The Ripple Effects of Tax Blacklisting on Caribbean Progress

The full transcript is available below.

Also available on Apple Podcasts and YouTube.

Can you imagine the catastrophic consequences of your country being blacklisted internationally? Join Rasheed as he chats with Marla Dukharan, a top Caribbean economic advisor, as he unpacks the intricacies of this reality many Caribbean nations face. They dare to question the motives and fairness of international entities like the Financial Action Task Force and the OECD and how their blacklisting practices have devastatingly derailed these countries' reputation and development targets. 

Their discussion is not all gloom; they thoroughly examine the negative impacts of such blacklisting and brainstorm potential strategies that small countries can adopt to fight back. They look closely at how blacklisting has crippled insurance companies, led to the removal of the Schengen visa exemption, and interfered with the functioning of aid and concessionary financing. An intriguing section of our discussion uncovers a hopeful UN resolution spearheaded by the African Union. The resolution aims to empower low and middle-income countries with decision-making power over global tax affairs. As our conversation concludes, Marla and Rasheed reflect on the vitality of financial stability, economic growth, and the necessity for global collaboration.

Please note the abbreviations used in the episode:

• EU - European Union

• OECD - Organisation for Economic Co-operation and Development

• FATF - Financial Action Task Force

• AML - Anti-Money Laundering

• CFT - Criminal Financing of Terrorism

• FT - Financial Times

• FIU - Financial Intelligence Units

• CARICOM - Caribbean Community

• Bajan is a commonly used term for Barbadian 

Resources
OECD pressed Australia to drop plan to reveal where multinationals pay tax by Financial Times
EU Blacklisting of Vanuatu: History, Analysis, and Socio-Economic Implications by Marla Dukharan
When A Blacklist Is, Unfortunately, Just That by Marla Dukharan

Contact Info: Marla Dukharan
Website: marladukharan.com
Twitter: @Marladukharan

Email us at progress@cpsi.org

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Full Transcript

[00:05] Rasheed Griffith: Hi everyone! Welcome back to Caribbean Progress. A podcast of the Caribbean Progress Studies Institute. Today I am speaking with Marla Dukharan, a leading Caribbean Economic Advisor. We will be discussing the origins and implications of Caribbean countries being placed on the international blacklist for taxation and AML, by organizations such as the Financial Action Task Force and the EU. 

[00:31] Not only do these unfair placements damage the reputation of Caribbean countries, but also makes it very difficult to do business. Where by hindering developmental goals. I believe that we need much, much more conversations like these, and I would definitely be talking about this topic much more in the future episodes. But for now, please enjoy my excellent conversation with Marla. 

[01:00] Rasheed Griffith: Thank you Marla, for coming on the podcast today.

[01:03] Marla Dukharan: Thanks for having me Rasheed.

[01:04] Rasheed Griffith: The topic of tax policy and international tax policy is not particularly seen as a very exciting topic in most circles. Especially for the Caribbean, and Caribbean economists, and Caribbean policymakers, its a quite a deep and pressing issue that obviously most people don't think about. And this is becoming worse and worse in the last few years in particular. Last five years, ten years, to some extent. I'm curious. What is your view on why the EU and various other organizations like FATF and so on, has actually started this campaign, in many ways, to really punish alot of Caribbean countries for their tax policies?

[01:47] Marla Dukharan: I just want to give a little bit of background there. So the European Union is one of the bodies that engages in third party, meaning other country, assessments of their adherence to what is called in their terminology open quote-unquote good tax governance. But also they assess for adherence to AML Anti-Money Laundering and Combating Financing of Terrorism standards as well. So it is two work streams if you will. So it's not just tax but also AML, CFT.

[02:20] Now the EU just decided unilaterally that it wanted to do this. Nobody's ever signed a treaty with the EU. No third country ever signed a treaty or any sort of agreement with the EU that says, okay, I give you the authorization to come and assess me based on my tax compliance or my AML CFT compliance and give me some sort of a rating as to how well I'm doing. Nobody's ever done that. 

[02:41] However, you have these two other bodies. You have the OECD, and you have the FATF, which you mentioned earlier. The OECD is the body that is globally recognized as the tax police. They are the ones that many countries have signed on to have them come and do assessments in your country as to your tax policy governance. Now the thing is, the OECD is a vassal of the EU. First of all, it's headquartered in France. It's really the membership of the OECD is limited to generally developed countries. Although you have I think maybe Mexico, Turkey for example, may be not considered as such. 

[03:23] But it does not represent the interests of small island developing states for example. And then you have the FATF. Which is the international body that, again, countries have signed on to have the FATF and its various regional sub bodies do assessments of your AML CFT compliance. Now the FATF is also a vassal of the EU. Again, it's headquartered in France, and it came out of a European institution. 

