Tax Officials Seek Access to Banks' Client Info

Federal tax, customs and financial markets officials have set their sights on banks' client confidentiality, which analysts said could shake confidence in the entire banking system.

Last summer, the Finance Ministry proposed draft amendments to the law on foreign currency regulation and foreign currency oversight, under which the Federal Tax Service would receive the ability to ask banks for transaction certificates and information about clients' transactions.

If the changes are passed, banks would have to give tax officials not only information about clients' accounts and their bank statements, but also customs declarations, legal identification and documents that are used to conduct foreign-currency operations or confirm the exchange of goods.

In December 2009, the Federal Customs Service also decided to expand its powers. The service prepared draft amendments to the Customs Code, under which customs officials would be able to seize cash in rubles or foreign currencies for up to five days, as well as checks if the traveler refuses to declare the source of the funds.

Under the proposals, the customs service would be able to request information about the source of funds received, which is currently protected under bank secrecy.

"I really don't get why people carry cash around with them when there are cards," a high-ranking source at the Federal Customs Service told Vedomosti. "But I have a possible answer. They need to pay for their personal import businesses, since it's easier to do that with cash."

The Federal Service for Financial Markets is also looking for access to bank secrets. Those powers are listed in the bill on counteracting the illegal use of insider information and manipulation of the market, which the State Duma passed in a first reading in April 2009.

The bill has a clause saying the Central Bank is required to grant authorities' requests for information, "including information classified as commercial, professional or banking secrets." The rule is meant to help uncover and prevent the use of insider information.

Under the law on banks and banking activity, access to bank secrets is available to the courts, the Audit Chamber, the tax and customs services, the Pension Fund, social insurance funds and the court marshals. But the information they can receive is limited based on their specific work.

The entire understanding of bank secrecy is being discredited, said Lidia Gorshkova, head of the banking practice at Pepeliaev Group.

In other countries, tax and customs officials cannot access bank secrets, said MDM-Bank chairman Oleg Vyugin. If those secrets are not a secret to those agencies, then it will shake confidence in the banking system, he said.

Dmitry Rudenko, a member of the executive board at VTB 24, said the discussion should be on how information is disclosed, not on completely freeing fiscal agencies from limits on bank secrecy. "I don't want to give information to people from the communal services department or the traffic police," he said.

Bank secrecy needs to be preserved, though two or three agencies should have access, said Yevgeny Retyunsky, a former member of the executive board at Barclays Bank.

A year ago, Switzerland's UBS took an unprecedented step, giving U.S. authorities access to the names of their clients who were suspected of using offshore accounts to evade taxes. The bank paid a $780 million fine to avoid an investigation.