxation & Counter Financial Terrorism: The Transcript

Find here the full transcript for our webinar on automatic exchange of information, taxation and counter-financial terrorism. Plenty of great questions submitted by attendees, so make sure to check it out!

Our panelists were:

  • Dr. Nicholas Ryder, Professor of Financial Crime, UWE Bristol, UK
  • Samantha Bourton, Lecturer in Law, UWE Bristol, UK

Introductory Remarks

Mateo Jarrin: Welcome to Taxlinked’s latest webinar. Today, we're looking at automatic exchange of information, international taxation and counter financial terrorism. We have two very distinguished guests from the University of West England in Bristol. Nicholas Ryder you might recognize as he's been with us for a couple of webinars and he was also one of our keynote speakers at our last conference in Barcelona.

But before they introduce themselves, let me get some admin issues out of the way. We are recording the webinar, we'll have a video recording and we'll also have a transcript available to all of our members within the next two weeks. Also, if you have any questions as you're listening to Sam and Nic, make sure you submit them on the GoToWebinar control panel. I will be moderating as usual, and I'll try to introduce the questions into the discussion. Or if I see that they can wait, I'll pose them towards the end of the session. Also, Taxlinked members are eligible to receive CPD credits for this webinar. However, as I say every single time, make sure you're paying attention because the system tracks whether or not you're paying attention. So if you have only been attentive for 20 minutes, we cannot give you those CPD credits. So just make sure you are actually engaged and listening to what's being said. So, without further ado, I’m going to ask both Sam and Nic to give us some brief introductions, and then we'll jump straight into, we have about seven questions for our webinar today. So Sam, please.

Sam Bourton: Hi, my name is Sam Bourton. I'm a lecturer in law at the University of the West of England. My research interests relate to the law relating to financial crime. In particular, I examine the law relating to tax evasion and money laundering.

Nicholas Ryder: Hi, my name's Nic Ryder. I'm a professor in financial crime and head of research at the law school in UWE in Bristol and my research expertise is financial crime with a particular focus on market manipulation and terrorism financing.

Mateo Jarrin: Excellent. Thank you very much. Let's get started with the first question here. The first question will have to deal with, I guess, the common reporting standard (CRS). So, a very general question: How has the OECD’s CRS helped combat money laundering, tax evasion and other types of illicit financial activities? Nic, if you want to get us started there?

combat money laundering, tax evasion

Question: How has the OECD’s CRS helped combat money laundering, tax evasion and other types of illicit financial activities?

Nicholas Ryder: I think one of the key issues with the OECD so the CRS, and probably Sam might be in a better place to answer this question given her area of expertise, is that the exchange of information, I think, is probably one of the most important developments in the past number of years to tackle financial crime. And I'll come on to this a little bit later. But if we look at terrorism financing, for example, an exchange of information within the UK and the JMLIT model has proven to be particularly effective, where we've seen unprecedented access to financial information and it could be post-terrorism attack. We have seen, for example, with the London Borough Market attack, within 12 hours the police were able to identify who actually used the credit card to purchase the van that was used on that particular terror attack. I think it's the way forward. I still think there are even issues with this particular model or framework, but I think it has to be encouraged, law enforcement agencies across the world are appearing to use it quite effectively.

Sam Bourton: I think when it comes to tax evasion, and with CRS, it is regarded as being much more effective than the old system. So the exchange of information on request. And there is the idea behind it that if you exchange information on an automatic basis, then tax authorities should have access to the information they need in order to work out whether people are complying with their tax obligations. And there is hopefully sort of a deterrent effect in that as well. So research by the IRS has shown that if third-party reporting takes place, so the system doesn't just rely on self-reporting by individuals, there's a 99% probability individuals will report their liabilities correctly. So, in theory, it should be a really good system to combat tax evasion, especially because the OECD has actually managed to and encouraged jurisdictions to actually sign up to this. And so it's been diffused by widely. And so the OECD has claimed that they have recovered quite a lot of money from the CRS already. Most recently the OECD has claimed there’s around 95 billion Euros that has been recovered as a result of CRS. So potentially this could be a game changer in combating tax evasion.

