Andres Knobel ■ Blacklist, whitewashed: How the OECD bent its rules to help tax haven USA


We’ve criticised for years the farcical nature of ‘tax haven’ blacklists, whether EU or OECD ones. They all turn out to be politicised, misleading and ineffective. If you want an objectively verifiable ranking you need look no further than the Tax Justice Network’s Financial Secrecy Index.

But still they come… On July 23rd 2018, the OECD published its report to the G20. What interests us is Annex 2 of this report, which includes the OECD’s updated criteria – which it was required to prepare at the G20’s request – to identify jurisdictions that have not satisfactorily implemented the OECD tax transparency standard.

We’ve already criticised the old OECD criteria here and the results here. Given that the OECD published an essentially empty blacklist with only Trinidad & Tobago on it, there were clearly a few problems with the methodology they were using. Maybe the OECD chose an island with a long name to trick people into thinking that at least two jurisdictions were blacklisted, but don’t be fooled, Trinidad & Tobago is just one tiny country and clearly not the only, or even anything like the main source of the world’s global financial secrecy…

So, what’s in the OECDs exciting new criteria? Well, the updated criteria entail just an update, no radical change, on the face of things. They retain the same requirement that jurisdictions wanting to be sure they’ll be whitelisted only need worry about meeting two out of these three factors:

  • Exchange of information “upon request”
  • Automatic exchange of information based on the Common Reporting Standard (CRS)
  • Treaty network to exchange information under both methods mentioned above

Things have got a little more complicated though. The OECD have added two blacklist triggers, such that jurisdictions risk being blacklisted if they don’t comply, even if they meet two of the three factors above. Have a look:

Old CriteriaUpdated Criteria
Compliance with 2 out of the 3 following factors
Exchange Upon Request (EOIR)Overall rating of “largely compliant” or better from the OECD’s Global Forum Peer Review reportsOverall rating of “largely compliant” or better from the OECD’s Global Forum Peer Review reports, including the second round of reviews (which assess also availability of beneficial ownership information)
Automatic Exchange (AEOI)Commits to implement the CRS by 2018 at the latestAll necessary legislation is in place

and exchanges commenced by the end of 2018; and agreements activated with substantially all interested and appropriate partners by the end of 2019

Treaty NetworkSigning the Multilateral Tax ConventionHaving the multilateral Convention in force or having a sufficiently broad exchange network

of bilateral agreements in force permitting both EOIR and AEOI

Alternative triggers of blacklist (one trigger enough to be blacklisted)
Exchange Upon Request (EOIR)Overall rating of “non-compliant”
Automatic Exchange (AEOI)Contrary to its commitment to the Global Forum to implement the AEOI Standard by 2018, the updated AEOI requirements are not met (see above: legislation is not in place & no exchanges with interested partners by 2019)


Making sure the updated criteria fits US secrecy framework perfectly…

In case you hadn’t noticed, while the above criteria may look more demanding, they actually allow the most secretive aspect of the US to be whitewashed. Here’s how:

First factor: ‘upon request’ exchange of information

There are two elements here. First, jurisdictions need to avoid the trigger: if they are rated ‘non-compliant’, blacklisting is automatic.

Now if jurisdictions looked at our Financial Secrecy Index they’d be scared as hell: after all, even the “best student” country can’t even pass the “transparency test” (the best score is slightly below 60% of transparency) – the worst student gets barely 1 out of 10 transparency questions right.

But, with the OECD criteria, jurisdictions have nothing to fear. Their examiner is not us at the Tax Justice Network, but the Global Forum. Result: out of more than 100 jurisdictions, only Trinidad and Tobago is considered non-compliant. Well done everyone else!

The second part is to actually manage to get an overall rating of “largely compliant” with the Global Forum peer reviews, so that you can still fail one of the other factors without being blacklisted. The US proves this is a piece of cake, or indeed a piece of abject nonsense.

Bear in mind that the US cannot guarantee access to updated legal ownership information in all cases for all legal vehicles, let alone to information about their ultimate beneficial ownership. And yet, laughably, the US is considered to be “largely compliant” under the second round of peer reviews – which include an assessment on beneficial ownership.

Second factor: automatic exchange of information

The updated criterion requires more than simply committing to the Common Reporting Standard (which all financial centres of any size have signed up to now, except for the US). Now there must be legislation in place, and agreements with, as the OECD puts it, “substantially all” interested parties. Albeit with a possible wink to Switzerland who not only waited until 2018 but also postponed exchanges with developing countries until 2019, the OECD gave everyone time until the end of next year.

Although this is an unfortunate continuation of the bad habit of judging jurisdictions on what they commit to do, rather than what they have already done, the substance is welcome. In particular, this seems to target the Swiss-led ‘dating game’ approach: signing up to the multilateral instrument, but then providing information only to select bilateral partners. But then the OECD doesn’t specify a definition for ‘substantially all’, so only time will tell if this is ultimately meaningful.

It does appear though that the OECD wanted to prevent a tax haven such as the Bahamas, from meeting the other two requirements (a rating of “largely compliant” with exchanges “on request” and a wide treaty network), yet failing to implement automatic exchange of information with all other countries.

