Sven Giegold
13. Dezember 2017

Background Information to the Panama Papers Inquiry Committee

Background

The Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion (PANA) began its work in July 2016, following demands from Greens/EFA and others: https://www.greens-efa.eu/en/article/tax-avoidance-money-laundering/

Some of the key Greens/EFA achievements in the recommendations are:

  • Establishment of a Permanent Inquiry committee in the European Parliament on the model of the US Congress
  • No companies or intermediaries involved in tax havens to benefit from EU funding
  • To end the blockade in Council, to end unanimity in Council for tax policies and for the European Parliament to be given co-decision
  • Offshore companies should be subject to same auditing and disclosure obligations as in Europe
  • The Commission to investigate Member States and possible breaches of EU law
  • Call for proposal to separate accounting and advising activities of accountancy firms

 

PANA Report Main Green victories

Main findings

 

Naming countries

 

  • Luxembourg, the United Kingdom and Cyprus are the countries where most of the offshore constructions revealed in the Panama Papers has been set up. These countries should have suspected that this implied a loss of the tax base of other EU member states where the beneficial owners of companies were resident. (p. 15, par 29)
  • In Luxemburg, many offshore companies have been established with the sole aim of avoiding withholding taxes. As a deterrent against law violations, we propose the establishment of public registers, which would create greater transparency about the identity of the ultimately beneficial owners. (p. 15, par 29)
  • There is a lack of common European definitions for tax evasion and tax avoidance.  In some Member States, like in Luxembourg, simple tax evasion was or still is not treated as an aggravated crime and t prevents cross-border administrative cooperation and legal assistance in criminal matters. (p. 16, par 32)
  • In the UK more than 75 % of corruption cases involving property investigated by the authorities involved anonymous companies registered in secrecy jurisdictions; 78% of the companies involved were registered in either the UK’s overseas territories or crown dependencies. (p. 16, par 30)
  • There was an important role of the UK and its overseas territories. This needs to be addressed as the UK government has the power to invoke special prerogatives that would force UK overseas territories and crown dependencies to introduce central public registers of company ownership and end their tax secrecy; (p. 16, par 30)
  • Malta is an example of a EU member states where a government minister was named in the Panama Papers.  However, in some countries including Malta there has been no police investigation despite evidence from the FIU of serious risks of money laundering. (p. 23, par 75)
  • This lack of investigation has prevented the possibility of identifying, and if necessary sanctioning intermediaries in Malta who may not have been compliant with their obligations, including CDD. (p. 22) (p. 23, par 75)
  • Online gambling sector in Malta is a high-risk sector due to the huge volumes of transactions/financial flows and non-face to face elements, as identified in its supranational risks assessment. Also, its licensing procedures may not be compliant with the law; (p. 23, par 75)
  • Number of intermediaries, such as the Berenberg bank in Germany or the Pilatus bank in Malta, did not adequately carry out the mandatory enhanced CDD measures, even when there was a suspicion of money laundering; (p. 19, par 51 )
  • The UK and the Netherlands account for 67 % of STRs filed in the Union, but the level of STRs in some countries do not appear to be commensurate to the activities of the regulated sectors) There is an increasing number of suspicious transaction reports (STRs) driven by new legislation but the lack of resources implies that the FIUs can deal with only a fraction of the problem(p. 21, par 62)
  • There are special economic zones within the EU such as Madeira which are abused by large companies and wealthy individuals to stash profits without paying taxes. (p. 16, par 31)
  • In some case, the information that has been provided by intermediaries to the inquiry committee, for example by French Bank Société Générale, seem to be in contradiction with information retrieved from the Panama Papers. (p. 30, par 121)

 

Maladministration

 

