The European Parliament’s Committee of Inquiry into money laundering, tax avoidance and tax evasion (PANA) today voted its final report by a majority. The results of the investigation and the political recommendations will have to be endorsed by the plenary session of the European Parliament in December. During the final votes in plenary, the results of the investigation cannot be changed, the recommendations however, can. Controversial votes are to be expected. Sven Giegold, spokesperson for economic and financial policy for the Greens/EFA Group and Green’s Coordinator in the Committee of Inquiry, commented on the outcome of the vote:

“The Committee is heavily accusing European governments to have been complicit with money launderers and tax evaders for over 20 years. Some EU member states have made tax dumping a business model for companies and wealthy individuals, thus causing massive damage to other EU countries. Banks and law firms in Luxembourg, Great Britain, Malta and Cyprus have set up hundreds of letterbox companies in Panama to the detriment of other EU countries. These countries bear a huge responsibility for violating tax justice and distorting fair European competition. The EU Commission has also failed to fulfil its role as guardian of the Treaties. Infringement proceedings for failure to implement the Anti-money laundering directive have not been initiated.

The Committee calls for an offensive against money laundering and tax dumping in Europe. The results of the investigation must now be followed by political action: The Member States concerned must agree with public transparency registers of the beneficial owners of companies and trusts. We need a European anti-money laundering authority in order to make cooperation between national Financial Intelligence Units more efficient. The Council’s Code of Conduct Group on Business Taxation has been ineffective since 1998. All work in this group has to become transparent in the future and accountable to the EU Parliament. On top of that, the Council Group has to abandon its ineffective decision-making rules. It is unacceptable that EU countries haggle over names of countries on the EU blacklist for tax havens in the back room.

The Inquiry Committee is calling on the EU Commission to provide stronger protection for whistleblowers. The murder of Daphne Caruana Galizia has shown in the worst way how much money launderers and tax evaders fear the investigative work of whistleblowers and journalists. We need to give encouragement to courageous people like Galizia.

In the end, the Inquiry Committee has even shown political courage to clearly state the responsibility of the governments of Malta, Luxembourg, Cyprus and the United Kingdom for money laundering and tax dumping. The Christian Democrats tried to maintain the support for self-regulation by lawyers, tax advisors and notaries but were voted down. As much as there is public supervision against financial crime for banks there must also be public supervision for liberal professions.

An important conclusion of the Inquiry Committee is that the clearing of the mud of financial crime is by no means complete. The work of the committee has been massively hampered. Many responsible companies and politicians refused to appear in front of the Parliament. The Council and the member states kept key documents shut away. We, members of the Inquiry Committee, were obliged to keep away from the public all our findings from important but secret documents. In the view of the blockade of our work, a permanent ‘committee of inquiry’ of the European Parliament would be appropriate.”

List of main findings

Naming and shaming of countries

Compromise 25 has been adopted naming Luxembourg, the United Kingdom and Cyprus as countries where most of the offshore constructions revealed in the Panama Papers were set up and that these countries should have suspected that this implied a loss of the tax base of other Member States where the UBOs were resident. The compromise also mentions that in LU many offshore companies were set up purely to circumvent the withholding tax31 notes that greater transparency over the identity of UBOs through the establishment of public registers would act as a deterrent to misconduct.
AM 236 noting that in the UK and the high role of UK and its overseas territories, noting that more than 75% of corruption cases involving property investigated by the authorities involved anonymous companies registered in secrecy jurisdictions; adding that of these,78% of the companies involved were registered in either the UK’s overseas territories or crown dependencies .
AM 320 naming Malta in Panama papers.
AM 414 showing that some answers provided by intermediaries to the Committee seem to be in contradiction with information retrieved from the Panama Papers – societe generela case
AM 237 pointing out within the European Union, the special economic zones such as Madeira are abused by large companies and wealthy individuals to stash profits without paying taxes.

AM 239 regretting the lack of common European definitions for tax evasion and tax avoidance, regretting that in some that in some Member States, like in Luxembourg for example, simple tax evasion was or still is not treated as an aggravated crime and therefore prevents cross-border administrative cooperation and legal assistance in criminal matters.

AM 245 mentioned infringement cases started against member states.

