TY - JOUR
AU1 - Rubenstein, Joshua, S
AB - Abstract The backdrop to encroachments on privacy is the end of secrecy from taxing authorities, combating financial crimes, concerted tax enforcement efforts and the 2008 world-wide financial crisis. In response to the financial crisis, governments have enacted information exchange agreements, FATCA and CRS. While CRS may prove the most obvious threats to privacy, other equally real threats to privacy are encroachments on attorney–client privilege, the irresponsible use of “sham” trusts, governmental efforts at trust registration, and the internet itself. There are, however, deeply imbedded in our legal systems, many protections of privacy, such as: taxpayer secrecy by taxing authorities, the ability to seal court proceedings, causes of action for invasions of privacy, protection of patents, copyrights, trademarks and trade secrets, and the right of publicity, particularly after death. Backdrop to secrecy versus privacy A. Governments have been fighting financial crimes for a long time, but the seemingly spontaneous explosion of information exchange, and the invasions of privacy it threatens, are a result of the governmental response to the extraordinary economic events of the last ten years. B. It is the impression of the rest of the world that most of the world’s bad ideas originates in the United States and then we export it to the rest of the world on the jet stream. C. Since the summer of 2008, the world has seen World-wise recession All asset categories affected Financial indices flat for ten years Collapse of major investment houses, such as Bear Stearns and Lehman Brothers Near collapse of global banks but for massive government bailouts Accounting scandals involving large public companies, such as Enron and Worldcom—but now Olympus, Xerox, and Wells Fargo The discovery and collapse of major Ponzi schemes, such as (Bernie) Madoff and (Alan) Stanford—but now MF Global and at least some of the virtual currency companies Political turmoil and change not only in traditionally tumultuous parts of the world, like the Arab Spring, but it traditionally more stable parts of the world—witness Brexit and the ascendancy of Trump. Ongoing European Debt Crises—not helped by Brexit Ongoing inability of the US Congress to pass responsible of timely tax legislation, sending the country over a ‘fiscal cliff’ twice in three years (1/1/10 and 1/1/13), then into sequester where the United States was closed, then most recently with the expiration of the Patriot Act and the ability it afforded to combat terrorism. Governmental response A. Tax revenues plummeted, and all governments found themselves broke. B. Faced with the choice between raising taxes or doing a better job enforcing tax collection, some did the former but everyone decided it was time to do the latter—and joined in a concerted effort to do so. C. As a result, in just ten short years, we now have the end of secrecy, global information exchange and global tax enforcement—tax harmonization will come next (leaving the interplay of remittance based tax systems and resident non-doms as the next huge hole to plug). D. The United States forced the issue with FATCA. We have all long had information exchange agreements of one sort or another, but they were all upon request. E. The United States imposed FATCA on the rest of the world in 2010—one way automatic information exchange—to United States. F. Once the rest of the world got over their justifiable indignation, they decided it was a good idea, and the OECD came up with CRS. Common Reporting Standard Global FATCA, or GATCA G. CRS does FATCA one better 1. Automatic two-way information exchange 2. Disclosure of beneficial ownership of structures, even if they are fully tax compliant 3. Huge potential for invasion of privacy, both with respect to Beneficial ownership, as some countries are now maintaining public records of beneficial ownership Integrity of the financial data being provided to some governments H. Why won’t the US sign? 1 We have laws that would need to be repealed or at least modified, preventing the two-way automatic exchange of information if we don’t believe the secrecy will be maintained—of our 80 treaty partners, only 40 pass the test 2. Beneficial ownership and privacy Pro—Treasury and FBI Con—SIA and states like Delaware 3. Don’t come to US if you think the ability to avoid CRS, or a US equivalent, is permanent. Is privacy dead or dying? A. So secrecy is dead, but what about privacy? It would be difficult to say with a straight face that over the last decade or so we have not seen an unprecedented attack on the right to privacy as well. B. I would like to suggest that the current state of affairs, unlike the end of secrecy, which is here to stay, is an opposite pendular swing to the former environment of rampant secrecy, and to the world-wide competition therefore by many wealth managers and financial centers around the world, so that the real question is whether the laws of physics for privacy have changed, or, if not, when we can expect the pendulum to swing back to the middle. C. CRS has been a major threat to the rights of privacy, but so has encroachments on the attorney–client privilege in response to anything that could be remotely regarded as a financial crime UK