The case

For much of the decade’s winding course of CRS, enforcement measures have been threatened but rarely fulfilled. That seems to be changing. There has not been a new order from the OECD to adopt more draconian policies nor any evidence of a collective resolution by Participating Jurisdictions to more rigorously police their wayward firms. In fact, the source of the new-found zeal for executing the enforcement provisions of the CRS rules appears to stem from multiple sources.

Source: Paul Foster Millen – Millen Tax & Legal GmbH

The commentary

In some cases, the new incidents reflect the natural maturation of the enforcement concepts. For Swiss fiduciaries, the audits currently being conducted by the self-regulatory organizations (SROs) that many joined as a consequence of FINMA consumer-protection regulations are revealing gaps in CRS compliance protocols. For the SRO-audits, such gaps do not tend to lead to any penalties. However, if the CRS-dedicated audits from the Swiss Federal Tax Authority (SFTA) reveal such compliance gaps – even where the actual end goal of disclosing Reportable Persons was accomplished and the non-compliance in question involves an under-documented yet successful process, such missing documentation will be grounds for fines and other sanctions.
Another form of emerging CRS enforcement seems to derive from Participating Jurisdictions seeking to bolster their reputations by identifying the parties most brazenly out of step with their regulations. This ‘low hanging fruit” approach rests on comparisons of information across FATCA and CRS regimes, such as comparing FATCA FFIs appearing on the monthly IRS GIIN list with those domestic entities registered on the local CRS reporting portal. Accordingly, tax authorities who need to obtain information on their own CRS landscape can leverage FATCA information and shift the burden to the FATCA FFIs to explain why they are not also CRS FIs. In addition to generating additional intelligence on the CRS compliance of the financial industry.
The enforcement of CRS non-compliance can offer a fresh source of fiscal support in these straitened and uncertain economic times. One egregious example of this emerging CRS enforcement was told to me by friend who works in the fiduciary industry and had just been hit by a pair of USD 10,000 fines for a late submission of two CRS Compliance Certifications. In my friend’s case, the content of the forms were never in question and his firm’s CRS compliance record is spotless. But they were a week or so late in filing the forms, the fact of which they duly notified the local tax authorities. The reward for their forthrightness was a USD 10,000 fine for each late-filed report, the severest CRS fine I (or anyone I asked) had seen. This pursuit of revenue suggests that this specific Caribbean authority is leaning more towards maximizing revenue from existing assets, rather than seeking to encourage more assets to migrate there.
To the extent that other off-shore financial centers adjust their perceptions of CRS compliance as a necessary evil to a possible source of fiscal support, similarly outlandish penalties may be forthcoming.