[03:53] So the point I'm making here, which is important to understand, is that none of these institutions were ever designed to be inclusive. None of these institutions were ever designed to be fair, and to represent the interests of all nations equally. To represent the interests of developing countries to any extent. These are European institutions, designed to support European interests, irrespective of whether or not small island or any other developing country has ever signed on to be assessed by these institutions.

[4:26] So by design, what I'm saying is, by design these institutions were not designed at all, and their mandate has never been, to support the development or to support the agenda of small developing states. So that being said, we should not be surprised. We should not be surprised that the EU in particular takes a stance that is not favorable to small island developing states or developing countries in general.

[04:56] Rasheed Griffith: There's also this particular aspect of let's say the AML CFT risk ratings. Where people when you see a country on the high risk jurisdiction, or list of high risk jurisdictions, they tend to think, oh, there's some like substantial evidence of AML, of money laundering, of terrorist financing, of any other kind of criteria. But oftentimes these are just very very simple template regulatory problems, or what we perceive as problems, that actually push the country on to the graylist. 

[05:28] So for example, like in Caribbean, something as simple as not having the correct legislation clause in the AML code and have it actually in a different code, like the Capital Controls Act, is enough to show that you are not properly following the stipulations by FATF.  And that also gives a very very bad name to the jurisdiction, for essentially no actual evidence of money laundering. 

[05:53] Marla Dukharan: Exactly!

[05:54] Rasheed Griffith: And that is a big, persistent issue. 

[05:56] Marla Dukharan: Well, the thing is that, we assume that the FATF, because it says it's designed and its mandate is to address global money laundering and financing of terrorism flows, we assume that the work that they do, is consistent with that mandate. We assume that the OECD's mandate of addressing harmful tax practices as they call it, we assume that their work will be consistent with addressing harmful tax practices. We will not assume that they will do things outside of that remit, right?

[06:24] However, there is overwhelming evidence that these organizations do anything but work that is consistent with their mandate. So for example, just a few days ago, you would see on the FT, there is a big story, a big revelation. That the OECD, and I want to quote the FT here, the OECD pressured Australia, the government of Australia, to drop a plan to reveal where multinationals are paying their taxes.

[06:48] The OECD itself, which is supposed to be encouraging proper tax practice and tax governance, pressured Australia to not reveal where its multinationals are paying their taxes. Now why would they do that? Because maybe, they're purporting to support proper tax governance. But really probably what they're actually trying to do, is to secure the interests of the members of their membership. And not the mandate that they say they have.

[07:15] On the other hand you have the FATF as well. That is supposed to be the entity that looks to eliminate or reduce money-laundering and combating financing for terrorism. But you have many examples of gaps in the FATF’s work. One of them I recently wrote about. Where the FATF had pointed out, for example, in a 2009 report that Venezuela has been classified as a transit country for illicit drugs, which account for the largest proportion of money-laundering activities corruption. Which accounts for the largest number of cases analyzed by the FIU and drug trafficking. 

[07:53] Yet still, since 2014 the FATF has never assessed Venezuela and does not have Venezuela under its list of jurisdictions on the increased monitoring no high-risk jurisdictions, but you have many of us in the Caribbean who don't have any evidence of this kind of drug trafficking happening. But we appear on their lists. Why would they not assess post 2014 or list Venezuela in the absence of an assessment. Why would they not list Venezuela on the gray list? Why? Because Venezuela has the number one level of crude oil in the world? 

[8:24] So I'm saying that these institutions, is not just that we have to make a minor mistake and to appear on the list. These institutions are deliberately blind to countries that have abundant evidence of breaches. And in the case of the OECD, as I mentioned recently, have even encouraged such breaches. So these institutions, actions and behaviors, are very far removed from their mandate and what they purport to be.

[08:51] But when you look at these blacklists, which I first wrote about in 2019, that not one single country on the EU's blacklist, the tax blacklist or the AML CFT blacklist, not a single country was a predominantly white country. And almost every single country was a former European colony. The first time ever that a predominantly white country has ever been blacklisted by the EU was in February of this year when they blacklisted Russia. And they took a whole year to blacklist Russia. And they only did it, this is subsequent of course to a year after Russia's invasion of Ukraine. 
[09:27] They only blacklisted Russia right after the EU sanctions took effect. They didn't blacklist Russia from the beginning. They waited until their sanctions were decided, their sanctions were implemented, and there was effectively no trade in fuel, in oil and gas, from Russia. And then they imposed this blacklist on Russia. 