And when it comes to other financial crimes, one of the problems with the CRS is the legal agreements that it's based on. So these don't always provide for the tax authorities to be able to share this information with other law enforcement authorities. So this could be sort of one of the weaknesses of the CRS is that actually this information that we now have may not actually be able to be used for combating money laundering and terrorist financing. And it is possible within the UK and particularly in relation to serious crimes for HMRC to share that information. But we haven't always actually seen this in practice. And last year, I think there are questions raised over a case where HMRC may not have actually shared information relating to terrorist financing.

Nicholas Ryder: I think that one was widely reported in the press as well, where the accusations were that certain individuals had committed tax fraud and a lot of the money being siphoned off to fund acts of terrorism which, obviously, you will not know if this information is true or not, but from secondary sources, it is a worrying development thas UK law enforcement agencies wouldn't be prepared to exchange information with the purpose of either tackling terrorism financing or other forms of organized crime. So that's a worrying development if true.

Mateo Jarrin: Excellent. Do you have any specific case studies of how CRS has been affected, like for particular countries or something along those lines that you'd like to share?

Question: Do you have any specific case studies of how CRS has been affected for particular countries or something along those lines that you'd like to share?

Sam Bourton: So, yes, so I've seen quite a lot of research that's been done in terms of the impact that the CRS has had, particularly in the last year. And there is quite a lot of research which suggests that deposits offshore have been reduced, which may suggest a sort of a deterrent effect of CRS in that people are actually moving their assets and investments out of jurisdictions that are going to share information. And so here the OECD has found that bank deposits in international financial centers have decreased by 34% or $551 billion in the last 10 years. And they believe that 20 to 25% of that is attributable to CRS. And we've also seen that within other studies a similar pattern has emerged. In terms of the amounts actually recovered, in the UK, the HMRC has claimed that they have raised over 2.9 billion since 2010 through combating offshore tax evasion. But the problem with a lot of this research is they don't actually pinpoint how much of that is responsible from the CRS in particular. So a lot of that money might relate to things like offshore disclosure initiatives and other ways they can recover tax evaded offshore.

Nicholas Ryder: And I suppose the intriguing thing then within the sort of the money laundering exchange of information model, which is sort of in addition to your suspicious activity reporting system, is that with the JMLIT model they have been able to produce some rather impressive results. JMLIT covers a scope of 89% of all UK personal bank accounts. And they've conducted over 1000 investigations, through which accounts have been frozen. And they sort of restrained about 7 million pounds of what seems to be the proceeds of crime. So it appears to be a model that is beginning to get some results. And obviously, from a terrorism financing perspective, it's almost impossible to prevent the terror attack before the attack happens from a financial intelligence perspective, but it is the it is beginning to get a little bit more credibility I think in terms of information post-attack. Obviously, JMLIT, if we cannot do it by FTAF as being the world-leading example of how to exchange information on a voluntary basis.

Mateo Jarrin: We start receiving questions, I'm going to save one of them for the end of the session. I think it's a very good question for us to kind of wrap up the discussion. But the other one is: What is your prediction in terms of the US signing CRS? Will they do it? Will they not sign CRS? And what's your take on that?

common reporting standard

Question: What is your prediction in terms of the US signing CRS? Will they do it? Will they not sign CRS? And what what's your take on that?

Sam Bourton: I think from the communications that the US has made, they don't seem very interested in signing up to it. They seem to state that they get all of the benefits from FATCA. And signing up to the CRS would just generate additional costs for the US. And so I personally don't know how likely it is. I think the best chance of actually encouraging the US to sign up to the CRS is for organizations like the OECD and the European Union to actually put more pressure on them and to actually use perhaps the leverage that they have to negotiate with the US on this issue. I think otherwise I can't personally see the US perhaps volunteering to sign up to the CRS.

Nicholas Ryder: I think I’m going to agree Sam with that. I think there is a reluctance maybe from the Trump administration to possibly create stronger forms of banking regulation and sort of interexchange of information regulation, given this sort of initial ideas to repeal Dodd Frank, as well. But what's interesting, though, is that it from the JMLIT perspective, it's the Americans who are adopting that particular model to tackle terrorism financing and other forms of financial crime in addition to Thailand and Singapore, which if they're incorporating it with one hand, but with the other hand from a sort of a revenue perspective, they're going to appear to be incorporating it from [inaudible] white collar crime.

