The Organization for Economic Co-Operation and Development’s (“OECD”) new Common Reporting Standard (“CRS”) will allow over 100 governments to access the personal financial data of overseas accountholders and owners of trusts and foundations. This article is part of a series on the new regime.

Click here for a full list of participating jurisdictions.

The basic framework of CRS relies on financial institutions in reporting countries to transmit data on certain accountholders to their domestic tax authorities in the account holders’ countries of residence. These tax authorities then share the information with any other reporting countries in which the accountholders may be considered residents for tax purposes. Evidence of residence includes telephone numbers, power of attorney, and residence or mailing addresses. Under the regime, CRS member nations will establish trust registries whereby trusts, foundations and similar structures—considered financial institutions in and of themselves—may be required to report on their settlors, trustees and beneficiaries. A single family trust, for example, may have to report on dozens of beneficiaries, some of whom may not even be aware of the trust’s existence and have never received any benefit from it, because they may not be immediate family members but only fallback beneficiaries.

CRS must be translated and enacted into domestic law in every participating country. Each country has pledged to begin data sharing in 2017 or 2018. After the first data exchange in 2017, retroactive to January 1, 2016, innocent holders of offshore accounts, trusts, and foundations and their families will lose control over who can access some of their most important private financial data. With limited oversight and data safeguards and no legally enforceable redress against governments or financial institutions for personal or financial loss or damage, account holders’ and beneficiaries’ personal information will be exposed to data leaks, breaches and misuse. Public disclosure of one’s data can disrupt familial, professional and social relationships. In some instances, public knowledge of one’s wealth can even bring on coercive pressures including persecution, extortion and kidnapping.

Trust and foundation holders concerned for themselves and their family’s privacy and confidentiality should consult their wealth advisors to learn more about the risks posed by the CRS regime. Together with advisors, trust and foundation holders can evaluate any potential exposure and devise solutions that respect CRS disclosure requirements while protecting their legitimate interests. By acting expeditiously, families can comply with CRS requirements and yet safeguard their privacy.

Beginning with the first inter-governmental data exchange in 2017 (retroactive to January 1, 2016), CRS will radically transform the private wealth landscape. The existing private wealth management and offshore world that families and professionals have known for generations will change dramatically. In order to assist families and individuals seeking to protect their privacy, private wealth advisors and professionals should familiarize themselves with the new CRS regime. Unfortunately, ignoring the CRS and hoping it will go away is not an option. One must find a way to live with it or deal with it or face exclusion from the financial system.

CRS is the most recent in a series of international initiatives by global tax and finance authorities to crack down on illegal actions such as money laundering, terror financing and tax evasion. These initiatives put the interests of tax collection and law enforcement above all other social, legal or economic considerations, and ignore the legitimate uses of trusts and foundations, such as facilitating family governance, asset protection planning, succession planning, strategic corporate planning, retirement planning, pre-migration planning, and philanthropic activities. Beginning with the Multilateral Convention on Mutual Administrative Assistance in Tax Matters updated most recently in 2010, over 50 tax authorities around the world pledged to help each other identify not only criminal tax evasion but also legal tax avoidance.

CRS member nations will establish trust registries whereby trusts, foundations and similar structures—considered financial institutions in and of themselves—may be required to report on their settlors, trustees and beneficiaries.

The campaign took a major step forward when the United States passed the Foreign Account Tax Compliance Act (“FATCA”), a law accompanied by a series of bilateral treaties with over 100 countries requiring financial institutions in those countries to share data on certain accountholders with the U.S. government. Many see CRS as an extension of FATCA, due to significant similarities between the two regimes. One significant difference is that FATCA treaties are bilateral whereas CRS treaties are multilateral. As a result, participating CRS countries have no choice but to exchange accountholder data with every other participating country, whereas participating FATCA countries only have to share data with the US. This is significant given that some signatories are countries with dubious records on protection of human rights which may, for example, use financial information to oppress and subvert political opposition.

The basic framework of CRS relies on financial institutions in reporting countries to transmit data on certain accountholders to their domestic tax authorities in the account holders’ countries of residence. These tax authorities then share the information with any other reporting countries in which the accountholders may be considered residents for tax purposes. Evidence of residence includes telephone numbers, power of attorney, and residence or mailing addresses. Under the regime, CRS member nations will establish trust registries whereby trusts, foundations and similar structures—considered financial institutions in and of themselves—may be required to report on their settlors, trustees and beneficiaries. A single family trust, for example, may have to report on dozens of beneficiaries, some of whom may not even be aware of the trust’s existence and have never received any benefit from it, because they may not be immediate family members but only fallback beneficiaries.

CRS must be translated and enacted into domestic law in every participating country. Each country has pledged to begin data sharing in 2017 or 2018. After the first data exchange in 2017, retroactive to January 1, 2016, innocent holders of offshore accounts, trusts, and foundations and their families will lose control over who can access some of their most important private financial data. With limited oversight and data safeguards and no legally enforceable redress against governments or financial institutions for personal or financial loss or damage, account holders’ and beneficiaries’ personal information will be exposed to data leaks, breaches and misuse. Public disclosure of one’s data can disrupt familial, professional and social relationships. In some instances, public knowledge of one’s wealth can even bring on coercive pressures including persecution, extortion and kidnapping.

CRS will radically transform the private wealth landscape. The existing private wealth management and offshore world that families and professionals have known for generations will change dramatically.

Trust and foundation holders concerned for themselves and their family’s privacy and confidentiality should consult their wealth advisors to learn more about the risks posed by the CRS regime. Together with advisors, trust and foundation holders can evaluate any potential exposure and devise solutions that respect CRS disclosure requirements while protecting their legitimate interests. By acting expeditiously, families can comply with CRS requirements and yet safeguard their privacy.