The “blacklist” of tax havens and the coexistence of regulations.

The latest update of the EU list of non-cooperative countries and territories has been published, increasing by three jurisdictions to a total of twelve.

As has become customary since 5 December 2017, when the European Union’s list of “non-cooperative countries and territories for tax purposes” was first published, there have been regular entries and exits in this classification, including those that have taken place so far in 2022.

This “blacklist”, which is compiled by the Council of Europe, was created with the aim of promoting fair international tax competition by combating harmful tax practices. The “cooperative jurisdictions” must pass a test based on a number of criteria such as tax transparency, with the obligation to be able to exchange tax data with all EU members, as well as the identification of beneficial owners and the commitment to adopt anti-BEPS measures as a harmful tax planning strategy that uses regulatory gaps between different national systems to erode corporate tax bases.

In order to maintain not only a list of non-cooperative countries and territories, but also the status of those that are implementing the measures committed to with Brussels, the Council publishes biannual reports, in February and October, with its main conclusions on governance and tax transparency.

Following the latest update last October, the “blacklist” is composed of the following countries and territories: American Samoa, Anguilla, The Bahamas, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, Turks and Caicos Islands, US Virgin Islands and Vanuatu.

Thus, Anguilla, the Bahamas, and the Turks and Caicos Islands have been added to the list, the latter being the first time it has been listed.

The common denominator between these three jurisdictions is that with zero or nominal corporate tax rates, they are attracting profits with no real economic rationale.
There is no shortage of those who advocate extending the European list to include territories that are understood to hinder tax transparency and fairness, such as Gibraltar, the Cayman Islands and the United Arab Emirates. It is also known that some US states, such as South Dakota and Wyoming, are introducing legislative amendments to strengthen financial secrecy with the apparent sole purpose of increasing taxable income from other countries.

Spain, for its part, has its own list of non-cooperative jurisdictions included by Ministerial Order. Although it is true that after joining, they can eventually leave the list, losing tax haven status must be preceded by some “gesture” on the part of the jurisdiction in question, such as the signing of an agreement that includes the reciprocal exchange of tax information with Spain, as is the case, for example, of the Republic of Cyprus, Panama and the Sultanate of Oman.

Panama has developed a manual to facilitate compliance by non-financial actors with their control obligations, all within the standard AML/CFT compliance framework. However, the EU, in contrast to Spain, continues to keep Panama on its blacklist. This is due to the wide margin for manoeuvre at the national level, despite the European directives on the matter. In practice, very different regulatory frameworks coexist. For example, the recent measure announced by the Italian Prime Minister, Giorgia Meloni, to increase the limit for cash payments to €10,000, while in Spain it is one tenth of that in Panama.

In a similar vein, one of the majority trade unions of Spanish tax technicians (Gestha) has come out in favour of the inclusion of Cyprus, Ireland, the Czech Republic, Luxembourg and Andorra as tax havens, as they are territories with low or zero taxation, and all of this as a result of the controversy caused by the change of residence of some “youtubers” to Andorra.

And it remains to be seen how the AMLA (the European anti-money laundering authority) will fit in with the different national systems. Everything suggests that the AMLA will only supervise large institutions at the European level, leaving the rest of the cases to the local authority.

There has also been talk of the possible role of the AMLA in monitoring the sanctions imposed on Russia in connection with the invasion of Ukraine, but the truth is that there is still much work to be done in terms of coordination within the EU, as shown by the complaints filed by the Czech Republic against Cyprus for not providing information on the Russian owners of Cypriot companies for freezing the assets of the sanctioned individuals.

As if this tangle of regulations and supervisors were not enough, the Financial Action Task Force (FATF), the intergovernmental body dedicated to the fight against money laundering and terrorist financing, has just updated its own list of high-risk jurisdictions to include the Democratic Republic of Congo, Mozambique and Tanzania.
Indeed, companies and individuals from EU countries have been involved in money laundering cases. In a context where between 2% and 5% of the world’s GDP is laundered every year – according to the United Nations Office on Drugs and Crime (UNODOC), preventing and combating AML/CFT has become a duty and an objective of national and supranational institutions.

Law firms are key players in this task, not only to identify the client, the origin of his funds and the economic rationale of the operation, but also to assist our clients in the preparation of forensic files and reports, thus complying with the increasing protocols and standards expected by national and supranational regulators.

A law firm’s role can also extend to assisting a company in uncovering and documenting the extent of any alleged wrongdoing. For example, in one of the largest terrorist financing cases ever known, the Swiss group that owns the cement company Lafarge commissioned a US law firm to investigate allegations against the cement company about paying the Islamic State (ISIS) faction in Syria to continue operating its cement plant in the country.