AM 279 naming banks in Germany and Malta for not adequately carring out the mandatory enhanced CDD measures
Compromise 48 naming UK and NL for STRs reporting

Maladministration

AM 247 – concludes that the DAC provisions, especially Articles 1, 2 and 8(1) – on spontaneous information exchange – were not implemented constituting cases of maladministration by negligence or omission; highlights that Member States had grounds for supposing that there had been a loss of tax in other Member States owing to offshore constructions, but did not report this tax information to those other Member States; points out that already in 2012, the Council Code of Conduct Group on Business Taxation acknowledged the lack of exchange of information on rulings on a spontaneous basis 1a; Concludes that the Commission failed to enforce DAC provisions effectively;

Lack of capacity to fight money-laundering by institutions

Compromise 26 has been adopted deploring 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; Notes for example that only the EBA is allocating resources to ensure ALM coordination with other EU financial authorities but only have 0.8 person in charge of this issue

AM 317 mentioning issues with Maltese FIU
AM 317 mentioning lack of EU rules on AML
AM 416 lack of ECB supervision powers for AML

Intermediaries

AM 370 Recalling the 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 being mostly a service provider to implement them;
AM 387 mentioning banks not responsible for CDD of their branches

Mossack Fonseca

AM 282 showing that Mossack Fonseca knew that the due diligence was not done
AM 283 showing that Mossack Fonseca did not apply CDD
AM 402 showing that Banks did not always know beneficial owners of their clients

List of main recommendations

Committee raises serious concerns of breach of EU law, AMLD related to FIU cooperation (AM 24)

EU blacklisting process should be more transparent and European Parliament should be involved in regular revisions (AM 86)
Invest to more resources to prevent financial crimes (AM 295)
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 (AM 574)
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 (AM 340)
Calls for more efficient, dissuasive and proportionate sanctions (AM 469)
Professional secrecy cannot be used for the purposes of protection, covering up illegal practices or violating the spirit of law (AM 538)
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 (AM 551)
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 (AM 167)
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 (AM 204)
Call to ensure that fines and pecuniary sanctions imposed on tax evaders and intermediaries are not tax-base deductible (AM 238)
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;
Introduce a withholding tax or measures with similar effect to avoid profits leaving the EU untaxed (AM 287)
Call on the Commission to assess Member States’ citizenship for investment programmes and their compliance with EU law, including anti-money laundering obligations (AM 489 DR)

Commission should start infringement procedure against Member states for non-compliance with Union law (AM 299)
A Permanent Inquiry committee should be established in the European Parliament on the model of the US Congress (AM 755)
No companies or intermediaries involved in tax haven should be able to benefit from EU funding (AM 82 & 259)
No public procurement companies should be accessible for companies using tax havens (AM 183)
A minimum effective tax rate in Europe should be established, at least in a revised Interest & Royalty Directive (AM 209)
Accounting firms and financial or tax service provider should be separated to prevent conflict of interests (AM 556 & 570)
All companies should be obliged to justify economic reason why they need to create offshore structures (AM 65 & 80)
Establish legislation for greater tax cooperation including obligation to answer group requests in order to prosecute cross-border tax evaders (AM 177)
Call on the United Kingdom to regulate its overseas territories given how many of them regularly featured in the Panama Papers (AM 563)
Reform of the Code of Conduct Group on Business Taxation (AM 722)

The amendments of the Green Members of the PANA Committee can be found here

https://sven-giegold.de/wp-content/uploads/2017/09/Greens-EFA-AMs-on-PANA-report-FINAL.pdf

https://sven-giegold.de/wp-content/uploads/2017/09/Greens-EFA-AMs-on-PANA-recommendations-FINAL.pdf

Co-rapporteurs’ draft reports on the committee’s findings and recommendations

https://sven-giegold.de/wp-content/uploads/2017/07/PANA-DRAFT-REPORT.pdf

https://sven-giegold.de/wp-content/uploads/2017/07/PANA-DRAFT-RECOMMENDATION.pdf

https://sven-giegold.de/wp-content/uploads/2017/07/PANA-Overview-of-activities.pdf

Mandate of the PANA Committee

https://sven-giegold.de/wp-content/uploads/2017/07/PANA-Mandate.pdf