Automatic exchange of information agreements show that the offshore world accounts for about €10 trillion of assets. Such data transfers have been controversial, however, amid complaints that security of financial information is at risk.

The total size of all offshore assets in 2019 stood at €10 trillion ($11.3 trillion), based on 84 countries passing each other information under automatic exchange agreements, figures from the Organisation for Economic Co-operation and Development show. The data begs the question of how or whether should debt-laden governments get their hands on it. 

A year before, figures from 47 million financial accounts showed that a total of €5 trillion was held offshore, indicating how a wider net of data collection from more jurisdictions can boost the number. 

The OECD’s latest figure is not far different from the $9.6 trillion sum measured by a Boston Consulting Group report issued a few weeks ago. 

“Automatic exchange of information is a game changer,” OECD Secretary-General Angel Gurría, said. “This system of multilateral exchange created by the OECD….is providing countries around the world, including many developing countries, with a wealth of new information, empowering their tax administrations to ensure that offshore accounts are being properly declared.”

“Countries are going to raise much needed revenue, especially critical now in light of the current COVID-19 crisis, while moving closer to a world where there is nowhere left to hide,” he said. 

Automatic exchange of information agreements, collectively known under a framework called the Common Reporting Standard, are controversial, however. Mishcon de Reya partner Filippo Noseda recently told this news service that cybersecurity breaches in a number of countries pose a privacy threat to individuals whose details are covered by data transfers. (The US is not covered by the CRS, but obtains data about expat US citizens under the FATCA legislation of 2010.)

Speaking on the latest OECD data, Noseda said: “the amount of €10 trillion exchanged under the CRS in 2019 is more than double the total annual GDP of Germany ($4 trillion) and almost 20 times the GDP of Austria ($450 billion).”

“These huge numbers indicate the scale of the data security risk for compliant citizens. To illustrate this point, we [Mishcon de Reya] published a 31-page long hacking and data breaches list that shows very clearly the sorry state of data security of tax authorities, other government authorities and financial institutions. The OECD has already acknowledged that CRS data has been stolen in at least one occasion and this is the tip of the iceberg," he added.
 

Changing offshore world
Swiss bank secrecy has been largely a dead letter internationally for the past 10 years, while a number of other jurisdictions have been forced to clean up their act and open up to requests about offshore accounts. A worry about such a drive for transparency is whether legitimate client privacy is at risk. 

The OECD argues that the discovery of “hidden accounts” would create new revenue sources for governments. 

“The discovery of previously hidden accounts - thanks to automatic exchange of information - has and will lead to billions in additional tax revenues,” Gurría said. “The tremendous achievements of our tax transparency work prove that when we work together, we all win. International co-operation is a condition for success.”

Gary Ashford, partner and Chartered Tax Adviser at Harbottle & Lewis, said: “The world has changed dramatically with the FATCA, CRS and currently the impending introduction of DAC6, and the requirement of intermediaries to report on cross border arrangements which, although the reporting has now been postponed, will still come into force in January 2021.” (DAC6 is a new European Union mandatory disclosure regime that imposes mandatory reporting of cross-border arrangements.)

(Editor’s note: The OECD figure is eye-catching and shows how expanding data transfer nets will yield a far larger result. Before “tax justice” campaigners begin crowing that there is a pot of gold at the end of a rainbow, they should pause. That money is not sitting idly in a warehouse, but invested in assets of some kind. And by being “offshore” does not mean that a crime is being committed, or that money that should be going to government A or B will not eventually go there.)