  • Several cases of maladministration (p. 42, par 206) of EU legislation has been found by the inquiry committee:
    • failure of Member States authorities to communicate spontaneously tax information to another Member State in case of grounds for supposing that there may be a loss of tax in the other Member States (Article 9(1) of DAC) and failure of the European Commission to ensure effective implementation of DAC
    • failure of Member States authorities to act upon the evidence of serious and persistent failure to identify beneficial owners in the context of customer due diligence and to require that the verification of the identity of the customer and the beneficial owner takes place before the establishment of a business relationship or the carrying-out of the transaction (Article 8(1)(b) , Article9(1) of AMLD III) and failure of the European Commission to ensure effective implementation of AMLD III;
    • failure of Member States authorities to ensure that AML obliged entities can be held liable for infringements of the national provisions, including reporting of beneficial ownership information to competent authorities (Article 39(1) of AMLDIII) and failure of the European Commission to ensure effective implementation of AMLD III;
    • failure of the Commission to provide a list of third countries with strategic deficiencies in their anti-money laundering regimes;
    • failure of Member States authorities to apply administrative penalties and other administrative measures to institutions found liable of serious breach of the national provisions adopted pursuant to AMLD III, as required by Article67(1)(o) and Article 67(2) of Directive 2013/36/EU (CRD IV) and failure of the European Commission to ensure effective implementation of CRD IV;
    • failure of Member States to cooperate sincerely in the framework of the Code of Conduct Group on Business taxation and failure to abide by the principle of sincere cooperation, as required by Article IV
  • Member states had grounds to suppose that there had been a loss of tax revenue in other Member States owing to offshore structures, but did not report this tax information to those other Member States. This lack of exchange of information on rulings on a spontaneous basis has been acknowledged by the Council Code of Conduct Group on Business already in 2012.. (p. 17, par 35)
  • The Commission failed to enforce DAC provisions effectively. (p. 17, par 35)

 

Lack of capacity to fight money-laundering by institutions

 

  • The mapping exercise by the EU’s FIU platform concluded there is a lack of sufficiently detailed and harmonised European rules when it comes to fighting money laundering. (p. 22, par 71)
  • There is also a  lack of adequate capacity, including qualified human, technological and financial resources, available to regulators, supervisors and applicable tax law enforcement authorities and bodies in EU Member States (p.16, par 32)This is showed also by the fact that  only the European Banking Authority (EBA) is allocating resources to ensure AML coordination with other EU financial authorities, but only has 0.8 of an employee in charge of this issue. (p. 16, par 32)
  • Administrative cooperation and legal assistance in criminal matters between two or more Member States with regard to tax evasion, tax fraud and money laundering are hampered by mismatched national legislation and by lack of European definitions of tax evasion and tax avoidance.; (p. 16, par 32)
  • In Luxembourg and other Member States, simple tax evasion was or still is not treated as an aggravated crime and that this prevents cross-border administrative cooperation and legal assistance in criminal matters. In some Member States including Luxembourg the time when the crime was committed is still considered as the starting-point for calculating the limitation period. This can prevent cross-border administrative cooperation and legal assistance in criminal matters. (p. 16, par 32)
  • In some Member State institutions in charge of implementing and enforcing rules as regards tax fraud and money laundering appear to be not entirely independent from political influence. In case of inaction, the discretionary power of the police in some Member States whether or not to investigate information received from and confirmed by the FIU can qualify as maladministration. (p. 40, par 203)
  • There was a report on suspicions of money laundering involving Maltese politically exposed persons produced by Maltese FIU, however, it has not led to police investigation so far. In the context, we are concerned about allegations regarding possible non-compliance of competent authorities with the anti-money laundering provisions enshrined in the Capital Requirements Directive IV.  (p. 23, par 74)
  • There is a lack of ECB supervision power for AML as the ECB is not competent under the SSM for AML/CFT supervision, and that this is preventing competent authorities from exchanging confidential information with the ECB. (p.31, par 123)
  • Transparency and exchange of information need to be taken as key instruments in fighting tax evasion, tax avoidance and money laundering therefore we need quickly to adopt the public country-by-country reporting of tax information of all large companies. (p.39, par 192)

Intermediaries

 

