What is bank secrecy
The relevance and importance of the topic of bank secrecy is hard to overestimate. The correct application of the legal rules regulating the procedure for its disclosure is necessary both for bank employees and all other persons who are aimed at gaining access to this information. At the same time, it is necessary for natural persons and legal entities to obtain information â€śprotectedâ€ť by law in order to protect their violated rights. Article 60 of the Law of Ukraine No. 2121-III of 07.12.2000 â€śOn Banks and Bankingâ€ť (as amended, hereinafter – the Law of Ukraine â€śOn Banks and Bankingâ€ť) defines bank secrecy as information on the activities and financial status of the client that has become known to the bank in the process of servicing the client and relations with him or third parties when providing services of the bank.
Bank secrecy, with respect to the bankâ€™s clients, in particular, are:
- information about clientsâ€™ bank accounts;
- transactions that were carried out in favor of or on behalf of the client, transactions carried out by him;
- financial and economic status of clients;
- client protection systems;
- information on the organizational and legal structure of the legal person-client, its managers, directions of activity;
- information on the commercial activities of clients or commercial secret, any project, inventions, samples of products, as well as other commercial information;
- information about a natural person who intends to make an agreement for consumer credit obtained in assessing his creditworthiness.
Who can obtain data that contains bank secrecy, and in which cases
According to Art. 1076 of the Civil Code of Ukraine, the bank guarantees the secrecy of the bank account, transactions on the account and information about the client. Other persons (state structures, SSU, etc.), except the clients of the banks and their representatives, such information can be provided only in cases and in the order established by the Law of Ukraine â€śOn Banks and Bankingâ€ť. There is a special procedure for the banks for the storage and disclosure of bank secrecy. At the moment, the information about legal entities and natural persons, containing bank secrecy, is disclosed about the clients by the banks:
- upon written request or with the written permission of the relevant legal or natural person. Information on escrow accounts and transactions in respect thereof is also disclosed on the written request of the beneficiary. Information on the fund balance in the bank account, property rights to the funds on which are encumbered, transactions on them, encumbrances in respect of which the bank received messages, including those taken by the bank, other restrictions on the right to manage the account are also disclosed on the written request of the encumbrancer, if the right of the encumbrancer to receive relevant information is provided for by the transaction on the basis of which such an encumbrance arises;
- by a court decision;
- by the bodies of the Procurator’s Office of Ukraine, the Security Service of Ukraine, the State Bureau of Investigation, the National Police, the National Anti-Corruption Bureau of Ukraine, the Antimonopoly Committee of Ukraine – upon their written request regarding the transactions on accounts of a particular legal entity or natural person – business entity for a specific period of time;
- to the central executive authority implementing the state tax policy, at its written request for the existence of bank accounts;
- to the central executive body implementing state policy in the field of preventing and combating the legalization (laundering) of proceeds from crime or financing of terrorism, to its request regarding the financial transactions related to financial transactions that have become the subject of financial monitoring (analysis) according to the legislation on prevention and counteraction to legalization (laundering) of proceeds obtained from crime or financing of terrorism, as well as the members of the specified operations;
- to the bodies of the state executive service, private executors on their written request for the execution of judgements and decisions subject to compulsory enforcement in accordance with the Law of Ukraine â€śOn Enforcement Proceedingsâ€ť, on the availability and / or status of the debtorâ€™s accounts, cash flows and transactions on accounts of the debtor for a specific period of time, as well as information on the debtorâ€™s contracts for the storage of valuables or the provision of the safety deposit box to the debtor on the property lease, protected by the bank;
- by a court decision, to the National Agency for the Prevention of Corruption in relation to the availability and status of accounts, transactions on the accounts of a particular legal entity or natural person, a natural person who is a business entity in accordance with the Law of Ukraine â€śOn the Prevention of Corruptionâ€ť;
- to other banks in cases stipulated by the Law of Ukraine â€śÎźn Banks and Bankingâ€ť and the Law of Ukraine â€śÎźn the Prevention and Counteraction to legalization (laundering) of proceeds from crime, financing of terrorism and financing the proliferation of weapons of mass destruction;
- to the central executive authority providing for the formation of the state financial policy, upon its written request during the budgetary process for the purpose of verification and validation of the accuracy of information provided by the natural persons for the purpose of calculating and receiving social benefits, benefits, subsidies, pensions, wages, other payments made at the expense of state and local budgets, the funds of the Pension Fund of Ukraine and other funds of the compulsory State insurance and in timely and in full implementation, the information is provided on the accounts (current, credit, deposit, etc.) opened in their name, transactions and balances on them. In the case of accrual and receipt of social benefits, benefits, subsidies intended for a family or household, information is provided on each member of the family or household;
- to the National Agency of Ukraine on the identification, search and management of assets obtained from corruption and other crimes, at its written request in connection with the implementation of identification and search for assets that may be seized in criminal proceedings – on the availability and status of the accounts, transactions on accounts of a particular legal or natural person, natural person – business entity.
