Compliance with the relevant regulations is more important than ever
The global regulatory and legislative landscape that affects financial institutions and our clients – particularly relating to the disclosure of information about foreign accounts – has evolved and continues to evolve at a rapid pace. These significant changes mean it is becoming more and more important to ensure that your financial affairs are managed appropriately and in compliance with the relevant legislative and regulatory frameworks.
Increasingly stringent global money laundering laws were introduced to combat terrorism
The September 11 attacks in 2001 led to a worldwide focus on the enactment of global money laundering laws and regulations. This was in an attempt to combat terrorist activities that are primarily financed through illegal activities, since the perpetrators try to disguise the original source of their funding, resulting in money laundering. The radical change in the legislative and regulatory landscape was aimed at cutting off the lifeline (so to speak) to the much-needed money that finances terrorist activities.
There is pressure on governments around the world to monitor financial transactions
Accordingly, there has been significant and mounting pressure placed on governments around the world to increase the monitoring of financial transactions. The Financial Action Task Force (FATF) is an inter-governmental body whose main purpose is to develop and promote national and international policies to combat money laundering and terrorist financing. Stringent anti-money laundering (AML) systems and procedures invoking strict requirements on banks and other financial institutions appear to be the norm in most jurisdictions.
In South Africa, FICA was introduced to fight financial crime
Bringing it closer to home, the Financial Intelligence Centre (FIC) was established in 2001 to act as the primary authority over AML efforts in South Africa. Accountable institutions are obligated to identify and verify their clients and third parties with whom they transact. Non-compliance results in fines or even imprisonment. This has placed onerous obligations on accountable institutions to ensure that they are able to verify their clients, which is why we often request updated Know Your Customer (KYC) documentation from our clients.
In addition, tax authorities around the world have turned their attention to tax enforcement
As a result of tax data leaks, most notably the Swiss, Panama and Bahama data leaks, tax authorities around the world are turning their focus towards tax enforcement, resulting in another major shift in the legislative and regulatory landscape. As bizarre as it may seem, it is the innocent who are yet again carrying the brunt of this. In the past, an individual could transfer funds to another jurisdiction and there would be no obligation placed on the recipient – for example, a bank in a foreign jurisdiction − to report on those funds to the relevant authorities in the country where the individual is tax resident. With the increase in cross-border
transactions, it became evident that tax administrators needed to introduce measures to counter international tax avoidance and evasion.
Regulating the exchange of information between tax authorities ensures tax transparency
The Organisation for Economic Cooperation and Development (OECD) has taken the leading role in developing policy and technical solutions for the exchange of information between various tax authorities. This exchange of information is now commonly known as the Automatic Exchange of Information (AEOI), which started with the introduction of a withholding tax regime, most notably in the US, called Foreign Account Tax Compliance (FATCA). This was quickly followed by reciprocal exchanges of information being agreed to by some European countries under Intergovernmental Agreements (IGA). The OECD launched a global AEOI standard known as the Common Reporting Standard (CRS) in July 2014.
CRS is aimed at improving international tax co-operation between governments and achieving global tax transparency to counter international tax avoidance and evasion. The CRS requires that all financial institutions must report financial account information on those clients that are identified as being foreign tax residents to the local revenue authority. The local revenue authority will automatically exchange that information with other jurisdictions on an annual basis. To date, one hundred jurisdictions have committed to CRS and more jurisdictions are expected to commit by 2018.
You need to declare all investments held in different jurisdictions
With the introduction of FATCA and CRS, it has become increasingly important for an individual to declare all their investments held in different jurisdictions for tax purposes.
We are here to help you navigate all these regulatory changes. Please contact your relationship manager if you have any queries about how this affects you and what actions you need to take.
Click on the links below to view the other articles online:
Estate planning > read more
Understanding the tax implications of buying a UK residential property
Trusts > Read more
Tax consequences for South African residents involved in international trusts
Wills > Read more
Owning assets in a foreign country – is there a need to have a separate will?
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The Fiduciary Focus Newsletter is intended for general information purposes only and should not be construed as tax, legal or accounting advice. This communication is based on our bona fide interpretation of legislation, rules, regulations and publications. Nedbank Private Wealth provides estate and tax planning advice; however, we do not provide tax, legal or accounting advice and you are requested to consult a professional tax advisor or professional in this regard.
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