Global tax evasion detection program rides into town on heels of Royal Commission
June 5, 2018
While the Australian financial services industry remains fully focused on the repercussions of shoddy loan practices, the over-charging of fees, the Anti-Money Laundering ‘intelligent deposit machine’ debacle and more as part of the current Royal Commission, in the wings is the next major compliance reporting regime which is about to impose itself on Australia’s financial institutions: Common Reporting Standard (CRS).
CRS is an inter-governmental agreement between the world’s Tax Authorities designed to detect tax evasion. Millions of businesses in more than 250 jurisdictions that manage the financial accounts of foreign tax residents must report to their local Tax Authority which in turn shares this financial information with the relevant home Tax Authority.
“The reputational risk for non-compliance in this instance will be every bit as significant as with AML,” says Stuart Growse, Chief Digital Officer at GCS Agile. “For those financial institutions that don’t take this seriously, the economic and reputational implications are big.”
Mr Growse says one of the key reasons the Australian financial community has been slow to respond to CRS is in part due to the mental space that the Royal Commission is occupying in the minds of its leaders, as well as the mind-boggling complexity of the compliance requirement which has resulted in a general confusion amongst staff across large to medium sized financial institutions as to whose responsibility CRS actually sits with.
“We see across the industry a lot of questions and frustration around this issue. Staff who have been asked to start work on CRS in manual capacity are pulling their hair out, and management across risk, legal, tax, operations and even governance are assuming someone else has it covered,” says Mr Growse.
“These FI’s need to get themselves sorted. The financial penalties for businesses earning revenues in excess of A$1 Billion per year is $525,000 per misreport. Perhaps worse is that reputationally, companies can be legitimately considered to be facilitating tax evasion at a global level by not complying with CRS. Ignorance is not an excuse.”
The success of the IRS’s FATCA program in addressing what the New York Times reported in 2011 as a US$1.3 Trillion a year problem for Uncle Sam, has demonstrated to global Tax Authorities that the exchange of financial information is one of the most effective mechanisms to detect how its tax residents are avoiding paying taxes.
“The nature of international business today is that many countries now have large numbers of foreign tax residents living, working, and opening various financial accounts in their local jurisdictions,” says Mr Growse.
“Ironically, the lessons learned of bad behaviour and poor cultures by financial institutions in the Royal Commission will be immediately tested with the introduction of CRS whose reporting deadline is July 31. If this is met with culture of not addressing this complex compliance regime professionally, the results will be poor customer outcomes and sub-optimal business performance.”
GCS Agile is Australia’s leading specialist consulting group to advise companies on how to best meet their FATCA and CRS compliance obligations, and includes issues of digital strategy, taxation, and technology. As a first step, the team will produce within two weeks a Risk Assessment Report that provides full details on what specific actions a business needs to take to be compliant by July 31.
GCS Agile is also the provider of FACS, the world’s leading software platform built specifically to address FATCA and CRS end-to-end compliance, and also works in different jurisdictions worldwide to understand the nuances of Tax Authorities’ requirements for their CRS reports locally.
For more information, contact:
Chief Digital Officer, GCS Agile
+61 451 121 774
Compliance is complex and costly for the Financial Services Industry
- Compliance costs the global financial services industry over $270B annually.
- Fines alone have cost global lenders at least US$321B since the 2007-08 financial crisis.
- CBA’s AML compliance breach announced on August 3, 2017, has resulted in C-Level role changes, a greater than 10% share price drop in the month following the announcement, and a $700 million fine.
- Based on ATO published penalty rates, a breach of 10,000 non-reported CRS accounts (error rate less than 1%) by a financial institution earning more than $1 billion in revenue will be liable for fines of up to $5.25 billion.
FACS (FATCA and CRS Service)
- Complete end to end service that covers Data Preparation, Identify & Classify, Due Diligence, Reporting, and Audit.
- Highly flexible and configurable.
- Real time dashboard reporting with full work flow views.
- Complete, continuous audit trail and ongoing monitoring.
- Rapid implementation.
- ATO supported functionality and have completed ATO partner program.
- Only FATCA and CRS solution to be registered in ATO ABSIA (Australian Business Software Industry Association).