Mateo Jarrin: Excellent, thank you. Since we are discussing the US, let me jump to the next question, which is actually about FATCA. How effective has it been? And what are some of the challenges in terms of its effectiveness?

Question: How effective has FATCA been? And what are some of the challenges in terms of its effectiveness?

Sam Bourton: I think FATCA has really been quite similar to CRS. So the US have seen significant amounts generated by FATCA. But one of the key issues in the US is whether actually the cost of FATCA exceeds its benefits. So, for instance, I think the US have found that FATCA was predicted to raise around $8.7 billion. And the IRS claim it’s managed to recover $10 billion from offshore compliance efforts. So, again, we don't know how much of that is directly attributable to FATCA itself. But it does suggest that quite significant sums are being recovered as a result of it. But one of the key issues here is just how expensive FATCA is. So, for instance, the Swiss Chamber of Commerce, they actually estimated that if financial institutions worldwide complied with FATCA, it would actually cost them between 500 to 1000 billion dollars worldwide, and the running costs would be around $10 to 30 billion. So, we said, with that in mind, the US is only getting around $1 for every $100 that's spent on FATCA around the world. So from that point of view, it does sort of raise the question, is it worth it? Although we're recovering quite a lot of money, financial institutions are spending huge sums to actually comply with this as well. Of course, the US isn't necessarily spending all this money and maybe this is why the US perhaps view it more as a benefit.

Nicholas Ryder: I think Sam's raises a really important point. A lot of that comes down to compliance costs and one of the key issues, which has plagued the UK’s efforts to tackle all forms of financial crime, are the compliance costs. So, for example, UK Finance, the trade body for the UK banks, estimated that the compliance regime is in excess of 5 billion pounds per annum. And the same argument also applies with the confiscation of the proceeds of crime. Research has suggested that for every pound spent by the British government to confiscate the assets of crime, only 24 pence is recovered. It’s all about a cost-benefit analysis. And, personally, I think anything confiscated from proceeds of terrorism is worth whatever you spend it. But, of course, various finance departments will say, “It has to be a little bit more proportionate, a bit more cost effective.” But even within the UK policy last 20 years, its aim is to make the regime more cost effective. But the costs keep on spiraling, spiraling and spiraling. But there isn't really I think a perfect model in terms of compliance with regulation with attempting to tackle the white-collar crime as well.

Sam Bourton: I think picking up on what Nick said there as well. It really depends on how you look at this and what your perspective is. And there are some that would argue that tax evasion is a crime like any other, we shouldn't necessarily be worried at the cost of actually investigating and addressing financial crime. But, actually, I think a lot of people would take a very different perspective. And, historically, I think most countries have considered the economic impact of taking certain actions to actually address it. Many would argue there is very little point in spending more money on actually investigating, addressing tax evasion [inaudible] we would actually be able to recover, because then you're obviously taking money away that could be spent on public services, infrastructure, etc.

Nicholas Ryder: Yeah, that's a great point. And I think that you just have to look at the sort of enforcement activities against corporations over the past decade. If we go back to HSBC and the DPA in 2012 with the US Department of Justice, so you've got one of the world's largest banks embroiled in money laundering, breaching the UN sanctions regime. And the bank is fined $1.9 billion by the Department of Justice. And then you've got the former Chancellor George Osborne sending a begging letter from the HM government asking the DOJ not to prosecute HSBC, because of the economic consequences if the bank loses its license. You've got to go back to the Arthur Andersen fiasco with the Department of Justice and that collapse, and then how the DOJ are now very reluctant to pursue any sort of, I suppose, proper investigations and prosecutions into a company, which as anyone will know, under UK, under US law is very difficult to achieve because of the identification doctrine and all the common law rules but we’re not going to bother the listeners with those rules today.

Mateo Jarrin Cuvi: We have a lot of questions coming in. So I'm going to try to work my way through these. You guys can help me out here. But so the first one, which has to do with what we're discussing about the cost benefit analysis, basically. So the question is: Are we implying that the costs do outweigh the benefits and CRS or FATCA might be repealed?

Are we implying that the costs do outweigh the benefits and CRS or FATCA might be repealed?

Question: Are we implying that the costs do outweigh the benefits and CRS or FATCA might be repealed?