[09:47] Now again, they didn't even impose this blacklisting on Russia for AML CFT, and you would think that the actions of Russia would suggest that maybe if you had to blacklist them for anything it might be terrorist activity, I don't know, and of course maybe money laundering because we know of the dark, it's called dark money, that’s flowed through London. But no they blacklisted Russia for tax. Really? [Laughs]

[10:10] So again, they take this action, but first of all, it's impotent and ineffective to blacklist a country after you've imposed sanctions on them, and also you blacklist them for tax when they've invaded another country? It's makes no sense. But again, I just wanted to emphasize that this was the first time that they blacklisted a country that was a predominantly white country. So it again tells you that their behavior and their actions are quite far removed from what their mandate is and what they say they're doing.

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[10:59] Rasheed Griffith: What has been some of the effects that these kind of persistent discriminatory tax policies and blacklisting policies have had on some Caribbean countries?

[11:08] Marla Dukharan: Not just Caribbean countries, but you have even Pacific countries, Asian countries, African countries, that have been blacklisted. One of the key things that it does is it affects your reputation, and you know that reputational risk is one of those risks that you can't really measure, and you can't really mitigate. It's a smear campaign, deliberate smear campaign on the part of the EU and its vassals of the OECD and the FATF to damage the reputation of these countries so that nobody wants to do business. 

[11:40] When you ask exactly what are the effects? I know of several examples. One of the most recent that came to me was a soca music band in Trinidad and Tobago that was negotiating with a massive producer, for a contract that it would be the first of its kind in the Caribbean. And this European company, this producer, this record label basically said, I'm sorry but you're incorporated in Trinidad and Tobago and because you're blacklisted twice by the EU for tax and money laundering purposes, we cannot sign a contract with you. Can you please incorporate somewhere else? And by the way of Trinidad and Tobago and Vanuatu are the only two countries blacklisted twice by the EU. 

[12:20] In another instance I know of an entity that was looking to form a partnership to take over another, so an M&A transaction, and the European partner said I'm sorry I cannot partner with you because you're headquartered in Barbados and you're blacklisted, and I can't enter into this transaction with you. So it's a significant investment opportunity lost on the part of the Caribbean, the Bajan, Barbados based entity. 

[12:44] I know of instances where insurance companies are unable to provide their services to many blacklisted countries because of this blacklisting, and these are insurance services that can help us mitigate the loss and damage that we suffer after a natural disaster. Then there are also instances of countries like Vanuatu for example, that has had their Schengen visa exemption removed. 

[13:08] So now anybody from Vanuatu who wishes to travel to Europe, has to apply for a visa to travel there even though for many years they've traveled there freely, and I mean this is a very tiny country population just under the size of Barbados. To think that this country, which is by the way the most vulnerable to natural disasters on earth, could ever pose a threat to the EU is ludicrous.

[13:30] And so those are some of the implications we see. Also, when there is a natural disaster, like a hurricane passes in the Caribbean, and aid for example, and concessional financing, is being dispensed, the countries that are blacklisted by the EU will not be able to receive any of that kind of support from the EU and from the NGOs for example that are registered there. So those are some of the implications. The thing is we don't measure the monetary value. We can't. How do you measure the monetary value of a reputational damage? You just can't, it's just too big, and I guess it's informal. You really can't measure it. It's all anecdotal. These are some of the ways in which countries are affected negatively by blacklisting. 

[14:13] Now there is a movement underway. A resolution was passed at the UN, I think it was last year. It was spearheaded by the African Union of countries and this resolution would give low and middle-income countries decision-making power over global tax affairs because what they are trying to do is to get the UN to take over this role of the global tax police from the OECD. Because the UN would give, as I just said low and middle-income countries a bigger say than they currently have at the OECD. They don't have any say at the OECD level. So at least this might make the process more inclusive if not fairer to all countries.

[14:56] Rasheed Griffith: How optimistic are you about that proposal?

[15:00] Marla Dukharan: I think that, yes, I can see where you have tremendous opposition to something like this coming from very powerful countries, but I'm still fairly optimistic because we're plenty. We're small but we're plenty of us from the global south, and we were able to push the rich countries, the developed world global north, to support this resolution at the UN. Because basically the African country said wait a minute you're trying to tell us you're not going to support an inclusive framework and a fair framework. Why not? And so they were pretty much embarrassed into supporting it, and I think that can continue to work.

[15:37] I think that a lot of work has to be done because when the vote comes up at the General Assembly in 2025 I believe or 2024. No, I think it's 2024. I think what has to happen is that in order for the OECD, for their role to be taken over by the UN instead, there has to be a concrete proposal coming from the the majority of the member countries in the General Assembly, that says this is a framework we support. Unless we can come together and come up with a framework that everybody is happy with, then we won't make any progress. 

