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EU publishes list of ‘uncooperative’ tax jurisdictions, expands controversial AML blacklist

Thursday, December 7, 2017   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
bmonroe@acfcs.org
December 6, 2017

The European Union this week published its first-ever list of “non-cooperative” tax jurisdictions, eventually naming more than a dozen countries for a bevy of different tax-related failures, including facilitating offshore structures, not participating in global information sharing agreements or having “harmful preferential tax regimes,” among others.  

In total, ministers have listed 17 countries for failing to meet internationally agreed standards on good tax governance. An additional 47 countries have committed to addressing key deficiencies in their tax systems and to update policies, practices and procedures to better meet the required metrics, following discussions with EU authorities, lest they find themselves listed. To read the full list, please click here.

The countries named include some considered classic tax and secrecy havens, including Panama, Barbados and St. Lucia, but also includes many other smaller countries not usually mentioned in the same breath as tax abuse, such as Bahrain, Guam, Mongolia, Namibia, just to name a few.

The other 47 countries that have pledged to raise standards include many developing countries and up and coming jurisdictions who would want to keep any positive economic momentum going, including Armenia, the Maldives, Hong Kong, Oman, Taiwan, and others.

This week also saw European Commission parliamentary officials expand a second, separate controversial proposed blacklist tied to countries considered to be at a high-risk for money laundering or with perceived weak anti-money laundering (AML) defenses. Weaknesses can come in either implementation of regulation or effectiveness in carrying out enforcement. The effectiveness standard has previously been shot down by fearful member states.

Fully cognizant of the leaks in recent years – the most recent “Paradise Papers” and last year’s “Panama Papers” - and a spate of terror attacks in Europe, the United Kingdom and elsewhere, EU officials have taken a tougher stance on what the final form of the AML blacklist should look like and what sanctions should be available to force compliance.

The EU officials also stated that the leaks from shadowy law firms and company services providers – and the powerful politically-exposed persons, criminal and terror groups and rogue regimes they shielded – hastened the creation of the new EU tax list.

The new list is an “unprecedented exercise” and “should raise the level of tax good governance globally and help prevent the large-scale tax abuse exposed in recent scandals,” according to the EU Commission.

 “The adoption of the first ever EU blacklist of tax havens marks a key victory for transparency and fairness,” said Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, in a statement. 

“But the process does not stop here,” he said. “We must intensify the pressure on listed countries to change their ways. Blacklisted jurisdictions must face consequences in the form of dissuasive sanctions, while those that have made commitments must follow up on them quickly and credibly. There must be no naivety: promises must be turned into actions. No one must get a free pass.”


So what is the difference between the list of non-cooperative tax jurisdictions and the EU anti-money laundering blacklist? Here is the answer, straight from the EU Commission:

The anti-money laundering (AML) list is focused on countries with poor anti-money laundering and counter-terrorist financing regimes. It reflects the Financial Action Task Force (FATF) approach to dealing with countries that have not implemented internationally agreed anti-money laundering standards. Banks must apply higher due diligence controls to financial flows towards these listed countries.

The EU tax list targets external risks posed by countries that refuse to respect tax good governance standards. It has different objectives, different criteria, a different compilation process and different consequences to the AML list. Nonetheless, the two lists will complement each other in ensuring double protection for the Single Market against external good governance risks.


EU Tax list informed by global watchdog groups

The lists were created, and informed, by various other tax and financial crime watchdog groups, including the Organsation for Co-operation and Development (OECD) and Paris-based Financial Action Task Force (FATF), which sets global financial crime compliance standards.

The EU stated that will be more intensively monitor the 47 countries that pledged to improve their standards and ensure they follow through on those promises by the end of next year, while the lens of scrutiny will quickly swing over to “developing countries without financial centers to avoid being listed,” by as soon as 2019.  

The Commission also “expects Member States to continue towards strong and dissuasive countermeasures for listed jurisdictions which can complement the existing EU-level defensive measures related to funding.”

To nudge these jurisdictions to improve their tax compliance practices, the EU is urging other countries to engage varying degrees of these “defensive measures” tied to tax and non-tax areas, but is also giving jurisdictions to freedom to come up with their own, impartial and what they feel is proportionate dissuasive actions.

Some examples of these defensive measures include making it harder to get foreign funding, more monitoring of transactions from the named jurisdictions, more auditing of individuals and companies from those regions and special documentation requirements. 

