Bank secrecy, trusts and fiduciaries in relation to tax matters

Abstract

Purpose: Bank secrecy, trusts and fiduciary services are three financial spheres within the financial services industry which all incorporate an element of confidentiality or anonymity. Fiscal transparency is highly discussed these days, and the purpose of this study is primarily to evaluate these components in relation to tax matters. Particular reference was made to current and newly proposed legislation in order to determine whether the law is effective enough to prevent tax evasion or any other form of abuse from occurring. This study also aims to delve into the ethical aspect of legitimate tax planning and also undertakes a brief analysis on how other jurisdictions react to the notion of bank secrecy, trusts and fiduciary services. Design: This study was achieved through a series of semi-structured interviews. The interviews were conducted both with service providers operating within the financial services industry, such as bank representatives, tax consultants, auditors, trustees and fiduciary service providers and also with the relevant authorities being representatives from the Malta Financial Service Authority, the Financial Intelligence Authority Unit and also the Inland Revenue Department. Findings: The findings of this research have established that there are complete legitimate uses for bank secrecy, trusts and fiduciary services. However due to potential abuse, banks have lost significant power when it comes to holding back confidential information from the authorities. Bank secrecy in today’s context purely relates to secrecy in respect of one client to another. Furthermore new regulations on trusts and fiduciaries are making it more difficult for criminals to avoid tax and launder their illegal money into the financial system. Nonetheless, uncooperative jurisdictions still remain a serious concern in the fight against tax evasion, money laundering and financing of terrorism. Conclusion: Service providers are well aware of the crucial legislative changes that are occurring. Although they do not see themselves as tax collectors, their actions are accountable for maintaining a more reputable profession. It is also important to note that the fight against tax evasion is not the responsibility of an individual country but it is the responsibility of all the countries in the world. Value: This study seeks to contribute to increasing awareness on the misuse of bank secrecy, trusts and fiduciary services. Another point focused is on the importance of having sound legislation to mitigate abuse emanating from such financial instruments, thus ameliorating fiscal transparency.