The decline of financial privacy and its costs to society

Abstract

This article will discuss how interventions adopted by governments and transnational bodies to combat tax evasion have ultimately led to the decline of financial privacy. The most recent instance of how this has occurred is through the creation of the Common Reporting Standard (CRS), a taxation standard that requires the automatic and generalized exchange of information regarding people’s finances and identity between member jurisdictions. This standard will reap benefits, as governments capture tax revenues that can enhance their country’s prosperity and reduce levels of inequality. However, the advantages of financial transparency do not appear to significantly exceed the consequences. These consequences are three-fold. First, monetary costs are incurred by governmental agencies and businesses that must provide resources to prepare for the adoption of this new standard. Secondly, individuals face psychological costs due to chilling effects, leading them to forgo activities, and conform to societal expectations, which can contribute to mental and physical illness and reductions in individuality. Thirdly, physical costs exist due to the widespread exchange of financial information that is required under the CRS, which can leave citizens exposed to issues of bribery, kidnapping, and data leakage. Three recommendations will be outlined to mitigate the costs to citizens and society. First, governments should be given the option of providing a withholding tax, rather than exchanging financial information with corrupt jurisdictions. Secondly, rather than standardizing the information being exchanged, countries should send only that which is required under each jurisdiction’s domestic tax laws. Finally, citizens should receive full disclosure regarding the information that is being exchanged about them, and provided with the opportunity to reject the exchange of certain information.