The possible defensive measures also include targeting the companies that are engaged in forming anonymous corporate entities, particularly when they are engaging in international transactions.

One defensive measure is aimed squarely at scenarios where one country, fearing the potentially abuse tax practices of another country, chooses to require “mandatory disclosure by tax intermediaries of specific tax schemes with respect to cross-border arrangements.”

As far as the EU listing and de-listing process for tax issues, there are several steps.

As a first step, a letter will be sent to all jurisdictions on the EU list, explaining the decision and what they can do to be de-listed.

The Commission and Member States will then continue to monitor all jurisdictions closely, to ensure that commitments are fulfilled and to determine whether any other countries should be listed in the future.

A first interim progress report should be published by mid-2018. The EU list will be updated at least once a year.

AML list to expand, include effectiveness, beneficial ownership

As for progress on the creation of an EU AML blacklist, that initiative also moved forward, getting far more rigorous for any countries that happen to get into the commission’s crosshairs.

MEP Peter Simon, the vice chairman of the European Parliament’s Economic and Monetary Affairs Committee, revealed details of the suggested new list during discussions in Brussels this week, noting that the plan is not to shrink a prior list, but expand it.

The list requires firms regulated under the Fourth Anti-Money Laundering Directive to apply enhanced due diligence on customers linked to named jurisdictions.

The current plan for the first AML list is to name Afghanistan, Guyana, Laos, North Korea, and in this hearing the plan is also to add Ethiopia, Sri Lanka, Trinidad and Tobago and Tunisia.

In early 2017, the proposed EU AML blacklist included North Korea, Iran, Afghanistan, Bosnia and Herzegovina, Iraq, Laos, Syria, Uganda, Vanuatu and Yemen.

Commissioner Vera Jourova said the finalized EU AML blacklist will “send a strong message” that countries flouting international financial crime standards, and the criminal and terror groups that fester there, will not be welcome in the bloc or its financial system.

Jourova, on the Justice, Consumers and Gender Equality Committees, also laid out several criteria about how the “autonomous” list will be crafted.

She stated it will be efficient, responsive and dynamic, in some cases changing quickly when there are emergency situations in regions or significant, unexpected concerns that come up suddenly, which will then be woven into the current ongoing country assessment schedule.

The first group of countries that will be reviewed for AML and terror finance concerns will be those with significant economic relevance, large economies and those with close economic ties to the EU.

Next will be countries identified by Europol and external action groups as presenting “specific money laundering and terrorist financing risks,” including countries not reviewed by FATF, she said.

'No blind spots'

“We need to be sure we do not have blind spots,” she said at the hearing, adding that at any time the current list can be expanded to ensure it covers the most current and relevant financial crime risks to the EU. At the earliest, the full, update list is expected late next year.

As for the priority of which countries get assessed first in that subset, countries will be parsed out first if they are already listed under the just-announced tax blacklist, next will be countries that have already been identified by FATF as lacking adequate laws and implementation effectiveness, Jourova said.

Next will be countries “already exposed to criminal of terrorist threats,” as identified by Europol and partner agencies, she said.

Lastly, the EU would assess countries recently de-listed by FATF to “determine whether the FATF de-listing is sufficient to engage de-listing from the EU list. We are already doing that now,” Jourova said.  

The commissioner saved her most impassioned plea for speaking about how beneficial ownership will play into the assessment equation, a major focus in recent years under the latest EU AML Directive, and in the United Kingdom and, to a lesser degree, the United States.

“We will also consider the criteria of beneficial ownership when making this assessment,” she said. “We have no tolerance any more for any countries facilitating the use of opaque structures. Those times are over and the EU must lead by example by going further than other” international watchdog groups, such as the G8, G20 and FATF.

The requirement that the European Commission draw up a blacklist list of high-risk non-EU countries falls under a delegated act to the 4th Anti-Money Laundering Directive, which is currently undergoing amendment. 

EU officials in plenary rejected two previous versions of the European Commission blacklist, because it failed to include countries which were suspected of being involved in tax crimes and because of disagreements over what sanctions would be available for named regimes and how they should be enforced, along with their closeness to current FATF lists.

The FATF register includes countries such as North Korea and Iran, but does not include jurisdictions such as Panama or the Bahamas because the list focuses more on AML and terror risks, not tax and secrecy haven status. 


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