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EU Names, Shames 17 States Deemed International Tax Havens

Activists stage a protest on a mock tropical island beach representing a tax haven outside a meeting of European Union finance ministers in Brussels, Belgium, Dec. 5, 2017.

The European Union named and shamed 17 states that it accuses of being tax havens Tuesday, and put another 47 countries on notice that they risk being blacklisted, too, unless they start tackling tax evasion.

The blacklist was agreed on after 10 months of investigations and diplomatic wrangling, but transparency activists say it doesn't go far enough.

After a meeting in Brussels, EU finance ministers announced the blacklist.

The list doesn't include any European countries, but does name several Caribbean islands, including former British colonies Barbados, Grenada, and Trinidad and Tobago — a reflection, analysts say, of Britain's reduced political clout in the European Union.

Completing the list are American Samoa, Bahrain, Guam, South Korea, Macau, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Tunisia and the United Arab Emirates.

Countries on the list could lose access to EU funds and face further as-yet-undetermined sanctions from the economic bloc.

"To be on a blacklist is, in itself, bad enough and, of course, there will be consequences for these countries," said Luxembourg's finance minister, Pierre Gramegna.

Immediate consequences will be felt by multinationals that do business with any of the blacklisted jurisdictions, as they will face additional and burdensome financial disclosure requirements.

The EU move, part of a broader effort to tackle tax evasion, comes less than a month after the publication of the so-called Paradise Papers, an investigation by nearly 100 media outlets into a leak of 13.4 million files from two offshore service providers.

British officials drew comfort from the exclusion of the Cayman Islands and Bermuda from the list; but their omission prompted an outcry from transparency activists, who dubbed the exercise a "whitewash." Other transparency campaigners, including Oxfam, argue the blacklist should have included well-established EU tax havens: Ireland, Luxembourg, the Netherlands and Malta, as well as Switzerland.

FILE - Police officers are seen on patrol patrol in Castile square, outside the office of the prime minister, in Valletta, Malta, Oct. 17, 2017.
FILE - Police officers are seen on patrol patrol in Castile square, outside the office of the prime minister, in Valletta, Malta, Oct. 17, 2017.

Another 47 jurisdictions were included Tuesday in a "grey list." Among those are other British-tied jurisdictions, the Isle of Man and Jersey. The finance ministers deemed them as not currently compliant with EU standards, but all have formally committed to changing their tax rules.

Critics of list

The Tax Justice Network, an advocacy group that campaigns against tax avoidance and corruption, said the European Union had flunked the tax haven test, arguing it had missed an opportunity.

"The list appears to be a politically-led list, that includes only the economically weak and politically unconnected," it said. The blacklist is hard to take seriously, it added, saying, "EU members like the Netherlands, Ireland and Luxembourg are the greatest procurers of global profit-shifting, but are excluded."

Pierre Moscovici, the European commissioner for economic and financial affairs, dismissed the complaints, describing Tuesday's naming and shaming as a vital "first step."

"This list represents substantial progress. Its very existence is an important step forward," he said, adding, "It is the first EU list; it remains an insufficient response to the scale of tax evasion worldwide."

Toomas Toniste, Estonia's finance minister, agreed that the list was an important step.

"This initiative is already proving its value, as numerous countries have worked to meet the deadline for making commitments on the basis of our criteria," he said.

Pushing for change

In the past few weeks, countries at risk of inclusion have been scrambling to promise reforms. To remain off the list, countries had to promise to implement "fair tax rules," which Brussels defines as not offering preferential treatment for companies enabling them to move profits to avoid taxes elsewhere. They also had to pledge to meet international transparency standards of the Organization for Economic Co-operation and Development, or OECD.

Hours before the list was announced, officials from Panama, Samoa, Guam and the Marshall Islands said they thought they had done enough to escape being blacklisted. Several of the named Caribbean islands appealed for exclusion on the basis of the devastation they suffered this year from hurricanes. Several other hurricane-impacted Caribbean islands have been put on probation and their cases will be addressed in February.

Meanwhile, opposition lawmakers in Britain accused the British government of being weak on tax avoidance, criticizing London's diplomatic efforts to persuade EU finance ministers to go easy on the Caribbean islands. Liberal Democrat leader Vince Cable accused Downing Street of helping the super-rich hide their cash.

Cable argued the British government had a long history of "dragging its heels" when it comes to tax havens, saying he witnessed a lack of action when he was in government.

"Some Caribbean islands in particular were operating to very poor standards, sometimes to the cost of the British government," the former business secretary said.

British officials dismiss such accusations, saying London is at the forefront of tackling avoidance and ensuring tax transparency.