Sam Bourton: I don't know if we've come too far at this stage because so much money has already been spent on it. I don't know whether the organizations and countries would be prepared to take that step. But I do think it's a question that's important to ask. And I think we've seen this with the anti money-laundering framework, it sort of continually expands and develops. And, actually, a lot of individuals now have said we need to consider how much this is actually costing us and when those costs do actually exceed the benefits that you're getting from these measures. And there should be a basis from which we actually evaluate the things that we put in place.

I think we also when it comes to developments like CRS and FATCA we also need to consider the non-financial costs as well. And, so for instance, FATCA has had a huge impact on what they call accidental Americans. And so individuals who are connected to the US perhaps because of where they were born, or who their parents are, you're being subject to quite onerous requirements under FATCA. You have examples of individuals being denied banking services [inaudible] where they reside as citizens. And you also have costs of things like price of privacy, data protection. So we have to really consider all of this. It's not just the financial costs involved, I would say.

Nicholas Ryder: I think the other problem is that if you look at the international financial crime provisions, UN, European Union, FATF, other guidelines, other international best practices, they are all about exchange of information. So it's in trying with an international law, and from a terrorism financing perspective, the relevant UN resolutions are binding, so it's not as if anybody has any flexibility to opt out of these provisions. So, inherently, the costs, sadly, are going to be high. And maybe with the exchange of information on a voluntary basis, so there are no repercussions if somebody doesn't report, hopefully that sort of dispels the fear factor, where if they report it, the entity doesn't report you're going to get fined by the regulator or prosecuted so maybe this exchange of information is perhaps the way forward.

Mateo Jarrin: I want to keep working through these questions and then we'll switch gears and go to the UK questions that we have planned. This one is for Nick and it has to do with a DAC6, the EU directive DAC6, and it's from Peter Wilson who was at our conference. Do you have an opinion or do you have a view on whether the DAC6 hallmark of avoiding automatic exchange of information will strengthen the automatic exchange of information rules?

Question: Do you have an opinion or do you have a view on whether the DAC6 hallmark of avoiding automatic exchange of information will strengthen the automatic exchange of information rules?

Nicholas Ryder: That's a good question. Obviously, from a UK perspective on Brexit, I mean, who knows what's going to happen? And I think, to me, a lot of that will depend upon how the provisions are going to be enforced. And if people are deliberately avoiding any exchange of information, then you've got the issue of this, I suppose, what we call as credible deterrence. Will the authorities actually enforce these provisions rigorously? This might depend on any sort of restrictions imposed on negotiations between Member States and the European Union in terms of the directive and the contents. I think it's quite a difficult question to answer really without knowing where we'll be, obviously, 5MLD has been implemented in the UK, so on this year in terms of a transition period, it might be a little bit more difficult to accurately predict that point.

Mateo Jarrin: Excellent. The next one I have here has to do with double tax treaties. Will the exchange of information clauses found in double tax treaties and the bilateral agreements on the exchange of information on tax matters be instruments, which complement CRS? So where CRS fails, then such mechanisms would come into play?

Exchange of information

Question: Will the exchange of information clauses found in double tax treaties and the bilateral agreements on the exchange of information on tax matters be instruments, which complement CRS? So where CRS fails, then such mechanisms would come into play?

Sam Bourton: So they can form the legal basis for the CRS. So, really when countries have signed up to perhaps the multilateral convention, so the Council of Europe, OECD convention, then they perhaps don't need to rely on double tax conventions, but they are useful for countries who perhaps haven't signed up to the multilateral agreements, although there are fewer and fewer of those as time goes on. And so they can, as I say, form the legal basis for the CRS. The CRS requires an agreement between the authorities, a legally binding agreement to actually put into effect that exchange. And they need the countries to actually implement the measures in domestic rules, so in that way, it can assist the CRS. But I would be interested to know what they mean by the CRS sort of failing and when they envisage those double tax agreements come into play.

Mateo Jarrin: Thank you, Sam. Another clarification. You were asking about the clarification in terms of CRS failing. He's saying basically that CRS fails when it cannot properly be implemented in countries in that the exchange of information would not be that automatic.

