The Obligation of Bank to Provide Customer Financial Information Due to Taxation: Violating of Bank Secrecy?

By Christiani, Theresia Anita; Kastowo, Chryssantus | Journal of Legal, Ethical and Regulatory Issues, January 1, 2019 | Go to article overview

The Obligation of Bank to Provide Customer Financial Information Due to Taxation: Violating of Bank Secrecy?


Christiani, Theresia Anita, Kastowo, Chryssantus, Journal of Legal, Ethical and Regulatory Issues


INTRODUCTION

The principle of bank secrecy is one of the relationships animating the bank and customer relationship. The purpose is to maintain customers' trust to banks. The principle of bank secrecy provides an obligation for banks to maintain customer confidentiality. It is regulated in Law N.10 of 1998 concerning Amendments to Law No.7 of 1992 concerning Banking, and Law No.21 of 2008 concerning Sharia Banking. In Indonesia the bank secrecy implies the bank must keep the name of the customers and the amount of their deposit confidential. Schindelholz said that: Bank secrecy, which is not defined in any specific legal provision, is understood as being the banker is an obligation to keep confidential the facts learned in the course of banking activity (Dunant and Wassmer, 1998). The purpose of bank secrecy is to maintain public trust in banking institutions. Another goal is for the benefit of the community, as Gwendoline Godfrey said that:

"The rules around bank confidentiality continue to evolve, in many cases to the detriment of individuals but to the benefit of the public good" (Godfrey, 2016).

The enactment of Government Regulation in Lieu of Law No.1 of 2017, later becoming Law No. 9 of 2017, gives an obligation to Financial Services Authority to provide reports to the Directorate General of Taxes regarding financial information in accordance with the international agreement standard in taxation for each financial account identified as an account that must be reported. Both financial service institutions are also required to submit reports regarding financial information for taxation managed by the institution for a year. This regulation authorizes the Directorate General of Taxes to directly request financial information data without the permission of the Financial Services Authority.

The enactment of Law No.9 of 2017 has positive and negative consequences. Positive consequences of the validity of these regulations include the presence of banking system reforms, (Fabian et al., 2018). The negative consequence of the regulation is able to harm the existence of the banker-customer relationship becoming the basis of the relationship and the essence in the bank operational continuity. As Oberson notes that the more global the exchange of information, the greater risk of breaches of confidentiality, privacy ,and secrecy provision or even abuse in the rise of data obtained,(Stjepan & Irena, 2017). Negative consequences were also expressed by Avilliani (2018) who stated that regulations does not contain clarity to extent to which the Directorate General of Taxation can use the data and the sanctions for violator are still low (Avilliani, 2018). The emergence of public distrust to banking institutions as a result of the enactment of Law No.9 of 2017 must be prevented. The paper attempts to analyze two the legal problems, first: whether the obligation to provide customer data information by banks for taxation does not violate the principle of bank secrecy and second, what efforts can be taken by banks in minimizing the potential adverse effects of the regulations (Ying, 2015).

The significance of the legal problem in this paper is that the purpose of this regulation is preventing the movement of illicit money through bank institution but on the other hand it will create a distrust of the community towards bank institution. This is according to what was said by Jean-Rodolpho W.F: Countries cultivate a tradition of banking secrecy have to live with a new international order since the standards for exchange of information have been imposed them, not the exchange mechanism itself, which is not particularly effective and limited to defined request excluding fishing expeditions but the fear and insecurity that accompanied change of paradigm affected tax payer trust (Rodolpho, 2010). Although Switzerland has the reputation of being tax haven (Patrick, 2014) Switzerland has recently signaled a shift in its attitude to bank secrecy laws and it is ready to stop operating as a safe haven for unlawful wealth from corrupt political leader around the globe (Aubert, 1984). …

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