The end of Banking Secrecy era in Guatemala?

Banking Secrecy was once considered the crown jewel of banking principles.  Historically, this principle can be traced back to early century in Switzerland, where banking secrecy was sought as a protection for investor’s assets, against war fares and banking persecutions such as the 1931 crisis, when Germans with foreign capital were criminally prosecuted and sentenced to death. Banking Secrecy also served an economical purpose; to rebuild Swiss banks and part of the European Economy after the WWII, by offering clients trust and confidentiality.

Guatemala, along with other countries, has worked arduously in building a solid banking system, modeling modern banking practices preached under the Basel Accords and adopting anti money laundering practices among other banking regulations.  Banking Secrecy in Guatemala is regulated in article 63 of the Law of Banks and Financial Groups .  The rule has an exemption for information that must be revealed to the banking authorities, the Anti money-Laundering Agency or by judicial court order. 

The truth of the matter is that banking secrecy has never been absolutely impenetrable.  For instance, in Switzerland, the protection had to be lifted when criminal investigations took place under Swiss law related to debt collection, bankruptcy and now days, tax fraud.  This still remains the same way.  

The recent financial crisis in 2008 and other financial scandals have triggered the US tax authorities, to aggressively combat US tax avoidance and evasion through investigating offshore foreign accounts.  In 2009, UBS agreed to cooperate and reveal the identity of almost 300 US depositors.  Also in 2009, the OECD at the midst of the London G20 meeting, published the most recent list of “non-co-operative  and tax havens jurisdictions” composed of three main groups: a) Cooperative Jurisdictions that have implemented the agreed tax standard; b) Jurisdictions that have committed but have not yet implemented the tax standard (grey list); and c) Jurisdictions that have not committed to the internationally agreed tax standard (black list).  Guatemala appears in the grey list as a “tax haven” since our banking regulation has not yet modified the actual banking secrecy rule.

It´s curious that the term “tax haven” used to be a term defining any type of jurisdiction that had low rate taxes or granted tax exemptions to welcome foreign investors;  which is not synonymous to “tax evasion”.  Guatemala has moderate tax rates and many tax policies not necessarily considered “low”.  But ever since the hype of the “list” the meaning of “tax haven” has been reduced to jurisdictions with banking secrecy dispositions.  To this respect, Guatemala´s legal system allows for disclosure of information under the actual banking secrecy provision, by conduct of a court order, or through the Banking Regulator and the Anit-Money Laundering Agency. Court orders may also be obtained through the procedure of a rogatory letter duly issued in the jurisdiction of origin and processed according to civil procedure rules in Guatemala. Under the previous considerations, Guatemalan jurisdiction does not provide a “haven” for tax evaders of other jurisdictions.  

Since the OECD publication, the Tax and Banking authorities in Guatemala, have been discussing new reforms to the Law of Banks and Financial Groups of Guatemala, in order to be in sync with the OECD and be left out of the grey list as a “tax haven”.  The proposal will modify article 63, among others, in order to expand the rule to include the obligation of revealing depositor’s information to the Tax Authority   when requested through a court order and by conduct of the Banking Regulator. Tax Fraud and Tax Evasion are criminal provisions already included in the Guatemalan Penal Code.  And as previously stated, the possibility of obtaining a court order internally or through a rogatory letter is already part of the exemption under the actual disposition and under civil procedure rules.

On the other hand, it is not a secret that Guatemala has suffered in the past from political instability (mostly in the 60s and 70s); everyday hard working Guatemalans worry in protecting their assets, capital and private property from corruption and other inherent country risks.  I wonder if the efforts of these organizations will only benefit a few countries seeking to improve their own tax collection efforts, at the cost of weakening the legal systems of other small jurisdictions or will it improve our own?