Black Hat Grey Hat Governments New Found Fuel

Black Hat & Grey Hat Governments New Found Fuel of financial information from FATCA and CRS Wednesday, April 19, 2017 | 11: 15 – noon | 16 th Annual Security Program Information Institute of Washington D. C.

2

3

4

Tax Information: Collection, Validation, Management, Reporting, Protection Wednesday, April 19, 2017 | 11: 15 – noon | 16 th Annual Security Program Information Institute of Washington D. C.

Lecturer § Prof. William Byrnes, Texas A&M University Law § Author • Guide to FATCA & CRS Compliance (Lexis) • 8 other Lexis international tax and compliance treatises and comparative compendium • A Wolters Kluwer 10 -volume company & trust law compendium • 60 - 70 media articles a year § This presentation based upon Byrnes, William, How May the United States Leverage its FATCA IGA Bilateral Process to Incentivize Good Tax Administrations among the World of Black Hat and Grey Hat Governments? A Carrot & Stick Policy Proposal (February 13, 2017). Emory International Law Review, Vol. 31, No. 1, 2017; Available at SSRN: https: //ssrn. com/abstract=2916444 6

How do we define? 7

176 countries ranked in 2016 Scale of 100 (very transparent and clean) through 0 (highly corrupt/failed state) 8

How many governments scored over 50? 9

Just 54 scored over 50 Rwanda 54, S Korea 53, Namibia 52 Slovakia 51 Brazil, China & India 40 10

Just 10 scored over 80 Nordics, UK, New Zealand, Switzerland, Singapore, Dutch, Canada, and Germany 11

“Over two-thirds of the 176 countries and territories … fall below the midpoint of our scale of 0 (highly corrupt) to 100 (very clean). The global average score is a paltry 43, indicating endemic corruption in a country's public sector. ” 12

13

Is it prudent for taxpayers to trust governments that score below 80? 75? How low? (USA = 74) 14

uses tax administration and its information § against the citizens § against foreign competitors 15

§ selectively use against political rivals § accessed by criminal gangs § government is the criminal 16

§ do not protect tax information • resources, resolve, public policy § share tax information throughout government (not allowed) § leak to press 17

David Burton “[CRS] will lead to substantially more transnational identity theft, transnational identity theft crime, industrial espionage, financial fraud, and suppression of political opponents and of political opponents religious or religious ethnic minorities by authoritarian and corrupt governments, including Russia, China, Colombia, and Nigeria. ” 18

“[CRS] isn’t limited to decent places like Canada and the U. S. —though even if it were, giving so much power to the tax agencies of the world is a bad idea. The Protocol includes wildly corrupt places like Albania and Azerbaijan, dictatorships with aggressive intelligence services and a history of cyber thefts like China and Russia, and lots of places like Kazakhstan and Tunisia, which can’t hope to protect the information we send them, even if they don’t intentionally misuse it. ” Ted Bromund 9 years as Associate Director International Security Studies Yale University 19

“In addition to having a legal framework, framework administrative capacity and processes in place to administrative capacity ensure the confidentiality of the information received ensure the confidentiality of the information …. This might entail a challenge especially to developing countries and economies in transition. ” transition 20

Pascal Saint-Amans, Director Centre for Tax Policy and Administration “You have a request from the government on the main opponent in the country. . . in that case, you know there are risks of leakage of the information or misuse of the information, ” information “Automatic exchange of information is radically different because the bank collects the information and sends it automatically to other countries; therefore the risks of misuse of the information are pretty high. ” high “That’s why you shouldn’t engage with automatic exchange of information with a country unless that country has ‘Chinese Walls’ in all its procedures to protect the confidentiality of the information…” 21

A further concern is the risk of misuse of information by corrupt administrations, or rogue government employees, employees such as the sale of personal financial data to would-be kidnappers Global automatic exchange is “a developed-world solution for a global economy unsuited to it”, argues Geoff Cook of Jersey Finance. ” 22

Sub-Saharan Africa, for example, would need to add roughly 650, 000 tax administrators 23

4 Fundamental Areas of Tax Info Assessment 1. Used by a foreign government for political purpose? 2. Leak confidential tax information, by example to the media or to national competitors, to gain an advantage against a taxpayer? 3. Corrupt governments (narco governments) or corrupt staff (mafia, narco gangs) using information criminally such as for extortion, seeking protection money and bribery, kidnapping, and fraud? 4. Porous governments unable to protect from electronic hacking? 24

25

26

Internal Revenue Code § 6103 Confidentiality and Disclosure of Returns and Return Information This expanded review has identified additional suspicious attempts to access taxpayer accounts using sensitive information already in the hands of criminals 27

28

This expanded review has identified additional suspicious attempts to access taxpayer accounts using sensitive information already in the hands of criminals • 620, 931 accessed info • 355, 262 accessed accounts 29

Data Requires Systems: Collection Verification Validation Maintenance Reporting Protection 30

Symmetry of Information requires 1099 s or Equivalent Foreign Institutions 31

32

W-8 s (Tax Self Certs) Fit for Purpose? § 100 m minimum to be replaced § but some industry states, with CRS, 900 m tax certifications (W 8 s, CRS) need collecting and validating by end of 2018. § How much time per client? Cost? 33

How did we get here? § 1998 OECD Harmful Tax Regimes § USA QI 2001 & EU Tax on Savings Directive § UBS et al scandals § Pay-As-You-Go US federal political requirement • 2010 HIRE Act for recession Unemployment Benefits extension) 34

Infamous Vietnam War Quote “It became necessary to destroy the town to save it” AP correspondent Peter Arnett quoting unnamed U. S. officer 35

113 IGAs, Local Regs, and FATCA Variances IGA Model Signed and NOT "In Force" Substance Model 1 A IGA 45 11 Model 1 B IGA 13 8 7 1 Model 2 IGA No IGA Grand Total 22 78 21 6 14 131 US 1 1 US Territory 6 6 Grand Total 138 65 20 28 251 36

216, 510 GIINs by Countries (Oct ‘ 16) Cayman Is =39, 728 Luxembourg 9, 779 Brazil = 7, 442 Guernsey = 6, 190 Canada = 7, 809 Russian = 1, 547 India = 1, 506 UK = 27, 175 BVI = 7, 388 Swiss = 5, 459 Jersey = 6, 014 Bermuda = 3, 069 China = 1, 319 37

OECD Common Reporting Standard • 100 countries (but not USA) have signed and committed • 53 undertaking first exchanges 2017 • 47 undertaking first exchanges 2018 38

China & USA Expats § US persons: 71, 493 (2011) + 22, 423 HK § China in US? 3 million But more important - China assets in USA? § $226 billion • China, Mainland $100, 308 billion • Hong Kong $126, 092 billion 39

By including an automatic exchange provision in the U. S. -Mexico IGA, it is difficult to see how the Treasury can honor its commitment and promise to only provide information to Mexico after it has made a determination (based on unknown factors) that Mexico is complying with its obligations to protect the confidentiality of such information. 40

Peer Review System for Information Exchange (Global Forum) Tax Administration Certification version of the former Presidential Annual Narcotics Certification with its penalties 41