Ethics and governance in the European Financial centers

The Permanent Subcommittee on Investigations scheduled a hearing last August 1, 2006, entitled Offshore Abuses: The Enablers, The Tools & Offshore Secrecy. The Subcommittee had held a number of hearings addressing the issue of tax havens and offshore abuses which are undermining the integrity of the federal tax system, diverting tens of billions of dollars each year from the U.S. Treasury, and undermining U.S. law enforcement. Hearings held in 2001 had examined the historic and ongoing lack of cooperation by some offshore tax havens with international tax enforcement efforts and their resistance to divulging information needed to detect, stop and prosecute U.S. tax evasion. A hearing held in December 2002 and Report issued in January 2003 had provided an in-depth examination of an abusive tax shelter used by Enron. Two days of hearings in November 2003, and a bipartisan report issued in 2005, had provided an inside look at how some respected accounting firms, banks, investment advisors, and lawyers have become engines pushing the design, sale, and implementation of abusive tax shelters to corporations and individuals across the country.
The Subcommittee’s upcoming August 1st hearings presented case histories on the use of offshore trusts and corporations to circumvent U.S. tax, securities and anti-money laundering laws. Witnesses for the upcoming hearing were securities firms, banks, law firms, U.S. taxpayers, a trust protector, and tax and securities experts.


Statement of Senator Norm Coleman (abstract):

"Today’s hearing continues this effort by examining the extent to which U.S. individuals are abusing
offshore jurisdictions to circumvent compliance with U.S. tax, securities, and anti-money laundering laws. (...) While these jurisdictions claim to offer limited financial disclosures, light regulation, enhanced asset protection, and financial privacy, in reality they have become the Wild West of the financial world, havens for fraud and evasion"

Statement of Senator Carl Levin (abstract):

"The key features of offshore tax havens are low or no taxes and a legal system that favors secrecy over transparency. Tax havens sell secrecy to attract business. And they are very successful. About 50 tax havens operate in the world today. Those tax havens have, in effect, declared war on honest U.S. taxpayers, by giving tax dodgers the means to avoid their tax bills and leave them for others to pay. These schemes are shrouded in the secrecy of tax havens because they can’t stand the light of day. Trusts and shell corporations established in offshore secrecy jurisdictions operate in a legal black box that allows them to hide assets, mask who controls them, and obscure how their assets are used. An armada of “offshore service providers,” lawyers, bankers, brokers, and others then joins forces to exploit the black box secrecy and help clients skirt U.S. tax, securities, and anti-money laundering laws"

As far as European financial centers are concerned, only the Isle of Man, Gibraltar, the British Virgin Islands, the Cayman Islands and Switzerland are quoted in the framework of the report. It would be interesting for American Senators to investigate the other financial centers : Jersey, Cyprius, Liechtenstein, Monaco and Luxembourg.

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Detail of the hearing

Download Report

View the hearing (real player)

Cyprus was subject to an evaluation by the “Moneyval” Committee of the Council of Europe for the third time between 3 and 9 April 2005.
The assessment report was adopted at the 18th Plenary Meeting of the Council of Europe’s “Moneyval” Committee held in Strasbourg between 31 January and 3 February 2006. The assessment report was based on Cyprus’s laws and regulations as well as other information and details provided by the various competent
authorities and bodies of the public and private sectors during the evaluation team’s visit.
As far as the FAFT Recs are concerned, Cyprus was assessed and rated for its level of compliance against the 49 Recommendations of the Financial Action Task Force (“FATF”).
The ratings are based on five levels: “Compliant”, “Largely Compliant”, “Partially Compliant”, “Non Compliant” and “Non Applicable”
Cyprus complies with 17 Recs, and is largely compliant with 22 Recs.
Cyprius complies partially with 10 Recs.
Therefore, Cyprus scores 39, against Belgium’s 41, Hungary’s 39, Slovenia’s 38, Switzerland’s 32, Norway’s 31, Ireland’s 28, Sweden’s 27 and Australia’s 26. It is also very important to note that Cyprus has not registered any “Non-compliant” ratings, whereas Australia has 10 such ratings, Ireland 5, Sweden 5, Norway 4, Switzerland 3, Slovenia 2, Belgium1 and Hungary 1.

See assessment


See comment from the Central bank of Cyprius on the assessment

Financial institutions designated under the Criminal Justice Act, 1994 (the Act) are obliged to take the necessary measures to effectively counteract money laundering in accordance with the provisions of the Act and the relevant sectoral Guidance.
The Financial Regulator, as part of its supervision process, assesses the adequacy of procedures adopted by the institutions, which it supervises to counter money laundering and the degree of compliance with such procedures.
The Central Bank/Financial Regulator is obliged by the Criminal Justice Act 1994 to report to the Garda Síochana and Revenue Commissioners where it suspects that an offence under Section 31 or 31 of the Act has been, or is being, committed by an institution under its supervision (Section 57(2) of the Act).
It is an offence punishable by imprisonment of up to five years or a fine, or both, for the failure of the Central Bank/Financial Regulator to comply with this requirement (Section 57 (5)).

Know more

Criminal Justice Act, 1994, Section 31 (Money laundering, etc)
Criminal Justice Act, 1994, Section 32 (Measures to be taken to prevent money laundering)

Criminal Justice Act, 1994 - Money Laundering as amended (guidance notes for credit institutions)
Criminal Justice Act, 1994 - Money Laundering as amended (guidance notes for financial instititions excluding credit institutions)
Criminal Justice Act, 1994 - Money Laundering as amended (guidance notes for stockbrokers)
Criminal Justice Act, 1994 - Money Laundering as amended (guidance notes for insurance and retail investment products)
Criminal Justice (Terrorist Offences) Act 2005 - Financing of Terrorism