The Big Debate: How Credible are Tax Haven Blacklists?

By Fran Hendy, International Lawyer and Treaty Negotiator, Invest Barbados (31/07/2018)


For something to be credible it has to be subjected to a certain measure of intellectual rigour, and the facts as they exist at the time of the blacklisting exercise.

It has been the case from the early days of the first iterations of OECD blacklists that they were the primary instruments of compliance in a world were such lists were designed and promulgated by a group of countries who were, not only the ‘purveyors' of international business and financial services, but also in competition with ‘like’ countries who were blacklisted for want of compliance.

As if this was not enough to doubt on the bone fides of the blacklists, these lists aimed to invariably include small states, while deliberately excluding ‘like’ jurisdictions that clearly employed the same country business models, and yet seemed to escape scrutiny based on their geographical location. Indeed, when discrepancies arose, the solution was to re-define the list as ‘a work in progress’ and subject to review. This was after the damage to reputation was done.

A further encumbrance on the blacklisted countries is the fact that their proliferation created a public perception that some countries were ‘innocent choir boys’ while others of the same ilk were nonetheless deliberately characterised as ‘harmful’.

During the heady days of the Panama Papers, for example, the OECD gave the US  a  ‘pass’ by allowing  their bilateral agreements in support of FATCA to suffice as exchange of information edicts. This meant that the standard of compliance did not apply to the US, based on the view that the US inter-governmental agreements, designed to support FATCA implementation, would also be applied to the OECD transparency and information exchange protocols.

Interesting enough, at the time, the only two countries outside of this requirement were the US and Panama. Panama was dealt with quite harshly, while the US was allowed to employ its own home-grown solution.

The EU has since indicated that it will blacklist the US if they do not apply the EU crafted rules on transparency and information exchange that have already landed countries on the wrong side of both the OECD and the EU under its good tax governance agenda.

From its inception OECD blacklists have been subject to credibility issues, because of the modalities and the countries exempted from sanction.

Blacklists have always been about creating public furore which has been an indispensable ally in driving the tax compliance agenda. Blacklists have also been used as an anti-competitive measure against small IFCs.

It is no coincidence that lists are invariably leaked to create ‘buzz’ — and one can be rightly concerned about the integrity of communications about the EU’s tax agenda. It is quite easy to use a blacklisting exercise to convince the public of who is on the right side of governance and who should continue to languish on the ‘wrong side’ of accepted best practices.

Nevertheless, two decades after their inception, blacklists have come a long way from the days when the language of blacklisting was designed to demonise the financial services of one group of countries to glorify another group engaged in the same activities. Those entities creating the blacklists must lean on their long experience to establish a comprehensive framework of objective, clear and transparent criteria that can be fairly applied consistently and across the board – this is the only way to bolster credibility in the long-term.