By Samantha Sheen, AML Director Europe, ACAMS
16 February, 2017

“What you do speaks so loud I cannot hear what you say”. Ralph Waldo Emerson

For those of you who’ve been monitoring the developments around the 4AMLD, you’ll be aware that the European Parliament (“EP”) and its various committees were busy during November and December of last year looking at proposed amendments (the “5AMLD”) and other developments.

List of High Risk Third Countries with Strategic Deficiencies

Perhaps one of the most interesting developments was a resolution passed about the list of high risk third countries with strategic deficiencies (“High Risk Countries List”).

AML Practitioner’s Tip

From an AML practitioners’ standpoint, lists of this nature can be useful in gauging regulatory expectations as to when they think enhanced customer due diligence measures should be applied.

However, when the first High Risk Countries List was issued by the European Commission (“EC”), it looked very similar, if not identical, to FATF’s high risk and non-cooperative jurisdictions that it publishes each quarter following its plenary sessions. In fact, it was so similar that some people questioned why the EC had gone to the trouble of introducing its own separate list in the first place.

It appears that Europe’s MEPs were asking the same question.

In mid-December 2016, a resolution was passed by the EP, in which it essentially said, “Nice try. Now go back and prepare this list properly”.

The recitals to the resolution (which are essentially a summary of the factors taken into account in introducing the proposed resolution), record that:

  • The High Risk Country List was introduced as part of the 4AMLD and was not intended to be  limited to the FATF’s Recommendations (and by extension its list of high risk and non-cooperative jurisdictions);
  • The assessment of countries named on the High Risk Country List must be based on the criteria set out in Article 9(2) of the 4AMLD;
  • The criteria in Article 9(2) was not intended to be exhaustive. Other predicate offences such as tax crimes should be taken into account as part of the assessment process to decide which jurisdictions should be named on the High Risk Country List; and
  • The EP therefore expects the EC to conduct its own assessment and avoid relying on external information sources alone (i.e. the FATF list mentioned above).

The EP has now asked the EC to submit a new delegated act that takes account of the above factors, and come back with something that reflects these.

Bad Tax List Next on the Chopping Block?

It’s also possible that the EP could also raise objections about another list.

In July 2016, the EC proposed a series of amendments to the 4AMLD and several related Directives. One of the driving forces behind these amendments was to address the misuse of international finance centres (often referred to as ‘tax havens’). The idea was that those countries who refused to engage in the screening and assessment process developed by the EC could find themselves named on a list of uncooperative jurisdictions (“Bad Tax List”).

Until recently, there has been limited information published about the measures that will be used against countries who refuse to play ball, so to speak. Despite the fact that being named, on such a list, on its own, can often incentivise uncooperative countries, further sanctions are also being considered.

At its final 2016 meeting in December, the Committee on money laundering, tax avoidance and tax evasion (the “PANA Committee”), Commissioner Pierre Moscovici was invited for an exchange of views. The questions put to him concerned the Bad Tax List and its use as a means to tackle tax evasion. And those views included that additional sanctions, on top of being “named and shamed” on the Bad Tax List, should also be imposed on them by the EU Member States. These could include imposing withholding taxes on all financial transfers from the EU or restricting access to EU financial markets and intermediaries. The vice-chair of the Pana Committee, MEP Fabio De Masi, went so far as to suggest that banking institutions active in a country named on the Bad Tax List should lose their licences where they also operate in the EU.

There are signs that the Bad Tax List and the criteria on which countries will be named on it, might still be subject to further change. For example, when the EC first reviewed the listing criteria, it deleted an assessment criteria which would have, effectively, ranked all countries offering zero (0) or no corporations’ tax, as high risk.

But given the EP’s intervention with the 4AMLD’s High Risk Countries List, I think there’s another area where there’s a good chance the EP might also intervene with the Bad Tax List. Here’s why.

Perhaps the thing that seems the most unfair about the Bad Tax List is that existing EU Member States are excluded from the assessment process (i.e. none of them will appear on the List). Given the allegations published last month claiming that Jean-Claude Juncker spent years, secretly blocking EU efforts to tackle tax avoidance during his tenure as Luxembourg’s prime minister and minister of finance, the exclusion does seem a bit curious.

With MEP De Masi referring to Juncker as, “the godfather of tax dumping presiding over the EC” and the number of EU Member States referenced in the Panama Papers findings, I have a funny feeling that the EP could decide to revisit EU Member State exclusion from the Bad Tax List assessment process.

It’s hard to convince people to buy into a process and convince them that it is the right thing to so, if you aren’t prepared to also participate. At the end of the day, it could be misunderstood as the EU simply saying, “Do as we say, but not as we do”.

Many thanks to Guengl.eu for their coverage of debate on some of the matters covered in this article such as: http://www.guengl.eu/news/article/gue-ngl-news/juncker-leaks-gue-ngl-demands-commission-president-to-step-down