The list of national and international agencies and national laws and international agreements governing financial information exchange and reporting has grown preposterously long.

It is time to fundamentally reevaluate the information exchange and reporting system that has grown up over the past two decades and begin the process of considering how to better meet the needs of the people these laws are meant to serve.

The current system’s mind-numbing complexity and ad hoc nature impedes the effectiveness of governments’ effort to combat terrorism, enforce the laws and collect taxes. It has necessitated the creation of multiple, expensive and overlapping national and international bureaucracies. It also imposes tremendous costs on the private sector – costs that appear to be of little concern to U.S. and European policy makers. Lastly, there is little doubt that the current system pays inadequate attention to the core values that underpin all free societies.

The first business of government is to protect the life, liberty and property of its citizens. Accordingly, international information sharing directed at preventing terrorism, crime and fraud is an important and appropriate function of government. It is, however, important to recognize four important qualifications.

First, not all governments can be trusted to share these goals. For example, habitual human rights abusers and terrorist allies like Iran, Cuba and Syria are members of Interpol and United Nations bodies involved in information sharing. That should remind us that liberal democratic governments need to be careful regarding with whom they share information. Similarly, recent news reports about the use of Interpol Red Notices for political purposes should prompt a reevaluation of uncritical information sharing.

Second, many governments such as Pakistan or Colombia have troubling elements within them. Corruption or ideology makes information sharing with such governments highly problematic. Shared information can be used to oppress political opponents, to support terrorism, to identify kidnapping targets, to facilitate financial fraud, for identity theft or for other nefarious purposes.

Third, information sharing for law enforcement purposes should be limited to crimes that any liberal democratic state would regard as criminal. Terrorism, violent crime and fraud would meet that test. Speaking out against one’s government, peaceful political or labor organizing, gambling, tax evasion and homosexual behavior would not. No liberal democratic government should share, or be required to share, information for the purposes of enforcing laws that criminalize behavior that is not illegal under the laws of the government from which the information is being requested. This is sometimes known as the principle of dual criminality.

Fourth, many governments are more than willing to exploit information sharing arrangements for inappropriate commercial purposes such as industrial espionage. Steps need to be taken to limit this risk and to protect the commercial interests of countries participating in good faith in information exchange regimes.

Privacy, both financial and personal, is a key component of life in a free society. Unlike totalitarian regimes, free societies allow individuals a private sphere free of government involvement, surveillance and control. The United States constitution enshrines this right in its Fourth Amendment. All liberal democracies recognize this right to varying degrees and in varying ways.

In general, individuals should control who has access to information about their personal or financial lives. Individuals should be free to lead their life unmolested and unsurveilled unless there is a reasonable suspicion that they have committed or may commit a crime. Any information sharing regime needs to include serious safeguards to protect the privacy of individuals and businesses. Currently, these safeguards are lax at best.

Information sharing for purposes of tax collection requires a different analysis. First, tax evasion is not a crime in many liberal democratic states. It is treated only a civil violation. Second, the willingness to impose costs on the private sector and to violate the privacy interests of ordinary people should be less than in the case of information sharing for tax purposes than for the purposes of preventing terrorism or crime.

This is because the benefit of preventing terrorist attacks or crime is higher. All information sharing programs need to be subject to serious cost-benefit analysis. It should give U.S. policy makers pause, for example, that the U.S. Foreign Account Tax Compliance Act is being uniformly and vociferously criticized as extraterritorial overreach by strong U.S. allies in Europe and Canada. Third, it should not be forgotten that tax information sharing programs are quite often a veiled attempt to stifle tax competition from low tax jurisdictions. Tax competition is salutary and limits the degree to which governments can impose unwarranted taxation.

The best means of achieving these goals is to replace the current patchwork of international agreements with a well-considered, integrated international Convention that ensures robust information sharing for the purposes of preventing terrorism, crime and fraud but also provides enforceable legal protections for the financial and other privacy interests of member states’ citizens and the legitimate commercial interests of their businesses.

Membership in this Convention should be restricted to governments that are (1) democratic, (2) respect free markets, private property and the rule of law, (3) can be expected to always use the information in a manner consistent with the security interests of the member states and (4) have in place ─ in law and in practice ─ adequate safeguards to prevent the information from being obtained by hostile parties or used for inappropriate commercial, political or other purposes.

Such an arrangement would facilitate law enforcement and anti-terrorist aims by allowing more information to be exchanged safely and more expeditiously. It would also provide, for the first time, enforceable legal protections for the rights of citizens of the member states.

 - David Burton is a senior fellow in the Roe institute for economic policy at the Heritage Foundation.