Today AML/CFT is one of the subjects on the agenda of the European Parliament, (source):

MEPs set out their priorities to fight tax abuse and money laundering
MEPs will debate on Wednesday and vote on Thursday on their recommendations sparked by the evidence uncovered by the Pandora papers and other data leaks.
The report calls for the quick adoption by the EU of already-proposed legislation, and a greater commitment to correctly implementing and enforcing existing agreements. MEPs also call for more reforms, such as more effective measures to deal with practices used to attract foreign wealth through tax schemes, and taking into account the existence of digital nomads.
The recommendations are the result of work carried out by the European Parliament’s tax matters subcommittee, which held a number of public hearings and undertook fact-finding visits to various European countries.

Further information
* Steps of the procedure
* Press release following the committee vote (21 March 2023)
* Press release on the work of the subcommittee on tax matters

According to the agenda of the Parliament the report will be discussed today between 13 and 22 hour.

Pandora report

In March this year I wrote on the draft report. Unfortunately, I could not find the final report at the time. Today it looks like the final version has been published here. The report still suggests there are a lot of Europeans in de Pandora Papers and that they were all having illegal activities, though other sources say that these Papers are of limited importance for Europe. The Pandora report contains all sorts of elements relevant for AML/CFT.

Some topics in the final report (marking by me):

• On the ‘enabler’ proposal (article):

33. Highlights the limitations of self-regulation of the non-financial intermediary sector; welcomes the fact that the Commission is preparing a new legislative proposal on regulating intermediaries through an act securing the activity framework of enablers in order to tackle the role of enablers involved in facilitating tax evasion and aggressive tax planning; urges the Commission to ensure that the framework includes robust enforcement against intermediaries creating and operating schemes which enable tax evasion and aggressive tax planning, as well as facilitating and contributing to the concealment of wealth and assets; in this context, urges the Commission to continue to improve information-sharing among Member State tax administrations and cooperation on the global stage; awaits the Commission proposal, which should be targeted and proportionate; (…)

68. Calls on the US Congress to pass the bill for the Establishing New Authorities for Businesses Laundering and Enabling Risks to Security Act (ENABLERS), which would require the non-financial and intermediary sector to carry out due diligence obligations on their customers, as recommended by Financial Action Task Force (FATF) standards;

 

• On ‘high-net-worth individuals’ (sounding as if they are all criminals or potential criminals):

34. Highlights the Directive on Administrative Cooperation (DAC8) proposal from the Commission, which extends the automatic exchange of advance cross-border rulings in DAC6 to cover high-net-worth individuals; emphasises the importance of honest and fair cooperation between national tax authorities to make the system of exchange of information failproof; (…)
37. Takes note of the fact that, as the Pandora Papers have exposed, schemes to shield the assets of high-net-worth individuals from state authorities through corporate offshore services have become highly sophisticated; notes that the revelations showed how wealthy individuals pay little to no taxes by changing their country of tax residency and reallocating capital across borders; (…)
41. Observes, in parallel, a trend for countries, including EU Member States, to adopt legal frameworks designed to attract high-net-worth individuals, foreign pensioners and highly skilled workers to invest or live in their territory, notably granting them generous tax benefits and exemptions which do not apply to nationals, in addition to offering golden visas and selling citizenship opportunities; points out that these kinds of opportunities may have benefited Russian oligarchs who have since had targeted sanctions imposed on them; (…)
45. Notes that governments generally use two instruments to attract taxpayers and mobile tax bases for personal income and wealth taxation: (top) tax rates and preferential tax arrangements targeted at income- and wealth-rich foreigners;
46. Takes note of the increasing number of tax regimes in EU Member States which aim to attract foreign ‘digital nomads’, high-net-worth individuals or pensioners; notes that some tax regimes present significant potential for abuse, which erodes the tax bases of other countries; highlights that, according to research by the EU Tax Observatory, many Member States have specific tax regimes designed to attract foreign-earned income or wealth which, according to the researchers, pose varying degrees of harmfulness;
48. Is concerned that there is considerable scope for harmful competition in this field and widening social and economic inequalities, as tax-induced mobility is high among income – and wealth-rich taxpayers – and non-mobile income earners end up paying proportionately higher taxes than mobile income earners; (…)
50. (…) notes that personal income tax is the biggest source of tax revenue for most EU Member States;

 

• On real estate:

53. Notes that real estate has been widely misused for money-laundering and tax-evasion purposes, as revealed by the Pandora Papers; notes, furthermore, that real estate taxation in the EU is not at all coordinated; notes with concern the sharp increase in real estate prices in the EU and the financialisation of housing; is concerned about the potentially distortive effect of regimes providing for low-tax real estate investment funds; calls on the Commission to assess the impact of a lack of coordination of real estate taxation in the EU, as well as the impact of low-tax regimes, on the financialisation of the housing sector; recalls the important role of national digital land registers in strengthening the fight against tax crime across the EU;

 

• On the AML Package and other AML/CFT topics

Many references, especially in paragraphs 54 and further, e.g.:

• • • Paragraphs 55 and 56 cover ‘unexplained wealth’ and freezing and seizing assets of sanctioned persons and criminals, with the risk that fundamental rights are violated when the requirement of “reasonably suspected of being involved” is not met.
    • Paragraph 58 asks for strengthening tools for authorities to access information on ownership of specific high-value assets.
    • Improvement of the beneficial ownership (‘BO’) registration and of BO information (‘BOI’) are topics of paragraphs 59-61, 63, 64, 73. (It is unclear what paragraph 73 is referring to.)
    • According to the report there exist ‘anonymous’ companies in the EU, paragraph 62. Surprising.
    • Blacklisting of countries, e.g. paragraph 57, 65, 67, 72, 75-79. In paragraph 77: “recalls that the Council seems sometimes to be guided by diplomatic or political motives rather than objective assessments when deciding to move countries from the ‘grey list’ to the ‘black list’ and vice-versa“.

• Nothing about unlawful US practices (FATCA, CBT, FBAR, etcetera)

In paragraph 66 the rapporteurs ask the US to join the OECD Common Reporting Standard (CRS) without mentioning the detrimental effects of the FATCA-treaties the US has concluded with all member states of the European Union, and without mentioning the US system of Citizenship-Based Taxation (CBT) that through these treaties and through the American FATCA act is has been imposed on EU residents with U.S. citizenship

• Other missing topics

In regard of AML/CFT a lot is missing, for example:

• • • The practicality of the rules for obliged entities that are not all banks with large legal departments.
    • The too rapid changes in European and national regulations, making it impossible for member states and obliged entities to understand and implement the regulations.
    • Registering natural persons as BO when they can already be found in the trade register in other capacities (e.g. managing directors).
    • The lack of integrity testing of organizations and their collections of personal data (like Open Ownership), their personnel and individuals (like journalists) claiming to be allowed to process personal data of BOs and other persons for the purpose of fighting crime.

Final remark

The report’s lack of realism and knowledge of national practice is worrisome and a harbinger of poor regulation.

More information:

• Final version of the Pandora report: here.
• Procedure file European Parliament regarding the Pandora report 2022/2080(INI): here.