On March 9, 2017, the Organization for Economic Cooperation and Development (OECD) issued new model disclosure rules that require lawyers, accountants, financial advisors, banks and other service providers to inform tax authorities of any schemes they put in place for their clients to avoid reporting under the Common Reporting Standard (CRS) or to prevent the identification of the beneficial owners of entities or trusts.
Attorneys around the world who have a license to practice in the U.S. should do their research before complying with such disclosure rules.
U.S. Attorney Confidentiality Rules
In order to encourage a client to speak openly with her attorney, the concept of attorney-client privilege became part of the common law or statutes in the 50 states of the U.S.A., the District of Columbia and U.S. federal law. The privilege prevents (with certain exceptions) the attorney from sharing client communications or attorney work product with others including in judicial proceedings in the U.S. where a lawyer is called upon to be a witness or produce evidence regarding her client.
If an attorney licensed in the U.S. is working in a jurisdiction outside of the U.S., the attorney-client privilege may not apply. However, that attorney may be disciplined for violating attorney-client confidentiality legal ethics rules in the U.S. state (or District of Columbia) which issued the attorney her license.
Sanctions for violating the attorney-client privilege or attorney-client confidentiality rules may be formal judicial reprimand, suspension from practice for a certain period of time, or disbarment.
According to the OECD Questions & Answers (Q&As) related to the model disclosure rules, “The model mandatory disclosure rules only impose disclosure obligations on Intermediaries that have a sufficient nexus with the reporting jurisdiction. This will include an Intermediary operating through a branch located in that jurisdiction as well as those that are resident in, managed or controlled, incorporated or established under the laws of that jurisdiction.”
The information required to be disclosed includes the users and any other Intermediaries involved in the supply of that arrangement or structure. The rules do not require the Intermediary to disclose information that is subject to obligatory professional secrecy rules but instead place the disclosure obligation on the user of the arrangement or structure.
In addition to reviewing the Q&As, it is necessary to review Article 26 of the OECD Model Tax Convention and Article 21 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters which is referenced in the Q&As. Article 26 makes clear that the scope of protection afforded attorney client confidential communications should be narrowly defined.
It is imperative that an attorney licensed in the U.S. review the laws and ethics rules of the state (or District of Columbia) in which she is a member of the bar. In case of uncertainty, the attorney should seek guidance from a U.S. attorney who specializes in this field.
The American Bar Association (americanbar.org) and state/District of Columbia bars are excellent resources for guidance on this topic. For example: the New York State Bar (http://www.nycbar.org/member-and-career-services/ethics/hotline); District of Columbia Bar (https://www.dcbar.org/bar-resources/legal-ethics/index.cfm); the State Bar of California (http://www.calbar.ca.gov/Attorneys/Conduct-Discipline/Ethics).
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