The FATF the List of Non-cooperative Countries and Territories
The Financial Action Task Force on money-laundering (FATF) has announced the results of its discussions on 'non-cooperative' jurisdictions since the publication of its second report on non-cooperative countries and territories (NCCTs) in June 2001.
First, the FATF reviewed the status of legislative efforts by the Governments of Russia, Nauru and the Philippines, which had been notified in June that failure to enact significant anti money-laundering legislation by 30 September 2001 would result in the imposition of counter-measures by FATF members. In summary:
Russia enacted significant legislation over the summer so the FATF will withdraw its call for members to initiate additional counter-measures with respect to this jurisdiction, though it remains on the NCCTs list
Nauru enacted an anti money-laundering Act on 28 August 2001. However, this new legislation is found to have several deficiencies and does not address the major money-laundering problem in Nauru
The Philippines has still not enacted long-awaited and necessary legal reforms. Accordingly, the FATF renewed its call to its members to implement additional counter-measures.
Having completed the review of several jurisdictions, the FATF added two countries - Grenada and the Ukraine - to its NCCTs list because each of these two countries was found to have serious deficiencies in its anti money-laundering regime.
While some countries identified as non-cooperative have begun to take action to change laws and regulations, the FATF is not yet satisfied that any country on the list has both enacted and implemented all the necessary reforms. No country is therefore removed from the list of NCCTs. The updated list of NCCTs is as follows: Cook Islands; Dominica; Egypt; Guatemala; Grenada; Hungary; Indonesia; Israel; Lebanon; Marshall Islands; Myanmar; Nauru; Nigeria; Niue; Philippines; Russia; St. Kitts and Nevis; St. Vincent and the Grenadines and Ukraine. The FATF calls on its members to request their financial institutions to give special attention to businesses and transactions with persons, including companies and financial institutions, in these countries or territories. (www.oecd.org/fatf/).
See for the original document: http://www.oecd.org/fatf/pdf/NCCT2001_en.pdf
US: Four FinCen Advisories withdrawn
The US Department of Treasury Financial Crimes Enforcement Network (FinCen) has withdrawn its Advisories in respect of the Bahamas, Cayman Islands, Liechtenstein and Panama. The Advisories were to inform banks and other financial institutions operating in the US of serious deficiencies in the counter money-laundering systems of the named jurisdictions. As a result of these deficiencies, enhanced scrutiny should be given to certain transactions or banking relationships involving the named jurisdictions, in the light of the suspicious transaction-reporting obligations of financial institutions operating in the US.
The move to withdraw the Advisories follows the de-listing of the four jurisdictions as non-cooperative countries by the Financial Action Task Force on money-laundering. FinCen said the Bahamas, Cayman Islands, Liechtenstein and Panama had enacted significant reforms to their counter money-laundering system and taken concrete steps to bring them into effect. Because of the enactment of new laws and the beginning of effective implementation, enhanced scrutiny with respect to transactions involving them is no longer necessary.
The four jurisdictions now have in place a counter money-laundering system that generally meets international standards, as reflected in the recent decision of the FATF to remove them from its list of countries that are non-cooperative in the fight against money-laundering.
But the withdrawal of the Advisories does not relieve institutions of their pre-existing and ongoing obligation to report suspicious activity as well as their obligation to comply with all other applicable provisions of law. And for Panama, with respect to transactions involving the Colon Free Zone, reference is made to Advisories 9 and 12 relating to the Black Market Peso Exchange.
FinCen Advisories remain in place for: the Cook Islands, Dominica, Israel, Lebanon, Marshall Islands, Nauru, Niue, Philippines, Russia, St Kitts & Nevis, St Vincent & the Grenadines.
EU Attacks on Harmful Tax Competition
The European Commission yesterday attacked 11 corporation tax schemes in 8 EU Member States as possible measures of illegal state aid. This is a sign that the EU Commission's patience with Member States who are dragging their heels in phasing out the 66 harmful tax measures highlighted in the Primarolo Report of 2 years ago, is finally running out.
Mario Monti, the EU's competition commissioner, said that the Commission would launch state aid investigations into schemes involving offshore companies (for example, Gibraltar) and special regimes for financial service companies. The measures under investigation include those for multinational or financial service companies in Germany, Spain, France, Ireland, Luxembourg, The Netherlands, Finland and the UK (Gibraltar).