Sam Bourton: Yeah, they absolutely would still be able to rely on double tax conventions. One of the weaknesses with that is that in order for the automatic exchange of information to be activated under a double tax convention, it usually needs to be activated by a separate agreement between the countries concerned because the default option under most democratic conventions is the exchange of information on request. And so countries would need to put in place a separate agreement in order to activate the automatic exchange. One of the weaknesses really with the system of exchange on request is that countries need to have some information, some evidence to provide almost a justification as to why they are requesting that information. They are not allowed to engage in what are called fishing expeditions or speculative requests. And so this is why the OECD’s move was CRS and that it is actually quite difficult for countries to often obtain that information to make a request in the first place.

Mateo Jarrin: Thank you, Sam. We have two more and then we'll switch gears. I don't know how well you guys know trusts, but I'll throw this question out there. What is the recent update regarding trusts versus automatic exchange of information in tax? Will trusts be more scrutinized by automatic exchange of information in the future?

Question: What is the recent update regarding trusts versus automatic exchange of information in tax? Will trusts be more scrutinized by automatic exchange of information in the future?

Sam Bourton: So a lot of trusts will be included within the CRS and FATCA anyway. I think a lot of the scrutiny that been directed towards trusts at the moment is in terms of beneficial ownership. And I would say that's perhaps where the scrutiny is felt most fiercely at the moment. And I think, obviously, a lot of these developments are connected if we can put in place a system whereby we can actually ascertain the beneficial owner of trusts and legal entities, then it will actually assist the operation of the CRS and remove many of the loopholes within CRS and FATCA. So I personally think this is where the pressure is being placed at the moment is for countries to put in place adequate legal measures so that they can determine the beneficial owners of companies interest.

Mateo Jarrin: Excellent. Thank you. Last question. This was directed to Sam. And this is a big question, so I will just throw it out. Do you believe if BEPS 2.0—Pillars I and Pillars II—becomes law, that this renders automatic exchange of information redundant?

Question: Do you believe if BEPS 2.0—Pillars I and Pillars II—becomes law, that this renders automatic exchange of information redundant?

Sam Bourton: Potentially. I do think the trouble with a lot of these measures is that they have been rushed in response to scandals. And we haven't actually considered the overlap with other measures and other legal developments as well. So something that I've often argued within my research is actually: Do we need the CRS and money-laundering framework? So there are questions raised as to whether we actually need all of these systems and whether the automatic exchange of information will supersede everything or it will become redundant by the use of other measures. And so I do think this is something we really do need to examine is the proportionality of having several mechanisms to exchange information. Also, the impact that certain legal developments are going to have on the exchange information as well.

Mateo Jarrin: Thank you. Excellent. Okay, let's switch gears. I keep getting more questions and more questions. So people are engaged. Great, but I'm going to switch gears a bit and we have to have a few questions here on JMLIT and the UK. So let me throw those out there. If we have time at the end, I'll come back to the question that we're receiving. For Nic, I guess, how does the exchange of information work within the United Kingdom's counter terrorist financial legal framework?

United Kingdom's counter terrorist financial legal framework

Question: How does the exchange of information work within the United Kingdom's counter terrorist financial legal framework?

Nicholas Ryder: Let’s start with the basics first and the Terrorism Act 2000, section 19 and section 21, contains the reporting obligations for what we call the regulated sector. That'd be your banks, your law firms, financial advisors and so on. So it has the same model as we tend to have for money laundering, looking for that suspicious activity, so submit a transaction report, and then the reporting entity will submit that to the National Crime Agency as the UK’s crime intelligence unit. Research tends to suggest, sort of what we found within the team at UWE, is that it's not really fit for purpose, the counterterrorism financing exchange of information because of a the number of reasons Firstly, how do you define suspicion? That's an open-ended question, which the courts have often very limited guidance on. Another issue with then is defensive reporting. And what we found with previous studies is that only a very small percentage of SARs submitted every year linked into terrorism financing. So in some cases, there's less than 1%. And then we have defensive reporting and increased compliance costs. And because the model is, I would suggest, incorrectly based on what we call the profit reporting model, because that's enshrined within money laundering legislation from the Vienna Convention, Palermo Convention and so on. In looking for the proceeds of crime, terrorists tend not to make a profit with the exception of ISIS and their funding model in the last five, six years. So it's sadly fundamentally flawed. And what we found is that I think we find one suspicious activity report from exchange of information, which has actually prevented an act of terrorism in the UK in the past 30 years.

