France has decided to put the Central American nation back on its blacklist of unco-operative tax jurisdictions as a knee-jerk reaction to the Panama Papers. It is also calling for its inclusion on the shadowy OECD blacklist of tax havens.

The French tax authorities, which have a reputation for hair-trigger decisions to blacklist small tax havens, have reacted to the biggest leak to journalists in the history of mankind in the usual manner. The French finance minister, Michel Sapin, has made the announcement to the country's parliament. In a radio interview he also expressed a desire to convince the Organisation for Economic Control and Development to blacklist Panama as a tax haven.

France previously removed the tiny Central American republic from its list of unco-operative states and territories (ETNC) in 2012 after the two nations signed a treaty on the subject of fighting tax-evasion. Today the OECD told Compliance Matters that it no longer had blacklists or whitelists, and that it just 'classified' countries as having different levels of compliance. The OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes has 132 member-countries and performs reviews of states to see if they conform to OECD standards. A reference to it on the OECD's website says that it has, over the past seven years, been evaluating countries and those "not yet up to international standards...include Guatemala, Kazakhstan, Lebanon, Liberia, Micronesia, Nauru, Trinidad and Tobago and Vanuatu. It is clear that there are other jurisdictions where a lack of information on beneficial ownership of corporate and other entities is facilitating illicit flows."

What's on the OECD website (and what's not)

An OECD spokeswoman told Compliance Matters that this was the most detailed information the public could glean about the OECD's classification of Panama. Murky though this is, it suggests (but by no means proves) that Panama does not occupy the lowest rung on its arcane hierarchy of compliance.

This looks as though it is about to change. In a very new page on its website called "Q&A on Panama Papers," the OECD states: "Panama’s consistent failure to fully adhere to and comply with international standards monitored by the Global Forum on Transparency and Exchange of Information for Tax Purposes is facilitating the use of offshore financial centres for hiding funds, depriving governments of tax revenue and often aiding and abetting criminal behaviour.

"To push the transparency agenda forward, the G20 identified Automatic Exchange of Information as a new international standard in 2014, and almost 100 jurisdictions and countries have already agreed to implement it within the next two years. Whilst almost all international financial centres...have agreed to do so, Panama has so far refused to make the same commitment."

The standard-setter with secrets of its own to hide...

The OECD has transparency problems of its own. Although the spokewoman told this publication that "there is no grey list, we've left the days of lists behind," there certainly is such a list. In the words of the Congressional Research Service, in its report of 15th January 2015 entitled Tax Havens: International Tax Avoidance and Evasion:

"The OECD currently has three lists: a white list of countries implementing an agreed-upon standard, a grey list of countries that have committed to such a standard, and a black list of countries that have not committed. On April 7, 2009, the last four countries on the black list, which were countries not included on the original OECD list - Costa Rica, Malaysia, the Philippines, and Uruguay - were moved to the grey list. The grey list includes countries not identified as tax havens but as “other financial centres.” According to news reports, Hong Kong and Macau were omitted from the OECD’s list because of objections from China, but are mentioned in a footnote as having committed to the standards; they also noted that a “recent flurry of commitments brought 11 jurisdictions, including Austria, Liechtenstein, Luxembourg, Singapore, and Switzerland into the committed category.” As of May 18, 2012, only one country (Nauru) appeared on the grey list for tax havens and one (Guatemala) appeared on the grey list for financial centres."

The same study says of Bermuda, Barbados, the US Virgin Islands, Hong Kong, Macao, the Channel Islands, Cyprus, the Isle of Man, Ireland, Luxembourg, Malta, Sann Marino, Mauritius and the Seychelles: "Not included in OECD’s gray list as of August 17, 2009; currently on the OECD white list. Note that the grey list is divided into countries that are tax havens and countries that are other financial centers. The latter classification includes three countries listed in Table 1 (Luxembourg, Singapore, and Switzerland) and five that are not (Austria, Belgium, Brunei, Chile, and Guatemala). Of the four countries moved from the black to the grey list, one, Costa Rica, is in Table 1 and three, Malaysia, Uruguay, and the Philippines, are not."  

Only 0.1% of Panama's GDP, according to the report, consists of profits of US-controlled companies, down from 3% in 2004. This is a sign of general American 'disengagement' from Panama and might go some way towards explaining why there were so few American revelations in the Panama Papers. Another explanation is that Americans have Delaware, the opacity of whose corporations is legendary, as a means of hiding their wealth and beneficial ownership. However, non-US-residents can own Delaware corporations as well, so this might be less of an explanation than one might think.

...even unto the previous decade

This seems to have been a problem for years. The editor of the Q Wealth Report wrote in 2009, when the first so-called grey list appeared: "Strange as it may seem, given all the hype in the news recently, when I started to search on Google for the blacklist of non-co-operative tax havens and bank secrecy countries published recently by the OECD at the behest of the London G20 meeting, it was mighty hard to find the complete list! Even on the OECD site after visiting multiple pages, I found only a pdf file that by no means makes the blacklist clear."

The return of the FATF?

It was only in the middle of February that the Financial Action Task Force, the world's anti-money-laundering standard-setter and the OECD's 'little brother,' took Panama off its own 'grey list' by declaring it to be "a jurisdictions no longer subject to the FATF’s on-going global AML/CFT compliance process," along with Algeria and Anglola. AML expert Ken Rijock commented: "Banks located in the United States have not responded to the FATF announcement. Currently, 21 major American financial institutions refuse to allow any Panamanian bank to open a correspondent relationship, and others will only allow small wire transfers into Panamanian banks."

In the light of the recent earth-quaking revelations, the FATF might even at this moment be considering a reversal of its decision.