  • Banks, wealth managers, auditors, and tax and legal advisors in particular remain insufficiently defined and regulated in EU law, and in the national law of Member States and third countries. (p. 26, par 98)
  • There is an evidence provided by the French FIU that banks, law firms, accountants and other intermediaries are the main architects designing offshore structures and networks for their clients, Mossack Fonseca has been mostly a service provider for implementing them. (p. 27, par 101)
  • The lack of EU legislation enables intermediaries formally fulfil their duties, such as CDD and other reporting obligations, while circumventing the spirit of the rules. (p. 28, par 110)
  • Mossack Fonseca was aware that CDD was not always properly applied by some of its clients or subsidiaries (p. 20, par 52)
  • Mossack Fonseca admitted that in some cases they did not know who the beneficial owners of the registered entities were (p. 20, par 52)
  • There is evidence that  certain banks had opened accounts for their clients before finalising CDD requirements and identifying the beneficial owners (p. 29, par 116)
  • Several  banks mentioned in the Panama papers have been fined by supervisors for not complying with AML/CFT standards, however the sanctions imposed remain lower than those enacted in the US for similar breaches. (p. 29, par 116)
  • Trusts and fiduciary companies as well as company service providers form the most important group demanding the creation of offshore entities from Mossack Fonseca, followed by accountants, tax advisors, lawyers and consultants who were responsible for about one third of the established offshore entities (p. 27, par 100)

 

Main recommendations

  • EU blacklisting process should be more transparent based on clear and objective criteria (p. 5, par 14)
  • Invest more resources to prevent financial crime (p . 14, par 77)
  • An EU Anti-money laundering authority must be established to coordinate the work of national money laundering authorities in the Member States (p. 18, par 109)
  • Call for an obligation for trusts to always exist in a written form and to be registered in the Member State where the trust is created, administered or operated in order to avoid trusts being misused for tax evasion or money laundering (p. 23, par 147)
  • Calls on the Member States to review prescription periods for money laundering so as to avoid time-bar as a consequence of competent authorities ‘failure to act (p.15, par 88)
  • Calls for more efficient, dissuasive and proportionate sanctions (p.19, par 120)
  • Professional secrecy cannot be used for the purposes of protection, covering up illegal practices or violating the spirit of law  (p. 21, par 138)
  • Lawyers advising clients should be held legally co-responsible when designing tax evasion and aggressive tax plans punishable by law and money laundering schemes; when they take part in fraud, they shall systematically be liable to both penal sanctions and disciplinary measures (p. 22, par 140)
  • Call to update the definition of what is the taxable presence of a company in a country, in order to tackle the issue of taxing the digital economy (p. 8, par 37)
  • Call on the Commission to present a legislative proposal to address the issue of transfer of  company’s headquarter in the EU to avoid taxes, including rules to counter letterbox companies (p. 10, par 49)
  • Call to ensure that fines and pecuniary sanctions imposed on tax evaders and intermediaries are not tax-base deductible (p. 11, par 60)
  • Call on the European Commission to put forward proposals to enhance greater tax cooperation between European Member States (obligation to exchange more tax information by answering group requests) in tax matters so that one European country can provide all information necessary to others to prosecute cross-border tax evaders (p. 12, par 68)
  • Introduce a withholding tax or measures with similar effect to avoid profits leaving the EU untaxed (p. 13, par 75)
  • Commission should start infringement procedure against Member states for non-compliance with Union law (p.14, par 79)
  • No companies or intermediaries involved in tax haven should be able to benefit from EU funding (p. 12, par 65)
  • Establish legislation for greater tax cooperation including obligation to answer group requests in order to prosecute cross-border tax evaders (p. 9, par 41)
  • Call on EU member states to regulate its overseas territories given how many of them regularly featured in the Panama Papers (p. 24, par 160)
  • Reform of the Code of Conduct Group on Business Taxation (p. 28, par 191)
  • Calls for standardised, regularly updated, publicly accessible and interconnected beneficial ownership registers at EU level, on all parties of commercial and non-commercial trusts, fiduciaries, foundations and similar legal arrangements to form the basis of a global register. (p. 23, ,par 148)
  • Calls on the Commission to present a legislative proposal under Article 116 TFEU by mid-2018 if Member States have not adopted a reform of the Code of Conduct Group’s mandate by then. (p. 29, par. 119)
  • Calls for creation of a European FIU and the need to ensure an effective and coordinated system for the exchange of information, as well as centralised databases; stresses the need to support the Member States’ FIUs, particularly in cross-border cases. (p. 18, par 109)
  • Calls on the European Parliament to establish a permanent Committee of inquiry, on the model of the US Congress (p. 29, par 201)
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