So when JMLIT steps in, that was created by former Prime Minister Theresa May in 2014-2015. And this looks to add more information to create what we call a super SAR. So but because it's voluntary, there is no compulsion or there isn't any penalty if the reporting entity doesn't comply with the provisions under the Terrorism Act 2000. The key thing to remember here is that members of JMLIT have access to approximately 90% of all UK bank accounts. Now that to me, I think is a very important development. And from the information released by JMLIT over the last number of years, it does appear to be shortening the amount of investigation time post-terrorist attack. So I think for FATF in its 2018 mutual evaluation report to say that this is best international practice, and the US have adopted it, I think Singapore, Thailand, Japan, hopefully more jurisdictions will look to extend exchange of information from a money laundering or terrorism financing or even a fraud perspective. But the principle is to add to the financial intelligence submitted via a Suspicious Activity Report.

Mateo Jarrin: Excellent, thank you. So, the next question is: Has JMLIT worked? What are the results of JMLIT? And also are there any gaps within the voluntary exchange of information model offered by JMLIT?

Question: What are the results of JMLIT? And also are there any gaps within the voluntary exchange of information model offered by JMLIT?

Nicholas Ryder: So from the information available, I mean, in terms of JMLIT, they've sort of recovered over 7 million pounds of proceeds of crime. There's been numerous arrests, disruptions of financial infrastructure for crime, money laundering, syndicates and fraudsters as well. But the key thing is that, as I mentioned, the London Borough Market attack back in 2017, within 12 hours they had identified how that was financed. But the problem with JMLIT for me is that it has a very narrow scope. And the law commission recently published detailed reports some 12 months ago, where they looked at JMLIT and quite surprisingly the NCA and the London police were actually against expanding its remit. So, for example, it doesn't apply to lawyers, estate agents, accountants, so you know, what we regard as professional bodies that are going to be arrested as money launderers, fraudsters and terrorism financiers. But I think to me that it's about broadening the scope of JMLIT and the police were reluctant to increase it because it might become overly burdensome, too bureaucratic. But again, for me that's not a viable excuse and you need to look at the fines imposed by HMRC on estate agents for low levels of compliance. Of course the properties sector, some would suggest that it is a little bit susceptible to money laundering, and research that we've previously published would suggest the terrorist actually commit a lot of financing [inaudible].

But the biggest gap in my opinion is social media platforms. We've just finished a study now in Bristol, which will be published later this year, which identified how terrorists are using cryptocurrencies, crypto-assets, [inaudible] on the dark web, and also making money and managing payments via social media platforms. Of course, the key question to me now is: Does the UK’s money laundering and terrorism financing laws apply to, for example, the payments made by Facebook Messenger? No one knows, there’s no guidance on it. So there's a gap in the market here where I think that if you include these large corporations, you will not be able to speed up the process of investigating terrorism financing cases. I appreciate where, you know, privacy is a very important issue. Compliance with data protection laws are very important. I mean, it should be a very straightforward process to incorporate more corporations and companies and professionals within the remit of JMLIT, make it more encompassing. If the FATF conclusions are true, that it is a world leader, [inaudible], the remit hasn't been extended.

Sam Bourton: I think when we are talking about sorts of privacy and data protection, one of the big problems with the CRS is that it's often regarded as being disproportionate. And so something that's different with the CRS compared to other initiatives is that it doesn't necessarily depend on any sort of suspicion, any sort of evidence that criminal activity has occurred. And so in that way, I think, when we're talking about initiatives of sharing information that depend on perhaps initial indications of criminality, then these are often much more justified than measures that operate across the board and affect individuals that haven't committed any criminal activities. I think there is a case to be made for the lifting of the CRS and its sort of generalized application. Whereas with initiatives like JMLIT, when they are directed towards very serious crimes like terrorist financing and they are looking, perhaps at specific indications, could be perhaps a lot more proportionate.

Nicholas Ryder: I think two other points that I just remembered is that the 2017 Criminal Finances Act means that any exchange of information under JMLIT is exempt from any GDPR regulations. So I think that raises a really important burden from a firm who are thinking, “Well, we should disclose this, but actually there’s not going to be any penalties.” For me, I think that's a very important safeguard provided for any reporting entities from an exchange of information point of view.

