I’ve argued repeatedly that efforts like FATCA and the OECD’s Standard for Automatic Exchange of Financial Account Information in Tax Matters pose a substantial threat to financial and taxpayer privacy.
In an excellent commentary at The Daily Signal today, David Burton outlined how the OECD’s proposed standard to grant automatic government access to private taxpayer information leaves citizens vulnerable to abuse.
It is one thing to exchange financial account information with Western countries that generally respect privacy and are allied with the United States. It is an entirely different matter to exchange sensitive financial information about American citizens or corporations with countries that do not respect Western privacy norms, have systematic problems with corruption or are antagonistic to the United States. States that fall into one of these problematic categories but are participating in the OECD automatic exchange of information initiative include Colombia, China and Russia.
The Obama administration enthusiastically supports the OECD initiative, but even the administration has realized important privacy issues at are stake. Robert B. Stack, Deputy Assistant Secretary of the Treasury for International Tax Affairs, has testified that “the United States will not enter into an information exchange agreement unless the Treasury Department and the IRS are satisfied that the foreign government has strict confidentiality protections. Specifically, prior to entering into an information exchange agreement with another jurisdiction, the Treasury Department and the IRS closely review the foreign jurisdiction’s legal framework for maintaining the confidentiality of taxpayer information.”
Leaving these determinations to a tax agency with little institutional interest in anything other than raising tax revenue is dangerous. There is little doubt sensitive financial information about American citizens and businesses can and will be used by some governments for reasons that have nothing to do with tax administration, such as identifying political opponents’ financial resources or industrial espionage. In addition, individuals in corrupt governments may use the information for criminal purposes such as identity theft, to access others’ funds or to identify potential kidnapping victims. It is naïve to think otherwise.
Consequently, he suggests specific restrictions on the sharing of data that tax collectors won’t like, but are a necessary minimum to preserving human rights:
Automatic information exchange should be limited to law enforcement and anti-terrorist purposes and should be restricted to governments that are (1) democratic, (2) respect free markets, private property and the rule of law, (3) can be expected to always use the information in a manner consistent with the security interests of the member states and (4) have in place—in law and in practice—adequate safeguards to prevent the information from being obtained by hostile parties or used for inappropriate commercial, political or other purposes.