Proceeds of Crime Act of 2002—must turn in your clients if you have a suspicion of money laundering, defined broadly as dealing with the proceeds of ANY crime—consider Kovel-like arrangement when dealing with cross border US issues. In many civil law countries, while a voluntary breach of attorney client privilege remains a criminal offense, courts regularly override the privilege. The privilege can more easily, and inadvertently, be waived in many countries, including by copying any third party on an e-mail or using company provided e-mail (N.B. The British Virgin Islands Authority v The Court’s Management (Tel Aviv Shalom Court/11287-10-10) (the BVI case)). D. The irresponsible use of trusts has been a major threat to the rights of privacy as well. 1. Trusts are now regularly pierced upon suspicion of their use for Fraud Money Laundering Terrorism Tax Evasion Other criminal matters 2. I would like to think that most of us do not have a reasonable expectation of making a good living representing criminals. Most of our clients are prepared to obey the law, and want us to structure things in a fashion to make the results of compliance as favorable as legally possible. 3. I would like to suggest that when it comes to trusts and privacy, we have been out own worst enemy, as we have helped to create an impression—although false—that no one uses a trust who isn’t doing something wrong. THAT is the impression that we must combat in order to ensure that reasonable expectations of privacy continue to survive. We have pushed the envelope in the use of trusts to do at least five things for which the trust was never intended: Avoid income taxes—on shore trusts never died; offshore trusts can game remittance basis tax systems Avoid transfer taxes in perpetuity Avoid one’s own creditors Provide beneficiaries with no rights, or even knowledge that a trust for their benefit even exists Appear not to own something that you in fact control and benefit from directed trusts protectors enforcers STAR/VISTA trusts Executive entities Private trust companies 4. No wonder the Global Forum wants all trusts to be registered. And no wonder the Tax Justice Network published an alarming paper in February, 2017 entitled: ‘Trusts: Weapons of Mass Injustice’. We have unwittingly helped in the creation of the appearance of sham, and it is that appearance that we must work to combat to preserve privacy, because there is no privacy when a trust is in fact used for criminal purposes. The perception of trusts by courts and regulators is similar to that in the case of Powers of Attorney—they only see it in the case of elder abuse. So why set up a trust in a way that has a criminal appearance to it, then there is in fact no need for it? Let’s dial trusts back a bit and use them for the still valid purposes for which they were intended. E. Let’s examine areas where I hope we can all agree that the right to privacy is alive and well: 1. There remain strong penalties against both governments and private citizens for breach of taxpayer secrecy—tax returns are still secret as against the public. 2. Courts will seal otherwise public proceeding where the rights of minors would be endangered (which is a legitimate need for privacy), the value of one’s assets would be compromised, or irreparable harm is likely to occur, including the exposure of private information in which the public has no legitimate interest. 3. There are legal causes of action for invasion of privacy unless you are a public figure—with both civil and sometimes criminal penalties enforcing them. 4. Patents, copyrights, trademarks, trade secrets 5. Right to privacy, and concomitant right of publicity that can survive even after death: who is more vulnerable than someone who is dead? What happens when you violate the right of privacy of a dead person? F. If you agree with me that there are areas where the right of privacy unquestionably survives, though it is under attack, then what are reasonable expectation of privacy with respect to trusts? 1. Privacy/Secrecy from governmental tax enforcement efforts—No 2. Privacy/Secrecy from general public—yes, but even in the absence of information exchange agreements: Internet and Big Data—all electronic data is out there somewhere—the younger generation knows this because that is all they have ever known Don’t lead your life in a fashion to call undue attention to yourself Don’t cheat on taxes Give up on secrecy, but expect and preserve privacy Joshua S. Rubenstein is national head of the firm’s Trusts and Estates practice and national chair of the Private Client Services group. He is also the immediate past chair of the International Estate Planning Committee of the American College of Trusts and Estates Counsel, an officer of the Family Law Section of the International Bar Association and the Treasurer of the International Academy of Estate and Trust Law. E-mail: joshua.rubenstein@kattenlaw.com. © The Author(s) (2018). Published by Oxford University Press. All rights reserved. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices)
TI - Protecting the right of privacy
JF - Trusts & Trustees
DO - 10.1093/tandt/tty178
DA - 2019-02-01
UR - https://www.deepdyve.com/lp/oxford-university-press/protecting-the-right-of-privacy-pVbEjw3rKI
SP - 149
VL - 25
IS - 1
DP - DeepDyve
ER -