Financial Crime World

Andorra: A Financial Haven with Strong Regulations

Located in the Pyrenees mountains between France and Spain, Andorra has long been known for its tax-friendly environment and financial secrecy. However, the country has made significant efforts to modernize its financial sector and comply with international standards on anti-money laundering (AML) and combating the financing of terrorism (CFT).

AML/CFT Regulations

Andorra has strengthened its AML/CFT regulations in recent years by requiring financial institutions to conduct enhanced due diligence on clients and transactions. The country’s Financial Intelligence Unit (UIF) is responsible for monitoring and investigating suspicious transactions.

To comply with international standards, Andorran banking entities must:

  • Conduct customer due diligence to identify both the client and beneficial owner
  • Report any suspicious transactions to the UIF
  • Keep confidential information about the issuer of a suspicious reporting
  • Apply simplified and enhanced due diligence measures based on the risk profile of clients, business relationships, products, or transactions
  • Develop admission policies for clients
  • Maintain documentation for at least 10 years
  • Conduct regular training programs for employees
  • Undergo independent external audits to verify compliance with AML/CFT provisions

Depositor Protection

Andorra has a robust depositor protection regime, which ensures that depositors’ funds are protected up to EUR100,000 in the event of a banking institution’s insolvency. Additionally, certain deposits related to real estate transactions, payments received on a one-off basis, and insurance benefits or compensation for damages are also covered.

Bank Secrecy

Andorra has abolished bank secrecy, aligning with international recommendations from the Organization for Economic Cooperation and Development (OECD). The country now regulates three types of exchange of information on tax purposes:

  • Requested exchange
  • Automatic exchange
  • Spontaneous exchange

Prudential Regime

Andorran banking entities must comply with prudential requirements, including minimum capital and liquidity standards. Law 35/2018 aligns the country’s regulations with EU directives and requires banks to maintain adequate internal capital, develop strategies for assessing and maintaining capital adequacy, and cover 100% of liquidity outflows with high-liquidity assets.

Conclusion

Andorra has made significant strides in strengthening its financial sector regulations, ensuring a safe and secure environment for depositors and investors. The country’s commitment to international standards on AML/CFT, depositor protection, and prudential requirements demonstrates its dedication to maintaining a trustworthy and stable financial system.