The question of tax avoidance and financial information exchange remains a sore point for EU-African relations, and the European Commission’s annual lists of ‘non-cooperative’ countries on tax and money laundering laws have done little to improve the situation.
Botswana, Ghana and Zimbabwe joined Mauritius in being publicly named and shamed by the European Commission in May on its EU list of high-risk third countries with deficiencies in their fight against money launderers and terrorism financing.
The Commission insists that the listing is for countries that “pose significant threats to the financial system of the Union” because of failings in tackling money laundering and terrorism financing.
Inclusion on the EU list means that banks and other financial institutions will need to conduct enhanced due diligence (EDD) measures in any transaction or business relationship with a person established in a high-risk third country. Meanwhile, companies located there are prohibited from receiving EU funds.
While Mauritius was warned at the start of the year that it faced being penalised because of its banks’ failure to tackle terrorist financing, several of the other countries were surprised by their listing.
The Ghanaian government complained that the listing “does not reflect Ghana’s anti-money laundering regime.”
The Commission’s country recommendations now have to be approved by the European Parliament in order to come into force in October.
Much of the frustration against the EU’s tactics is because the international rule-book on tax avoidance and money laundering is set by the Paris-based Organisation for Economic Co-operation and Development (OECD), a group of 35 wealthy nations which does not include a single African country.
That has prompted the G77 group of developing countries to repeatedly call for these responsibilities to be handed to a new UN tax body on which they would also be represented, a demand that has been rejected by the United States, EU, UK and Japan.
“There is a deliberate attempt to try to shield out developing countries. Any attempt to try to democratise the rule-making system is being resisted,” says Alvin Mosioma, executive director of Tax Justice Network Africa, a pan-African organisation that promotes just taxation.
For its part, the African Caribbean and Pacific (ACP) community has described the listing process as a ‘unilateral and discriminatory practice’.
Meanwhile, for all the talk in Brussels about financial transparency, Luxembourg, Malta and Britain’s overseas territories – with the exception of the Cayman Islands, which was added in February – are not included despite being repeatedly implicated in money laundering scandals such as the Panama and Paradise papers.
The EU’s updated list of non-cooperative jurisdictions, published in February, only includes countries responsible for supplying just 7.4% of the world’s financial secrecy, according to the Tax Justice Network’s Financial Secrecy Index 2020.
Nor has the EU done much to crack down on its multi-nationals exploiting tax treaty loopholes to avoid billions of dollars in taxes to African treasuries each year, they say, pointing out that Illicit financial flows (IFF) cost the African continent an estimated $50 billion each year, more than double the amount Africa receives in development aid.
To be removed from the list, as Ethiopia and Tunisia managed this year, governments must fully comply with the EU’s anti-money laundering regulation and make information on beneficial owners of companies and trusts publicly available. However, several African states complain that they have adopted similar laws but remain on the list.
The Commission says he list exists to ‘protect the integrity of the EU financial system from financial flows involving countries with strategic deficiencies in their anti-money laundering and countering terrorist financing’.
Commission Vice-President Valdis Dombrovskis said the EU now intends to take a more aggressive approach by creating an EU-level supervisor to combat financial crime and monitor banks and other issues around monetary transactions.
[Edited by Zoran Radosavljevic]