Law Firm Starts Financial Privacy Battle

Tom Burroughes Group Editor 2 August 2018

Law Firm Starts Financial Privacy Battle

The international firm is taking legal action in the UK against the Common Reporting Standard and public registers of beneficial ownership.

Law firm Mishcon de Reya, which has branded the Common Reporting Standard regime of information transfer a “disaster waiting to happen”, is taking legal steps against the CRS and the UK’s beneficial ownership registers, saying legitimate private data is at risk.

While the CSR and beneficial ownership registers are said to help the fight against tax evaders and holders of illicit money, there is a threat to financial privacy and individuals in a number of cases, the law firm, which has offices in London and New York, said.

The CRS, a pact among dozens of countries around the world to share data to thwart tax evaders, was one of a number of measures pushed through since the 2008 financial crisis by cash-strapped governments. The UK has pushed for public registers of beneficial ownership, to the fury of locations such as British overseas territories such as the Cayman Islands and British Virgin Islands. Ironically, given its aggressive moves against Swiss offshore accounts and worldwide system of tax enforcement, for example, the US is not a signatory to the CRS.

Mishcon de Reya fired a broadside against CRS earlier this year, warning that it threatened privacy and could put sensitive data in the hands of countries with defective standards of corporate governance.

However, it said recent legislation, such as the European Union’s sweeping GDPR data protection rules, had pushed the needle in favour of privacy, rendering CSR and similar measures increasingly anomalous.

“In the UK, ultimate beneficial ownership information has been available online since 2016 and other EU Member States will have to remove the need to demonstrate a "legitimate interest" by 2020. 

Practically, anyone owning a substantial interest in a private company based in Europe (or with a European subsidiary) will see their details published, regardless of where they are resident, the nature of the business or the nature of their involvement in that business,” the law firm said. 

“However the rights to privacy and data protection are fundamental rights. They are the cornerstone of the General Data Protection Regulation (GDPR) – which came into force in May 2018 – and emanate directly from European Convention on Human Rights and the EU's Charter of Fundamental Rights. The transformational nature of the GDPR in defining the relationship between businesses and their customers is indicative of the strength of the fundamental rights to privacy and data protection.  In order to be justified, any interference with these rights needs to have a clear legal basis, pursue a legitimate public interest (such as the fight against crime); and be proportionate, i.e. limited to what is strictly necessary to achieve the objective pursued,” it continued. 

“Our contention is that the publication of sensitive data concerning the internal governance and ownership of private companies by the beneficial ownership registers is not necessary to achieve the stated objectives.  Similarly, we believe that the exchange of information under the CRS is excessive, as information is exchanged indiscriminately and affects all account holders regardless of the size of the account,” it said.

The law firm said it has sent a number of letters to UK tax authorities and other bodies to confirm they will not exchange or publish information under the CRS or the UK version of the beneficial ownership registers, but HMRC, the main tax authority, has “formally refused to provide such confirmation”, it said.

Mishcon de Reya’s criticism is not unique. In 2017, similar complaints about the assault on financial privacy were heard at a breakfast briefing hosted by this publication in London in association with law firm Druces. At the heart of the issue is a worry that governments, desperate for revenue and trying to stamp out tax evasion and terrorism financing, are trampling over legitimate client privacy and due process of law. The issue of financial privacy was also a major theme at the STEP conference in Switzerland at the end of January attended by this publication.


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