Trade-offs between privacy and security

by S&M

The first half of page 68 could be fodder for discussion of the trade-offs between privacy and security.

The Wealth Report 2017

Privacy is rapidly becoming an unattainable luxury

Most people value privacy and, understandably, prefer to keep information about their investments and assets to themselves.

The unrealistic nature of this aspiration was highlighted early last year when nearly 12 million documents, including private financial information relating to more than 200,000 individuals and entities – the so-called Panama papers – were leaked to the media. It was proof, if proof were needed, that no data can be truly secure.

However, concerted international co-operation aimed at helping governments understand and track the global movement of wealth and assets may soon render such unofficial leaks redundant. The
US started the process in 2010 with the Foreign Account Tax Compliance Act (FATCA), which led to a unilateral demand for foreign financial institutions to report details of accounts and investments held by US citizens.

Aside from prompting several thousand Americans to renounce their citizenship including, reportedly, the UK’s Foreign Secretary Boris Johnson, and forcing the Swiss to evolve their banking secrecy rules, FATCA has prompted a global copycat move from the OECD. Its
decision to agree information sharing among 100 countries through the Common Reporting Standard (CRS) will trigger a data deluge later this year, as jurisdictions around the world begin the automatic exchange of information on their citizens’ financial information. The CRS promises a more efficient means of ensuring that appropriate tax is paid on wealth, wherever in the world it is created. Most of those affected by the new regulations will have no issues. But for some, unlimited data sharing will raise personal risk, especially if corruption enters the process.

As investment portfolios become more global and wealth moves more rapidly we should not be surprised that the direction of travel is towards “big data” capture. As Ian Bremmer notes on
page 9, governments will have to look for new metrics to accurately measure emerging wealth and economic trends which have significant political implications.

This points to an issue that runs throughout this year’s edition of The Wealth Report, which is that developed markets are seeing more politically inspired resistance to large inflows of capital from
emerging markets: witness responses in Vancouver, Hong Kong and more, as detailed on pages 18 and 19.

At the same time, emerging markets are concerned – increasingly so in the case of China – about outbound capital flows. This government desire to control wealth movements will inevitably necessitate a better understanding of where citizens hold their wealth.

Irrespective of current government initiatives, technological developments will make it increasingly difficult to hold assets and investments discreetly, even where the objective is to maintain privacy rather than to evade taxation. If the predictions on page 20 from one of our contributors, David Friedman, prove correct, technology is moving towards a future where the entire ownership of all global assets will be free to search in real time.

All this has profound implications for those jurisdictions that have built their business models around their ability to provide investment secrecy. Access to the likes of private aviation may allow the wealthy to continue enjoying a measure of personal privacy, but data privacy is set to become an increasingly rare commodity.