The absence of Commissioner Jourova in the special Commission on financial crimes (TAX3), is completely unjustified

GUE / NGL MEP Paloma López (Izquierda Plural), member of the TAX 3 Special Committee, who was to intervene during the exchange of views with Věra Jourová, Member of the European Commission responsible for Justice, Consumers and Gender Equality, considered that the absence of the commissioner was completely unjustified and inadmissible.

Paloma López believes that the absence of the Commissioner sends a very negative message about the commitment of the European Commission in the fight against fraud, evasion and tax avoidance. As a result of the unrest, a large majority of deputies have decided to postpone the session. See the video of the aborted session here.

Commissioner Jourová had to discuss in this session relevant questions about the process of creating a high-risk third country list for money laundering and terrorist financing and the concerns regarding the deadlines offered by the Commission to make this commitment effective; as well as on the lack of resources that the Commission has been given to address this important challenge; likewise, the Commissioner was going to be asked to explain the absence of a detailed criteria for the preparation of such list.

Given the crucial moment in the fight against tax havens and against the practices of money laundering, tax evasion and tax avoidance, the absence of the Commissioner is a bad sign that MEP Paloma López felt obliged to point out and denounce.

The highly relevant above-mentioned topics that were going to be discussed with Commissioner Jourouvà are described underneath.

 

High risk third country list for the purposes of anti-money laundering and countering the financing of terrorism

The current international high risk third country list is that of FATF/GAFI, which lists countries that require action (currently in FATF’s blacklist: Democratic People’s Republic of Korea (DPRK) and Iran), and monitored jurisdictions (currently in FATF’s grey-list: Ethiopia, Iraq, Serbia, Sri Lanka, Syria, Trinidad and Tobago, Tunisia, Vanuatu, Yemen). The list is based on peer reviews, but is highly controversial as it has resulted in an international political list rather than in a list of high risk third countries for money laundering and terrorist financing.

The Fourth Anti-Money Laundering Directive (AMLD), adopted in 2015, requested that the Commission create a list of high-risk third countries for the purposes of anti-money laundering and countering the financing of terrorism (AML/CFT). The Delegated Regulation 2016/1675 implements such proposal.

The Commission’s list is a close copy to the FATF one, listing: Afghanistan, Bosnia and Herzegovina, Guyana, Iraq, Lao PDR, Syria, Uganda, Vanuatu, Yemen, Ethiopia, Sri Lanka, Trinidad and Tobago, Tunisia, as well as Iran and the Democratic People’s Republic of Korea (DPRK).

The Commission’s proposed amendments to the Delegated Regulation of the Commission’s list of high-risk third countries under the 4th AMLD was rejected by the European Parliament on a couple of occasions. Such objections were initiated by GUE/NGL on the grounds that the Commission was only using the high-risk AML/CFT list produced by the Financial Action Task Force (FATF). The majority of political groups agreed with GUE/NGL’s argument that the FATF listing process was insufficiently robust, and resulted in a small and inaccurate list that excluded many of the world’s most notorious secrecy jurisdictions and tax havens.

In February 2018, GUE /NGL objected to the inclusion of Tunisia.

The Commission’s proposal, following the Parliament’s two previous objections, commits them to form their own list for assessing the 200-plus FATF members, based on:

  • the FATF assessments;
  • the economic relevance of the country in terms of its relations with the EU;
  • the tax haven blacklist;
  • all relevant additional information on AML/CFT and risk from Europol; and
  • all relevant additional information on AML/CFT and risk from the European External Action Service (EEAS).

The criteria the Commission will use in assessing the level of risk will be based on Article 9 of the fourth AMLD. It will include, inter alia:

  • the AML/CFT legislative framework and regulatory framework of the country;
  • how they work with the EU on cooperating on sanctions;
  • how they have implemented existing customer due diligence obligations,
  • how they operate their banking systems,
  • how they react to suspicious transaction reports.

As well as this proposed new methodology, the Commission has proposed a two-phase roadmap. The first step in the roadmap for implementation is to identify the most relevant countries to assess, using the FATF list as a starting point but also the additional criteria listed above in order to develop a more accurate list than the FATF list.  Once identified, this priority list will not be static but a living list that can be added to. The second phase of the roadmap is to complete its Priority 2 assessments by the end of 2025.

