Tax authorities to obtain unlimited access to confidential banking information - საერთაშორისო გამჭვირვალობა - საქართველო

Tax authorities to obtain unlimited access to confidential banking information

25 September, 2014


The Georgian Government submitted a draft law to the Parliament on September 1 regulating the rules of access to citizens’ confidential banking information held by financial institutions. The draft law includes amendments to the Law on Activities of Commercial Banks as well as the Administrative Procedures Code and the Tax Code. We believe that some of the provisions introduced in the draft law are in direct contradiction with The Constitution of Georgia and violate the fundamental right to a fair trial and protection guaranteed by The Universal Declaration of Human Rights, The European Convention, and The Constitution of Georgia. The draft law also contradicts the adversarial principle upheld by the Administrative Procedures Code. We would like to present a brief analysis as well as recommendations related to the proposed draft law titled Changes to the Administrative Procedures Code.

The purpose of the draft law

According to the draft law explanatory note, current legislation does not include legal proceedings related to obtaining of confidential information by the tax authority from banking or other financial institutions.  Amendments to the Administrative Procedures Code were proposed in order to remedy this specific shortcoming. More specifically, two chapters, VII (11) and VII (12), are being added to the code. Both of these chapters describe the administrative proceedings required in the process of a tax authority obtaining confidential information (including for the purpose of fulfilling goals stipulated by an international treaty) from banking or other financial institutions.

Circumstances in which tax authorities can obtain a person’s banking information

According to the current legislation, a tax authority can obtain confidential information only after it obtains permission from a court and the Prosecutor’s Office launches a case against a taxpayer. According to the amendments, a tax authority will have the right to request a person’s confidential information from a bank based on a court decision as part of its regular activities, in accordance with international agreements signed by Georgia, or after receiving a request from a foreign country’s competent authority.

The draft law proposes two mechanisms for a tax authority to obtain confidential banking information:

  1. The first mechanism involves the account holder being informed about and involved in court proceedings (on obtaining of a person’s confidential information),
  2. The second mechanism involves holding of court proceedings without the knowledge and involvement of the account holder. The account holder is not notified about the court’s decision and does not have the right to appeal it.

Transparency International Georgia believes that the draft law contains a number of problematic provisions:

  • Tax authorities are able to obtain a person’s confidential information without the person having the right to appeal. According to article 21 (50) of the draft law, for international bilateral or multilateral treaty purposes, if any of the involved country’s competent authorities request information on an account holder at any banking institution in Georgia, the court will consider the tax authority's motion without the account holder’s involvement. According to paragraph 6 of the same article, the court’s decision is made in triplicate: the first copy is sent to the tax authority, the second one is sent to the banking or a financial institution, and the third copy remains in court. Consequently, the person, whose confidential information was considered in court, remains unnotified.  According to paragraph 7 of the same article, the person does not have the right to appeal the court’s decision. Only the tax authority has the right to appeal. This violates a person’s right to protection and a fair trial upheld by The European Convention on Human Rights, which includes a person’s right to appeal a court’s decision in a higher court, and dispute a case in at least two court instances. This is also contrary to the basic principle of the Administrative Procedures Code outlined in Article 4 (The Adversarial System and Investigation of Circumstances of a Case by the Court). The principle states that court proceedings have an adversarial nature, with both parties having equal rights and opportunities to prove their claims, deny or rebut the opposing party’s demands, opinions and evidence.
  • Adoption of proposed amendments endangers the right to privacy and protection of personal data. Bank secrecy is part of the strictly protected personal privacy, which includes personal income and assets, and is protected by The European Convention and The Constitution of Georgia. Even though the right to privacy is not absolute, each case involving the restriction of this right should be considered carefully. Close attention should be paid to issues of proportionality of restriction, the necessity of restricting this right in a democratic society, and whether restrictions are instituted for a legitimate purpose. The court needs to consider each case and establish a proportional restriction. However, the court will be unable to do this, since the tax authority is not required to indicate in its motion the reasons why it needs the requested information and what specific danger / crime will it help prevent.
  • The tax authority is given unlimited discretion in obtaining a person’s confidential information. As mentioned above, the draft law does not obligate the tax authority to indicate why it needs the requested information. As a result, the tax authority is able to get a court approval without any substantiation.
  • The draft law creates a danger of permanent control over bank secrecy. Neither the tax authority nor the judge is required to indicate in the motion or the court order a specific period of time during which the court decision is valid. In other words, the tax authority can keep receiving a person’s confidential information indefinitely.  

Therefore, we call on the draft law initiators, the Georgian Government and the Parliament to include the following key principles in the proposed amendments:

  • A person, whose confidential information is being requested by the tax authority from a banking or other financial institution, must be involved in the relevant court case. This person must also have the right to appeal the court's decision.
  • In its motion requesting a person’s confidential information from a banking or other financial institution the tax authority must indicate the reasons why it requires this information and what specific danger / crime will it help prevent. This will enable the court to make a decision on the necessity and proportionality of restricting a person’s right to privacy. The judge’s order should also be substantiated and indicate specific reasons behind the decision.   
  • In its motion requesting a person’s confidential information from a banking or other financial institution the tax authority must indicate the time period during which it will be authorized to receive confidential information about a specific person from a bank. This will prevent permanent control over bank secrecy. 

Based on abovementioned comments and the significant shortcomings of the draft law, we would like to state that not only will the adoption of the proposed amendments in their current form violate a fundamental human right, but it will also threaten the driving sector of the Georgian economy, the banking system. Establishing a permanent government control over bank secrecy and a person’s confidential information will also negatively impact the inflow of large-scale foreign investments.

The goal of the draft law is to improve taxation and administration procedures, and to develop effective and flexible mechanisms for this area. These goals can be successfully achieved without violating the right to privacy and the right to a fair trial and protection.

Author: Lika Sajaia