Holding company regimes in these countries may therefore come under attack. Additionally, four further countries, being Belgium, Greece, Italy and Sweden are being targeted in this regard.
Articles: Matters of Interest to the International Offshore Financial Intermediary
Changes in the Netherlands: Ruling Policy Released
By: Hans J. Hoegen Dijkhof
Why are the Netherlands so attractive from an international tax planning point of view?
The Netherlands are a high-tech country and the Dutch economy is performing well. The Netherlands have fantastic geographical advantages, being close to London, Paris, Brussels and Frankfurt.
On March 30 2001, in reaction to pressure of other EU member states, the Netherlands Ministry of Finance released eight decisions establishing a new ruling policy. These policy decisions mainly intend to:
Assure that Netherlands transfer pricing rulings comply with the OECD transfer pricing guidelines. This policy decision introduces 'Advance Pricing Agreements' or 'APAs'. These are unilateral, bilateral, and multilateral rulings on transfer pricing of cross border transactions (goods and services). The contents of the rulings will be based on the OECD transfer pricing guidelines.
Avoid that - companies with little or no Netherlands substance and/or incurring little or no risk - obtain financing and royalty rulings. Here the concept of an Advance Tax Ruling ('ATR') is introduced, which could provide a request for advance certainty.
Avoid the issuance of ruling that might violate the principle of good faith governing relationships between treaty partners. In most cases, the policy decisions will not affect rulings to be issued to Netherlands holding companies.
The Netherlands Ministry of Finance announces that any ruling application may be denied, if, judged by Netherlands principles, the transaction for which a ruling is sought can be characterized as challenging the limitation of the (foreign) laws or a tax treaty. It is the view of the Ministry of Finance that granting a ruling in such circumstances violates the principle of good faith governing a ruling in such cases if he can show that the relevant treaty countries are aware of the transaction for which a ruling is sought.
For additional information contact Hans J. Hoegen Dijkhof (hd@hd-dutchlawyers.nl)
Taxpayers face Human Rights Shortfall
By: Graham Mather
Human rights of taxpayers should have international protection. Taxpayers have missed out in the growing international protection of human rights. Although over 250 tax cases have gone to the European Court of Human Rights 'in the field of taxpayer protection the process of international standard-setting has hardly begun' says the investigation by the European Financial Forum think tank. 'New proposals to extend massively the exchange of information between tax authorities around the world require a more systematic protection of taxpayers' rights. Protection is not uniform from country to country and is in some respects quite haphazard'. The Forum recommends that protection should be given against retrospective tax laws, disproportionality, unfair procedures and breach of confidentiality. Taxpayers should be given an explicit right to arrange their affairs in such a way as to lawfully minimize the burden of tax. An internationally recognized minimum standard should be established under United Nations auspices.
Illusory
'With increasing exchange of information between taxmen around the world, guarantees of confidentiality 'are illusory for most taxpayers,' says the report.
'In the vast majority of countries the taxpayer is not given prior notice of the proposed exchange of information relating to him, so there is no opportunity to challenge the exchange'. Three countries: the Netherlands, Germany and Switzerland - comply with best practice by providing notification of a proposed exchange of information and an opportunity to challenge that exchange. But in the UK the Keith Committee recommendation 'that a procedure should be introduced whereby a taxpayer should be informed to supply information of a commercially secret nature to a foreign revenue authority and should have an opportunity to challenge that exchange of information before an independent tribunal' was rejected by the Inland Revenue.
The report says that there should be no information exchange with countries not protecting taxpayer rights. 'If the international community comes to recognize basic minimum standards for the protection of taxpayers, then countries which do not respect those standards - and do not sign up to the international norms - should not be entitled to receive information from those countries which do'. The report says that whilst there is 'a high degree of consensus' that taxpayer rights should be protected 'no attempt has yet been made to incorporate these principles into an international legal instrument. As a result the protection of taxpayers' rights does not apply to all countries, and is far from uniform between countries'.
The report says that tax legislation which imposes 'an excessive or disproportionate burden on particular taxpayers may already be challengeable' under the European Convention on Human Rights.
Graham Mather, President European Financial Forum (epfltd@compuserve.com) www.epfltd.org
Panama: Legislation on E-Commerce
By: Alvaro Aguilar-Alfu
August 1 2001 - The Panamanian President, Mireya Moscoso, signed into Law Bill Nø112 'which defines and regulates electronic documents and signatures, certification entities and exchange of electronic documents'.