GUE/NGL members in ECON, while broadly welcoming the Commission’s commitment to carrying out its own independent assessment process, raised several problems with the new proposal last year:

  • The Priority 2 list is not proposed to have been completely assessed until the end of 2025, an extremely long timetable for implementation;
  • We are still lacking adequate specific detail about the criteria that will be used in assessing the list;
  • There will still be a reliance on the FATF list as the starting point, which is inadequate;
  • The proposal still excludes EU states (it’s designed as a ‘third-country’ list);
  • We and other groups have serious concerns about the very limited human resources allocated by the Commission to this assessment process.

Our opposition to the very long time frame is shared by most other political groups. GUE/NGL proposed in the joint LIBE/ECON committee for the Priority 2 list assessment process to be completed by 2020 instead of 2025. An amendment which was adopted in committee.

In February this year, the final outcome of the trilogue negotiations on the 5th AMLD resulted in the EP’s position on the high risk third country list being watered down; references to actual administrative practices, whistleblower protection or political independence of competent authorities were deleted as was the part demanding these be taken into account when negotiation free trade agreements. However, Beneficial Owner transparency and an effective sanction regime as quality indicators remained in the text.

Regarding the final outcome of the 5th AMLD, GUE/NGL MEPs voted in favour of the ECON/LIBE report  in 2017, and abstained on the final agreement in January 2018 due to the significant weakening of the report in trilogues.

The fact that registers of beneficial owners of companies will now have to be available to the public is a significant step forward, and at certain points during the negotiations appeared as though it would not be won. This will reduce the ability of individuals and corporations to use shell companies in the EU. However, the threshold for beneficial ownership is too high at 25% (and while the Parliament’s position was better at 10%, tax justice and transparency advocates argue that a single share should be enough to constitute beneficial ownership). Senior managers will still be allowed to be listed in beneficial ownership registers where the real owner is not known, maintaining another important loophole.

Moreover, the fact that journalists and NGOs will have to file a written request to prove a ‘legitimate interest’ in getting access to details of the beneficial ownership of trusts is the most significant remaining loophole. Trusts and similar instruments can facilitate tax evasion and money-laundering and were revealed as very common instruments for doing so in the Panama Papers, Paradise Papers and other leaks.

The other key problem is that the outcome of the interinstitutional agreement maintains the position of the fourth AMLD that tax offences will not automatically be considered to be a predicate offence to money laundering; it will only be considered to be a predicate offence if sanctions are imposed in the relevant Member State.

Implementation of the AMLD by EU Member States

Regarding the implementation of the AMLD by EU Member States, the PANA Inquiry Committee revealed a series of problems that were highlighted in the Findings Report voted in the Committee in October 2017:

  1. Expresses its concern at the low level of compliance by some EU Member States with international AML/CFT standards, as showed in FATF or Moneyval peer reviews; highlights that infringement letters were sent to 22 Member States for failing to implement AMLD III and that six Member States (Belgium, France, Spain, Ireland, Poland and Sweden) were referred to the European Court of Justice in October 2008; notes that the Polish case was withdrawn but that the other five Member States were sanctioned for failing to implement the directive on time; stresses, however, that this raises questions as to whether infringement procedures are sufficient to verify the quality of implementation by Member States;
  2. Concludes that by not responding adequately to these shortcomings, Member States have failed to enforce AMLD III effectively; is seriously concerned that by not empowering FIUs to cooperate as foreseen in AMLD III, Member States have breached Article 4 of the TFEU on sincere cooperation[1]; points also to the fact that the Commission has potentially failed to enforce these provisions by not initiating infringement procedures;
  3. Notes that some Member States have frequently recurred to tax amnesties for the regularisation of undeclared assets held offshore, which has whitewashed possible ill-gotten assets and prevented proper money laundering investigations in their jurisdictions;
  4. Regrets that the Commission, owing to a lack of staff, has failed to carry out proper supervision of AMLD implementation in the Member States; notes also that the Commission has failed to conduct an independent assessment of the EU anti-money laundering list of high-risk third countries;

 

[1] ‘Fighting tax crimes – ‘cooperation between Financial Intelligence Units’, Dr Amandine Scherrer and Dr Anthony Amicelle, European Parliamentary Research Service (EPRS), March 2017.