Trust Companies, Banks Should Be Main Haven Targets: EU Report

New measures targeting trust companies and banks in their role of helping to create offshore companies, such as the more than 200,000 exposed in the year-old Panama Papers, should be the priority for EU legislators in their efforts to crack down on the use of tax haven intermediaries, according to a new European Parliament report, reports Bloomberg.

The April 24 study for the European Parliament Panama Papers investigative committee also called for the scope of anti-money laundering and anti-terrorist-financing laws to be expanded to cover banks and others intermediaries active in offshore financial centers.

“Targeting only the most essential intermediaries (trust companies and banks) for the creation and maintenance of offshore structures could be most effective, as long as such intermediaries also have locations in the onshore jurisdictions,” said the report, “Role of Advisors and Intermediaries in the Schemes Revealed in the Panama Papers.”

A separate report for the Parliament committee called for an “EU framework for compulsory common ethical standards for tax advisors in each country,” as well as common standards for the disclosure of tax avoidance schemes.

The European Commission is due to propose a regulatory framework for tax advisers and other intermediaries in the coming months.


Concerning banks, the report on the role of advisers and intermediaries in the Panama Papers noted that financial institutions often allowed accounts to be set up that violated EU anti-money laundering laws.

“Good implementation, compliance and enforcement of AML/CFT standards are crucial,” the report said. “In the past, many offshore entities opened bank accounts to which they were not entitled under” requirements for AML and Combatting the Financing of Terrorism.

As for tracking the beneficial owners of the offshore companies, the report noted that it can often be nearly impossible to do because they are hidden via bearer shares, foundations and nominee shareholders.

“The decision making cycle starts with” unidentified beneficial owners (UBOs), the report said. “Even with the Panama Papers at hand, it is difficult to trade UBOs.” It noted that despite the Panama Paper leaks, approximately 60 percent of the beneficial owners of the offshore companies identified haven’t been unmasked.

The EU is in the midst of finalizing revisions to the EU Anti-Money Laundering Directive. EU member states and the European Parliament are at loggerheads over new rules for identifying beneficial owners of companies, trusts and foundations.

‘Pressure’ on Tax Havens

Another key recommendation calls for the EU to increase the “pressure on offshore jurisdictions” to force them to regulate trust companies such as Mossack Fonseca, the Panamanian law firm from which the Panama Papers documents leaked, that are based in tax havens.

One way to “pressure” offshore jurisdictions is to get them to prevent trust companies from opening a bank account for their clients. Other ways include requiring them to establish company registers, regulatory and supervisory frameworks for advisers and intermediaries—and tax authorities.

The EU is drawing up a tax haven blacklist, due to be finalized by the end of 2017, with the intention of preventing money from being diverted to avoid taxation. It is also compiling a list sanctions it will take against any country or jurisdiction that ends up on the EU tax haven blacklist.

As for accountants, auditors, notaries, lawyers, tax advisers and others based in the EU that serve as a link between trust advisers such as Mossack Fonseca and the individuals or companies that set up offshore structures, the report noted that in the EU, “the great majority” are based in the U.K., Luxembourg and Cyprus.

“Most of these intermediaries have demanded fewer than 10 offshore entities while the largest ones have ordered a couple of thousand offshore entities,” the report said.

The Big Four

The report noted that the role of the Big Four accounting firms—PricewaterhouseCoopers LLP, Ernst & Young LLP, KPMG LLP and Deloitte LLP—in the setting up offshore structures identified in the Panama Papers was “limited.”

However, the Big Four firms have “advised clients to use offshore structures,” the report noted.

“That the Big Four are involved in the creation of offshore structures for illicit means is nevertheless surprising given their codes of ethical and responsible conduct,” the report said.

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