[16:11] So I think a lot of work has to go in to coming up with an alternative. Because we can't say we don't want this over here, but we have no alternative to present. And I know that there was a meeting that was held recently in, I believe it was in Bogota, where the Caribbean and Latin America came together to begin putting together this framework that they would like to see past at the UN. 

[16:32] Because other than that we have the global minimum, the pillar one and the pillar two, which is the base erosion and profit shifting as well as the global minimum tax that the OECD has spearheaded. We have that framework that the world has adopted or agreed to adopt so far and in the absence of a legitimate alternative framework, we'll have to stay with that with that OECD proposal.

[16:53] Rasheed Griffith: Beyond the potential multilateral solutions at the UN, what kind of policies are, I guess general policy structure or otherwise, could small countries do to essentially withstand or not be so, tarnished by these kind of blacklisting tax or AML wise?

[17:09] Marla Dukharan: I think that one of the things we should be doing better in CARICOM for example, and in the Caribbean more broadly, is we should be highlighting the instances where as I just highlighted the Australian example, the instances where the OECD, the FATF, and the EU, have behaved in a way that is inconsistent with what their mandate is or what they say they are trying to achieve.

[17:36] So for example, when you look at Tax Justice Networks index of Finance, the countries that are the largest suppliers of financial secrecy, the number one country that's the number one supplier of financial secrecy is the United States. But do you think that any FATF or OECD will ever gray list or blacklist the US? And then you have countries like Switzerland, and Luxembourg, and Hong Kong, Singapore, on this list, that like I said will not ever appear on any of the OECD, FATF, or EU's list 

[18:10] So my point being that there is easily available abundant evidence of inconsistency, between what these institutions say their mandate is and what they purport to be doing, versus what they're actually doing. And we as Caribbean countries who are suffering from this kind of action, at the very least, should come together and should push back, and should make noise at the highest levels and say how could you blacklist little Dominica, for example, and Barbados. We account, blacklisted countries that is, for 2% of the problem globally. 2%. 

[18:43] But you're blacklisting us when you have 98% of the problem out there doing whatever they want to do and continuing to profit from this type of activity that we are then held accountable for doing, which is really not fair. How is it that CARICOM has only ever issued one communique? I believe it was 2018 or so that CARICOM issued this one communique, collectively pushing back on blacklisting.

[19:11] Rasheed Griffith: So who's dropping the ball at CARICOM? What specific CARICOM unit or organization should actually be responsible for getting these things done. Why aren't they allowed to do it or why are they not capable of doing it?

[19:24] Marla Dukharan: Well I think many of them should be responsible. There's the committee of trade ministers, because this issue affects trade. There's the committee of central bankers, this issue affects wire transfers, and anything related to financial transactions. Then there's a committee of finance ministers, this issue affects our countries on a macro scale. Why aren't or any or all of these committees of CARICOM and even the secretariat itself. At the heads of government meetings, when you look at the agenda for the heads of government meetings, how many times have you seen this issue that affects so many of us so deeply? 

[19:56] Because I think that what has happened is, these Europeans have continued with this strategy of divide and conquer that they've used on us for so long and they try to Negotiate with us on an individual basis as opposed to allowing where we should come together and say no. You're not going to negotiate individually with Barbados or Jamaica or Dominica. You have to negotiate with all of us collectively because we are all affected even the ones who are not blacklisted.

[20:22] Why is it that they try to pick us apart and you know that the big countries play this game all the time? And they try to divide and conquer, and we don't even see it for what it is and recognize it for what it is and decide that we're going to stick together no matter what and push back collectively. When I talk to Caribbean leaders, they say, well you know British Virgin Islands has a different problem to us and Cayman Islands has a different problem to us. 

[20:44] Okay, so we all have our nuances, but we're all small island developing states within the Caribbean struggling with the same unfair treatment on the part of these institutions for hundreds of years. Why can't we all decide that we're going to stick together and you deal with us as one. When you have to deal with the Europeans don't you have to deal with the EU as one? Why is it that it's different for us when we're the oldest integration movement on earth.

[21:06] So to me, we can't just blame the EU and the OECD and the FATF and the Europeans more broadly for what they do. We also have to look at ourselves and be accountable for what we don't do.

[21:17] Rasheed Griffith: Marla, this has been a very interesting conversation. I am thanking you so much for coming on the show. 

[21:22] Marla Dukharan: Thank you Rasheed. Thanks for giving me the opportunity and for chatting. I really enjoyed it and I wish you all the best.

[21:28] Rasheed Griffith: Thank you