Banking secrecy vs. tax control: what is behind the initiative of the Ministry of Finance?

3 February 11:14
Komersant ukrainskyi ANALYSIS

The abolition of banking secrecy is a threat to confidence in the financial system. In an exclusive commentary to Komersant ukrayinskyi, attorney-at-law, Doctor of Law, owner of the Law Office of Yakov Voronin expressed concern about the initiative of the Ministry of Finance to provide tax authorities with direct access to bank secrecy without a court decision. Why it is dangerous – read more in the article .

The State Tax Service should have access to the financial data of citizens that are currently protected by banking secrecy. This position was expressed by Minister of Finance Sergii Marchenko. Answering the host’s question about the need to provide tax authorities with access to banking information, Marchenko said:

“Definitely”.

According to him, the society should not be afraid of disclosure of banking secrecy, as he believes it does not protect citizens, but only creates conditions for tax evasion.

“Banking secrecy protects thieves and criminals,”

– said Sergiy Marchenko.

However, the lawyers are confident that such innovations could jeopardize the stability of Ukraine’s banking system.

“Why is it a bad idea? Banking secrecy is not just a relic of the past, as some people try to present it. It is one of the cornerstones of trust in the banking system. And Ukrainians are well aware of this – no wonder, according to a relatively recent KIIS poll, almost two-thirds of citizens are against the move towards “limiting” banking secrecy.”

Yakov Voronin

The lawyer reminds that Ukraine already has a legal mechanism for access to banking information through the courts, which protects the rights of citizens from possible abuse.

“The Supreme Court has repeatedly ruled that disclosure of banking secrecy is possible upon a reasonable request and proof of the impossibility of obtaining information in any other way. This is a normal practice that protects the rights of citizens from possible abuse,”

– emphasizes Yakov Voronin

Possible consequences

Voronin outlines several serious risks that may arise after the abolition of banking secrecy:

  • Theoutflow of money from banks.

“People will simply start withdrawing money from banks. Why keep money in an account if any tax officer can get all the information about your finances without a court order? It’s easier to switch to cash or cryptocurrency, and another alternative is to withdraw money abroad altogether,”

– explains Yakov Voronin

  • Risks for business. Bank secrecy protects not only personal finances but also commercial information of companies.

“Unrestricted access to such information by tax authorities can lead to leakage of data on business operations, which is especially dangerous in times of war and regular cyberattacks by Russians,”

– the lawyer warns.

  • Growth of the shadow economy and reduction of investments. According to the lawyer, such initiatives will only increase the outflow of capital and increase the share of cash payments, which will complicate the control over financial transactions.

“No matter how noble the desire to fight tax evasion is, it cannot be done by methods that undermine the foundations of the financial system,”

– the expert notes.

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Manipulation of European practice

The Ministry of Finance argues that its initiative is based on European practice. However, Voronin refutes these claims:

“In the EU, the protection of private financial data is part of basic human rights. Banking secrecy is not an obstacle for law enforcement, but a mechanism to protect citizens. The European Court of Human Rights has repeatedly emphasized the importance of banking secrecy.”

Yakov Voronin

According to the lawyer, instead of destroying banking secrecy, it is necessary to improve the existing mechanisms of financial monitoring:

  • optimize the procedure for obtaining a court order;
  • improve the system for detecting suspicious transactions;
  • improve the efficiency of processing of available information by tax authorities.

“The problem is that we often try to solve complex issues with simple methods. Tax evasion is a really serious problem. But it cannot be solved by simply abolishing banking secrecy. If we want to have a strong financial system, a competitive economy and at the same time effectively fight economic crimes, we need to find a balance,”

– summarizes Yakov Voronin.

Banking secrecy is not an obstacle for law enforcement, but a safeguard against abuse. And we should definitely keep this safeguard, the lawyer is convinced.

The NBU’s response

I would like to add that the National Bank responded to the Minister of Finance with a statement on the discussion around the disclosure of banking secrecy. The agency emphasized its fundamental importance for the stability of the financial system and the country’s European integration course.

The regulator emphasized that

“the importance of the institution of banking secrecy is no less important than the principle of presumption of innocence,

and its preservation is the key to public confidence in the banking system.

The NBU also noted that it supports a constructive approach to revising legislation, but only within the framework of reasonable requests from government agencies and in compliance with the principles of legal protection of bank customers.

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Anastasiia Fedor
Автор