Who really makes the rules?
When the SwissLeaks story broke, many rich country politicians reacted to the news by citing a new cross-border exchange system that's in the works, and claimed that it would all but cement the death of banking secrecy. This 'cure', developed by the G20 and OECD, would enable participating countries to trade financial information with each other at designated intervals. We heard numerous times that "tax secrecy is over" because of the new system, known as the Common Reporting Standard (CRS). Even Switzerland was given praise for being unusually cooperative in the process.
But there is one glaring caveat that wasn't discussed much at all: due to a number of requirements in the CRS, many low income countries won't be able to participate when the system launches, and it doesn't seem like they'll be added to the mix anytime soon.
When the OECD and G20 began designing the system, they did so with little meaningful consultation of low income countries. The result was a system designed by wealthy nations, with wealthy nations in mind, making many of the prerequisites impossible for countries that don't have sizable tax administration budgets or advanced technical capacity.
Viewing the SwissLeaks money as a percentage of GDP shows just how much more low and middle income countries have at stake compared with their high income counterparts, making their inclusion in any system absolutely imperative. The US, UK, and France are rightfully concerned about money leaving their borders undetected for secrecy jurisdictions, but the money leaving countries like Pakistan, Mali, and Sierra Leone should be viewed with even more immediacy.
So why are low income countries going to be left out?
Perhaps one of the biggest deterrents to including low income countries is the "reciprocity rule", which that says you must share information to receive it. In other words, to get information on your citizens that are stashing money abroad, a country must be able to share similar information about its own financial system at the same time. Say, for example, the government of Mali wants to know about money its citizens are potentially hiding in UK banks to evade taxes. They would also have to compile information on UK citizens that are doing the same in Malian banks. In theory, this mutual exchange is logical, but a number of developing countries simply don't have the capacity or technical systems to comply with their side of the requirement from the start.
This is why we think it's only sensible for developing countries that can't meet the requirement to be given a temporary period of non-reciprocity where they can receive information without having to send their own. This will give governments the time necessary to build capacity to share their own information.