But the OECD faced a conundrum: how to force the likes of Bahamas to implement the Common Reporting Standard, while letting the US get away with not implementing it? The OECD came up with an extraordinary caveat:

it has, contrary to its commitment to the Global Forum to implement the AEOI Standard by 2018, not met the AEOI benchmark set out above (emphasis added).

In other words, the trigger is not about implementing the Common Reporting Standard at all, but only to implement it, if you had originally committed to it.

And which country refused to join from (almost) the very beginning? The US.

Which country will thus be off the hook regarding the blacklist trigger? Again, the US.

Third factor: a treaty network that is wide enough.

The OECD updated the third and last factor, from a requirement to sign the Multilateral Tax Convention, to actually having it in force. But there’s an ambiguity there – and guess who benefits?

The criterion doesn’t specify whether it refers to the original Convention (that excluded all non-OECD countries, such as developing countries) or the amended Convention (which allows exchanges of information among all countries, including developing countries).

The US is the only country party to the original Convention that doesn’t have the amended Convention in force (the US only managed to sign the amending Protocol, but didn’t ratify it, so they cannot exchange information, either automatically or on request, with developing countries that are only party to the amended Convention).

But just in case, the OECD has thrown another life jacket to the US. It’s not necessary to have the Convention in force, if the treaty network (e.g. number of double tax agreements or tax information exchange agreements) is sufficiently broad.

Again, the OECD doesn’t define the term “sufficiently broad”. But the US managed to be scored “largely compliant” even on beneficial ownership information, and so we have no doubt at all that failure on the third factor won’t be an issue.


If this is really what the OECD has had to resort to in order to avoid criticising its largest and most powerful member, the US, then the credibility of the whole process is now totally exposed. It’s hard to see how anyone can consider the blacklist legitimate.

The contortions to avoid blacklisting the US seem so egregious that it raises a question over the continuing role of the OECD as the forum for international tax rules. Is this the moment the organisation has crossed a line, trying so hard to please the US that it’s made the case once and for all for a transfer of responsibilities to a representative venue at the UN?

The next shoe to drop will be at the EU, which will now have to decide whether to confirm the OECD assessment as a way of avoiding adding the US to its own blacklist of non-cooperative jurisdictions. Earlier this year, the European Commission confirmed our analysis to a European parliamentary committee of inquiry, specifically agreeing that the US could be blacklisted in mid-2019 if it did not sign up to the Common Reporting Standard. The Commission is also committed to introduce more rigorous criteria around beneficial ownership, where the US performs equally poorly.

Given how the OECD arrived at its rating, the EU cannot confer further legitimacy on it without completely de-legitimising its own list. But which will be stronger: a determination to fight financial secrecy and all the damage it does; or the realpolitik of playing nicely with President Trump?


Related articles

Comments • 1

  • July 27, 2018 - 11:52 pm

    The U.S. can not be considered compliant with CRS or FATCA, as the internal regulations of the U.S. do not require banks to seek and report the nationality of account holders.

    As part of FATCA, was an implied promise of reciprocity. Yet, FATCA was passed by Congress in 2010 and still there is no regulation for U.S. financial institutions to seek nationality information of its account holders. Moreover, there have been hints that the U.S. banks would resist such legislation on the basis of the extra expense involved – the same costs that the U.S. has demanded of the banks of world.

    A complicating factor is also the power of the States within the U.S. and for certain states, such as Delaware, which do not require the beneficiaries of accounts to be disclosed.

    So while the U.S. has inflicted FATCA on the world and CRS is becoming more adopted – while these regimes are not followed by the U.S. – the combination has resulted in the U.S. rising in the ranks of the global tax havens of the world, to which the OECD have thus far turned a blind eye. However, the Europeans have their own list of tax havens and adherence to CRS will increasingly be a central factor of that ranking.

    Speaking of FATCA, a group called ADCS has a lawsuit against the Canadian FATCA IGA that FATCA violates the Canadian Charter that prohibits discrimination based on nationality. That is discrimination against Canadian resident citizens (some who have lived their entire lives in Canada), who are also U.S. persons.

    A key difference between CRS and FATCA, is that CRS is to report nonresident accounts, while FATCA is to report U.S. resident OR U.S. person accounts (citizens and green card holders), even if they are tax resident in other countries.

    Among the OECD only the U.S. claims tax jurisdiction over its “persons” no matter where in the world they are resident, with punitive double tax provisions for accounts, assets, pensions, and passive income “foreign” to the U.S.

    Such claim fails norms on the “justification of taxation” that is accepted to include in exchange for taxation: the provision of local services and protection of local property and rights – which the U.S. provides ZERO of to its 6-9 million U.S. persons living in other countries.

    Thus the U.S. is a bully to other countries (forcing FATCA on them under an extortionate “witholding” threats and failing in implied promises of FATCA data reciprocity & ignoring CRS); and a bully to its own “persons” living in other countries by requiring un-American over-regulation and double taxation of them: in contradiction to American founding principles and its own rhetoric about America having Philadelphia Freedom with the greatest liberty in the world.

  • Leave a Reply

    Your email address will not be published. Required fields are marked *

    This site uses Akismet to reduce spam. Learn how your comment data is processed.