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Editorial | European Union must rescind blacklisting

Published:Sunday | December 20, 2020 | 12:14 AM

Jamaica, insofar as this newspaper is aware, remains on a European Union (EU) blacklist – on which it was placed in May – of countries whose regimes against money laundering, tax evasion, and terrorist financing the EU deemed not to have been robust enough. So, similarly, are Jamaica’s Caribbean Community (CARICOM) partners – Barbados, The Bahamas, Dominica, and Trinidad and Tobago.

In Jamaica’s case, this situation persists despite the Government having taken to Parliament amendments to the country’s Revenue Administration Act to improve transparency and to bring its tax and financial reporting requirements in line with the demands of the Organisation for Economic Cooperation and Development (OECD) and to make it easier to share such information with other signatories for a mutual-assistance convention on these matters. Additionally, several other bits of legislation have been passed to improve compliance.

At their virtual summit towards the end of October, CARICOM’s leaders described the EU’s action as “disproportionate” and an “egregious practice” from which it should “desist”. We agree. Indeed, we remain surprised that the EU, a long-standing partner with the Caribbean on development, not only took such an action against its allies, but brought more community states into the net at a time when CARICOM’s already troubled economies were even more stressed and vulnerable.

As was made clear in these columns at the time of the latest blacklistings, The Gleaner acknowledges, and supports, the need for effective systems against money laundering whether being done for the benefit of firms or individuals. Obviously, too, loopholes through which terrorists can funnel money to finance their activities, as much as possible, must be closed. After all, tax evasion and the financing of terrorism pose as much a threat to the economic well-being and security of Caribbean countries as they do to the rest of the world.

We are extremely bothered, nonetheless, by three factors in the European Union’s approach to its anti-money laundering counter-terrorism (AML/CTF) blacklistings. Prior to the EU’s declaration of its own regime, the standards for AML/CTF compliance were established by the OECD via the Financial Action Task Force (FATF) and regional subgroups such as, for this region, the Caribbean Financial Action Task Force. Now, according to the EU, the FATF merely “constitutes a baseline for the EU list”, which it built out with its own methodologies. For instance, FATF had Jamaica on a “grey list”. While declaring it “politically responsive” to the need to upgrade its AML/CTF regime, the island was rated for a blacklisting by the EU.

LACKS TRANSPARENCY

Herein is the second concern. CARICOM’s leaders said – and vast numbers of people agree – that having usurped OECD/FATF’s authority, the EU’s arrangement lacks real transparency. Its blacklisting was done, CARICOM’s heads of government complained, “through unilaterally and arbitrarily determined standards and in an absence of any meaningful prior consultations”. Moreover, the playing field does not seem level. Low-tax jurisdictions with opaque capital movement regimes within the EU, as well as those of some of its important political and economic partners, were not similarly sanctioned.

Our most critical concerns, however, are about effect and timing.

Blacklisting means that transactions by the affected countries through European banks and finance houses are subject, automatically, to “enhanced due diligence”. That, in the normal course of events, translates to higher transaction costs and potentially, in the extreme, being shut out of the EU’s financial system. The threat of a loss of corresponding arrangements for the Caribbean is exacerbated by the EU’s decision

The EU’s blacklisting came at the height of the first wave of the coronavirus pandemic when the global economy was already in a tailspin and the EU, individually and as a collective, committed to spending hundreds of billions of Euros to stimulate the economies of its 27 members. Caribbean economies are projected to decline by nearly six per cent this year. In Jamaica, real GDP could fall by as much as 12 per cent. Further, the Caribbean is the world’s most indebted region, measured by the ratio of debt to GDP. CARICOM’s members have little insulation, and, therefore, no great capacity for stimulus spending to drag their economies out of the COVID-19-induced recession.

In the circumstance, it is little wonder that the region’s leaders branded the EU’s blacklistings a “stepped up ... economic assault on small states despite the prevailing global pandemic, which has forced the protracted shutdown of economic activity amidst predictions of a slower recovery than envisaged”.

Like this newspaper, Caribbean governments have acknowledged the need for stronger anti-money laundering and tax and financial information-sharing regimes. But it is also true that the region has capacity constraints to advance reforms at the pace that some might wish. Unilateral actions that undermine already weak economies is not the way to fix that. It is certainly not the way of friends and partners. The EU should reverse its position and call parties to the table for transparent dialogue.