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101 governments have meanwhile signed the OECD Standard for Automatic Exchange of Financial Account Information in Tax Matters (AEI, AEoI) and have thus agreed to send information on foreign account holders to the home tax authority of each account holder, beginning with information from the year 2016 or, for later adopters, 2017.

The defining document, https://www.oecd.org/ctp/exchange-of-tax-information/automatic-exchange-financial-account-information-common-reporting-standard.pdf , describes in its Annex, Section VIII, that a Reporting Financial Institution is essentially every institution that keeps money in user accounts.

Banks have picked this up and will fulfill their obligation. Some banks have warned their customers before beginning to collect user data. Some banks have kept quiet about it. Other financial institutions, for example, bitcoin exchanges that keep user accounts, are very quiet. Some may even be unaware of their obligations under the contract.

Hence my question. If a government signs an international contract, how is that binding for companies in its jurisdiction? Does the government have to inform all effected institutions? Does it have to pass a law? What happens if an institution does not fulfill its obligation? What happens if an institution does not even know its obligation? Is everybody obliged to read every contract which their government signs?

Would a financial institution be obliged to inform its customers before it begins reporting user data that had hitherto been kept secret to the tax authority in each user's home country?

Background information

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Details vary by jurisdiction but, in general, a treaty negotiated by the executive branch would usually require ratification by the legislature to give it effect under domestic law. Once this is done and the new law is promulgated in whatever way government does this (e.g. publishing it in a government gazette) it is binding on everyone. Such promulgation is advising everyone - it is the obligation of the people affected to know what the law is and to comply with it. Ignorance of the law is not a defense.

If a person doesn't follow the law they are subject to whatever sanctions the law provides after relevant due process. If they didn't know about the law: tough; they should have known. Otherwise people could escape punishment for say, murder, because they didn't know it was illegal.

People do not have to read every contract the government signs (indeed most of them are commercial in confidence) but they do have to know every law that applies to them. That doesn't mean they have to read them: just comply with them.

Given that the customers should be aware of the law too there would be no general obligation for the institution to inform them unless the law itself says they have to.

  • Thanks for the good information! We have a curious case here. I have started to ask various bitcoin exchanges whether they are Reporting Financial Institutions in the sense of oecd.org/ctp/exchange-of-tax-information/… , Annex, Section VIII. The answers are rather fuzzy. Either I get no answer at all or the answer indicates more or less that they are not, which is patently untrue, according to the wording of the contract. I suspect that the law is flouted in many countries, except perhaps by banks. – hgmichna Dec 23 '16 at 9:58

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