The order and the amount of disclosure of information by banks containing bank secrecy are determined by the Civil Code of Ukraine, the Law of Ukraine â€śOn Banks and Bankingâ€ť and the Rules for the storage, protection, use and disclosure of bank secrecy (approved by the NBU Board Resolution No. 267 of 14.07.2006, with changes).
Joining the International Financial Information Exchange System CRS: Implications for Ukraine
Bank secrecy may be abolished in Ukraine in two years. Automatic exchange of tax information occurs between the countries that have signed the Organization for Economic Cooperation and Development (OECD) convention on countering Base erosion and Profit Shifting (BEPS). According to the head of the Ministry of Finance of Ukraine Oleksandr Danylyuk, in 2020, our country will be ready to join the international Common Reporting Standard CRS, which was introduced to the EU in March this year, and it provides for the abolition of bank secrecy. The US was the first to start fighting against tax arrears by registering firms in offshore jurisdictions. In 2010, the law was passed permitting US fiscal officials to obtain information abroad about the incomes received in this or that country by American citizens. The law proved to be effective, and now more than 100 countries of the world, first of all economically developed, have joined the exchange of financial information. The exchange between fiscal services is carried out automatically on the basis of reciprocity. â€śThe increase of the profitability of business using offshore has become so popular in the world, there was a sharp drop in tax revenues and an increase in the deficit of the state budget in the countries with high taxesâ€ť. Today, offshore companies hide about $ 10 trillion. So CRS was created in order to return at least part of them – the president of the Ukrainian Analytical Center Olexander Okhrymenko explained. After joining the CRS, Ukrainian banks will collect and transfer data about their clients to the fiscal bodies, which, in turn, will automatically exchange the information with the colleagues from other countries and receive information about them from our fellow citizens. First of all, those Ukrainians who have accounts abroad will be under intense scrutiny. According to Danylyuk, now there is no way for the Ukrainian fiscal bodies to get full information on the actual Ukrainian owners of the companies operating in our market, about their financial transactions abroad, including the existence of accounts, property, securities outside Ukraine. Financial analysts approve our authoritiesâ€™ intentions to join the CRS, but they say that this will not happen soon. Andriy Shevchyshyn, an analyst in the GC â€śForex clubâ€ť, has stressed in an interview with the media that CRS is a global trend aimed at clearing the world banking system of offshore companies and minimizing taxation through them, so we will have to support it eventually.â€śIt is profitable for the states, but not beneficial for the clients. But not all offshore countries support CRS, so businessmen who have enough funds to open offshore companies, for example in Belize or in the Virgin Islands can be quiet for their incomeâ€ť. It is still not clear if the bank secrecy will be completely abolished also in Ukraine in connection with the accession to the standard – it is necessary to make changes to the Law of Ukraine â€śOn Banks and Bankingâ€ť for the abolition. The initiative of the Ministry of Finance is not commented in the NBU. The data on bank accounts of the Ukrainian citizens is not disclosed yet. They say, he who owns the information, owns the world. You should be ready for these changes.