Mateo Jarrin: I'll keep one for the end so we could wrap things because it has to do with some of the privacy issues we've been discussing. I think it kind of ties everything together. The question I have here, though, has to do with the point about cryptocurrencies and whatnot. And the question is: how has CRS, KYC, etc., and such regulations affected the liquidity of banks, as there are now other alternative platforms that have come into action as a response? You're talking a little bit about digital currencies and some other non-banking, financial institutions, any thoughts on that?

CRS, KYC and such regulations affected the liquidity of banks

Question: How has CRS, KYC, etc., and such regulations affected the liquidity of banks, as there are now other alternative platforms that have come into action as a response?

Sam Bourton: I think they did things like cryptocurrencies as being potentially one of the big loopholes within the CRS, and there have been researchers suggesting that maybe we need a similar system for things like cryptocurrencies whereby information is exchanged automatically. But I would sort of personally say that seeing as you're only just seeing cryptocurrencies being incorporated into the anti money-laundering framework, and I think it's going to take time and fully apply the existing legal measures that we have to these types of asset.

Nicholas Ryder: Yeah, that's a really good question, actually, in terms of regulation of cryptocurrencies, and I think as Sam alluded to the UK, primarily with the Financial Conduct Authority, has been quite slow, I think, to look at the regulation of crypto currencies. Up until January of this year, it was based upon self-regulation by CryptoUK. So their rules and regulations would provide that they should report any suspicious activity transactions to the FIU, but again, if it's voluntary, then to me that the full weight of the law is insufficient, so I think that what we find in front more evidence of money laundering, human trafficking, organized crimes, serial sex offenders will use possibly cryptocurrencies on the dark web. So to me, it's very important that they aren't given that, you know, a rigorous platform that will make them more reputable, as a form of fine. I know that's beyond the scope of the webinar, hopefully now with the new regulations, but what I wanted to say though is that the Financial Action Task Force have actually taken the lead on crypto-assets regulations and guidelines that were published last summer. So incorporating that within the FATF membership is very important.

Mateo Jarrin: Excellent. Before we go to the last question, we just got another one. So I'm going to keep shooting questions at you guys, if you don't mind. So the question that just came in: Since you commented that 30 to 40% of deposits offshore has been reduced due to CRS, I was wondering if the panelists could comment on what is the importance of obtaining what is called TIN numbers in order to avoid tax evasion and in better detecting suspicious activities?

Question: Since you commented that 30 to 40% of deposits offshore has been reduced due to CRS, I was wondering if the panelists could comment on what is the importance of obtaining what is called TIN numbers in order to avoid tax evasion and in better detecting suspicious activities?

Sam Bourton: So with tax identification numbers, the idea there is that it makes it much easier to match the information that's received from other countries with the information that's held by domestic tax authorities. So quite often, you'll find several individuals with similar names, date of birth, etc. So if you have a specific Tax Identification Number, that can only relate to one particular individual. So it just makes it easier really for the tax authorities to actually process and use the information that they received. I think this was one of the earlier sort of aspects of the CRS that the OECD decided to work on, and because their point of view is crucial to get that system in place, so that the information could actually be easily processed by the receiving countries.

Mateo Jarrin: Excellent. Thank you, Sam. So we're about 45 minutes in and I have one final question for you guys to discuss. I know we touched upon a lot of these points already. But the question is: How far do you think the whole automatic exchange of information kind of system will go? What is the fine line between automatic change information in tax versus privacy in financial matters?

Automatic exchange of information

Question: How far do you think the whole automatic exchange of information kind of system will go? What is the fine line between automatic change information in tax versus privacy in financial matters?

Sam Bourton: I do think it's a really important issue and I personally worry seeing how things have unfolded within this area that we've perhaps rushed into the automatic exchange of information without fully considering the consequences. And so I think, in particular, the US was making quite a few advancements in terms of [inaudible] information on requests. And so particularly with things like the UBS case and the then possibility of actually making group requests, this might have improved the old standard to a greater extent to not then warrant the automatic exchange of information. So I do personally wonder whether we've actually rushed into this without fully considering the implications in terms of cost, privacy and data protection. And  I think often people think that it's really a theoretical risk that their information will be misused in some way. But actually we've heard from a lot of citizens of countries where they have perhaps corrupt regimes, they are quite worried about their information being shared. We also know that, for instance, HMRC in the UK, they have in the past recorded quite a few data breaches. So it does suggest that actually even very well intentioned authorities can actually make mistakes, there is a danger that so much information being shared will lead to actually adverse impacts on individuals. I personally think there is more research to be done into the interaction between the money laundering framework and the CRS, if there's anything in certain contexts where these two frameworks overlap. And there is a question of whether it's proportional for us to retain both systems. Should we be forcing financial institutions to pay not only for the CRS but also for AML compliance? Would one system work effectively without the need for the other? Or could we perhaps reduce the obligations under one of the systems recognizing the fact that both operate at the same time.