The new law grants electronic documents and signatures the same validity as written documents, in order for merchants and users to be able to conduct online transactions in a reliable and efficient manner. One of the obstacles to true e-commerce transactions in Panama had been the requirement of written acceptance by users of terms and conditions under traditional Civil Law, in order for transactions to be enforceable in case of disputes. Local e-merchants had to rely on written waivers of claims from buyers or good faith. The law follows the guidelines of the UNCITRAL Model Law on E-Commerce, by regulating the concepts of electronic signatures and documents. It also grants the new Directorate of Electronic Commerce of the Ministry of Commerce, the authority to maintain an optional register of certification authorities (CA). CA's that wish to register as such are subject to a number of requirements to ensure adequate financial and technical background of said entities.
The Panama E-commerce Law is the first of its kind in Central America and it is expected that it will open the doors to web hosting, call center and data center companies. In addition to traditional advantages such as a fully dollarized economy, lack of exchange restrictions and a preferential tax regime for information technology companies, Panama also is the hub where the Maya 1, Panamerican, Global Crossing and Arcos 1 underwater cables meet - which allows IT companies to deliver 'the last mile' of broadband Internet connectivity to their clients.
For more information: Alvaro Aguilar-Alfu (fabamm@fabamm.com)
Cayman Update: New Anti Money-Laundering Body
By: Paul Byles
The Cayman Islands Monetary Authority has established an industry wide body focused on the fight against money-laundering. The new body, called the Cayman Islands anti money-laundering Group (CAMLG) will be responsible for assisting the Cayman Islands' efforts in combating money-laundering through education and increasing the level of awareness in the Cayman Islands.
CAMLG will include members from across the business community as well as public sector organizations. The establishment of an industry-wide body will draw on the work done in previous years by a number of private sector organizations, in particular the Cayman Islands Bankers Association, to develop an education and awareness program on money-laundering issues. In addition to awareness and training the new body will serve as a consultative body to the Portfolio of Finance and Economic Development and the Monetary Authority on money-laundering issues. Offshore Institute member, Mr Paul Byles is Chairman of the CAMLG and said that 'There have been tremendous efforts on the part of both the public and private sectors over the years in combating money-laundering. However, a group with an industry wide perspective would enhance our ongoing efforts'.
For more info: contact Paul Byles (pbyles@yahoo.com)
Bahamas Update
By: Timothy J. Colclough
Imagine. Sun, sea, sand and palm trees swaying gently in the breeze. Suddenly you're daydreaming, imagining lying in a hammock, sipping rum punch and relaxing with not a care in the world.
This isn't your typical introduction to an article appearing in a financial newsletter, and if you've now lost all motivation to work for the rest of the day, my apologies. However, the reality of it all is that, when people think of offshore jurisdictions such as The Bahamas, this is what they imagine. Of course this is still the case, but in addition people now think of the acronyms FATF, OECD, FTAA, WTO all of which have had, continue to and will have a profound effect on all offshore jurisdictions. From a Bahamian perspective, we have certainly felt the effects of these initiatives, and to date, those of the FATF and OECD in particular.
As I'm sure most of you are aware The Bahamas has introduced a package of new and/or updated legislation. This legislation which includes among others, the 'Banks and Trust Companies Act,' the 'Financial Intelligence Unit Act,' the 'Financial Transactions Reporting Act,' the 'Proceeds of Crime Act,' and the 'International Business Companies Act' not only ensured our removal from the FATF list, but has had many people acknowledging we have surpassed the FATF's requirements. In this respect our position as one of the cleanest and most respected offshore jurisdictions in the world has been strengthened. However, the passing of this legislation has also lead to many criticisms from local professionals who feel the Government acted too hastily in bowing to these initiatives. Not wanting to embark on a political and economic debate on this matter, and being limited to a half page I will leave this here.
The past couple of years have been a very trying time for The Bahamas and all concerned. The new legislation has put pressure on local businesses to update KYC files in an expeditious manner to ensure compliance with the new initiatives. There is no doubt some offshore related businesses have been adversely impacted, and as such this is a time for regrouping and contemplation. On the flip side the increased KYC requirements have shown the financial world, in an emphatic voice, that we will not tolerate illegitimate business of any kind.
Now more than ever it truly is 'Better in The Bahamas.'
Timothy J. Colclough, (timothy.colclough@scotiatrust.com)
