With AML/CFT blacklists, devil is in the details
Finding global common ground on the best approach to AML Compliance remains a challenge as evidenced by the rejection by EU lawmakers of a revised blacklist of countries at high risk of facilitating money laundering or terrorist financing. Ten countries were on the list, but a majority of EU lawmakers argued that there were many more than needed to be added—especially nations with a reputation for being tax havens.
A Reuters report on Jan. 19 noted that countries on the rejected list include Iran, North Korea, Afghanistan, Bosnia and Herzegovina, Laos, Iraq, Syria, Uganda, Vanuatu and Yemen. The vote to reject this list—393 yays to 67 nays with 210 abstentions—illustrates the wide divide in determining the best approach.
The vote in part was a rejection of the status quo, because the previous list—still in force—was nearly the same. The currently active list of nations requiring additional AML attention includes those 10 countries plus Guyana, which has been credited with tightening its AML laws and so was omitted from the rejected list.
The vote illustrates the tensions among competing views in AML enforcement. A large majority can get behind efforts to shut down obvious avenues of terror funding, but issues like crackdowns on tax avoidance prove pricklier. Lawmakers who led the effort to reject the list seek the addition of countries like Panama, whose regulatory environment greatly facilitated corrupt practices exposed by the Panama Papers leaks.
Revelations about the magnitude and players involved in tax-avoidance schemes have revved up public pressure to boost enforcement, and the EU has committed to creating a blacklist of tax haven locations by the end of 2017. However, past efforts have illustrated the political nature of this exercise and the competing interests at play, as detailed in this 2015 op/ed from The Economist.
The EU committed in April of last year to produce a tax-haven blacklist, but reaching agreement will not be easy. Currently, member states make their own lists and determine whether to impose restrictions. This approach drew public ire after the Panama Papers revealed the extent to which people with wealth and power—a number of them politicians—take advantage of tax-avoidance havens.
CARICOM, an association of Caribbean states, has pushed back strongly against the creation of this type of EU list, asserting that such a list is a reactionary response that would be very detrimental and is on its face unfair: “As more disclosures unfold with respect to the leak of these [Panama Papers,] CARICOM urges caution by those making the leap towards moral indignation and the unjust labeling of the financial services centers in the Community, which have taken all necessary steps to ensure compliance with international regulations and standards.”
One of the harsh realities in the Caribbean region has been the act of indiscriminate de-risking, a much-criticized practice in which some financial institutions in heavily regulated locations like the U.S. and Europe simply refuse correspondent banking relationships with financial institutions in a whole region or sector. This practice can be devastating—and it does not take into account the AML/CFT practices of individual institutions, which may be practicing the highest standards of AML Compliance but are penalized anyway.
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