Nicholas Ryder: The issue of privacy is particularly important within terrorism financing and it’s a very fine line to draw. And I think Sam's raised some very valid points there. So what we find from reviewing sort of UK counterterrorism financing cases and in general terrorism cases is that terrorists are now communicating via encrypted software. So, for example, Whatsapp, Telegram, and Telegram has even developed its own cryptocurrency so the encryption is going to be even particularly heartier. And if you just look at the terror attack in San Bernardino, California, where Rizwan Farook and Tashfeen Malik murdered 14 of their former coworkers in an act of terrorism, Apple refused to grant access to the iPhones that they were both using. And so you have to weigh up the privacy concerns of citizens and people who work in the financial services industry against where there's been a post-terrorist attack where Apple refused to open the phone for the FBI because of human rights concerns. But it’s a very fine line to draw on. I don't quite know what is, from a research perspective, the clear answer? So in the Farook Malik case, to me, I think there's an issue that Apple could have maybe been compelled to open up the phone because of an ongoing investigation. But that's particularly highly controversial. That’s just a personal perspective. Obviously, from a legal perspective, privacy is a very important right in front of the European Convention of Human Rights and is obviously protected in jurisprudences across the European Union, so it's important to maintain that proportion of balance.

Sam Bourton: Touching on what Nick said as well, I think there is perhaps a perception that intrusions into privacy are more justified when we're talking about perhaps terrorism financing, money laundering and corruption, than perhaps tax crimes. I don't know, really, what perhaps the general consensus on that is, but what I would say is, if that is the case, it is perhaps odd that the information from the CRS isn't always shared with other law enforcement authorities. Because, in that respect, we've committed these vast intrusions into privacy in respect to taxes, which have historically been treated as being less serious but then we're not perhaps even sharing that information in jurisdictions with other law enforcement authorities that are working on other serious crimes. So I do think that is perhaps an odd or uneasy aspect of the CRS really.

Nicholas Ryder: I think that's an excellent point because just after the London terror attacks in July 2005, there was a number of parliamentary inquiries in the UK and the UK security services admitted that they needed to do more in relation to terrorism financing and the financial intelligence part of that. And, to me, it's as if terrorism financing is the unspoken topic. It's the topic that nobody is quite prepared to tackle. I’m not saying there’s a mechanism to actually tackle it. But I think for me that if MI5 and MI6 sort of met and there were issues with how we investigated the bombing post and pre-attack. And obviously we're now finding that fraud is becoming more and more frequently used to pay terrorists activities and the cases are throughout Europe and America. [Inaudible]. So to me, Sam made a really important on that. It is about the exchange of information between law enforcement bodies and security services as well.

Mateo Jarrin: Excellent. I think we ran out of questions finally. We covered everything that was sent in, those submitted by our members. So I think we'll wrap up. Do you guys have any concluding remarks or anything else you'd like to add? Or we've spoken enough about this topic?

Concluding Remarks

Sam Bourton: I think that was it was a really interesting discussion. And I would just personally say that I think we need to still keep asking these questions. I think a lot of the time when these legal measures become so widespread, and we become used to complying with them, that we perhaps don't always question whether they are unnecessarily worthwhile or working in the best way. And I do think it's important for us all to continue to have these discussions.

Nicholas Ryder: Yeah, I think research is important, but also practitioners are important. We can sit in ivory towers in lock down and view things from an academic perspective. But it's really important I think that the private sector works with academics and academics work with practitioners and key stakeholders to really create some really important groundbreaking public discussion that can improve how we exchange information but also how we can protect right to privacy, right to our data being protected, but also in terms of tackling financial crime.

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