Financial Crime World

Andorra’s Banking Sector Shifts Towards Transparency Amid Global Pressure

Andorra, a small European principality nestled in the Pyrenees mountains, has long been known for its banking secrecy and attractive tax environment. However, with the OECD’s Automatic Exchange of Information (AEOI) initiative and the Common Reporting Standard (CRS), Andorra is moving towards greater transparency in its banking sector.

A Changing World

Andorra’s banking system was once a major player in the global economy, accounting for around 20% of GDP. The country’s banks offered numbered accounts without shared names of record, making it an attractive destination for foreign residents looking to park and earn income on their money without being taxed by their home governments.

However, in recent years, Andorra has been listed as a non-cooperative tax haven by the OECD, leading to increased scrutiny from global authorities. The country’s banking sector has undergone significant changes, with a shift towards greater transparency and compliance with international standards.

Automatic Exchange of Information (AEOI) and Common Reporting Standard (CRS)

Andorra signed the Declaration on Automatic Exchange of Information in Tax Matters in 2014, committing to implement the CRS. This requires jurisdictions to collect financial information from banks and other financial institutions and exchange it automatically with other jurisdictions.

Key Points

  • Andorra will receive information from other countries about accounts held by residents of those countries.
  • Resident bank accounts in Andorra remain private, and financial institutions are not required to share information with Andorran authorities.

What Information is Shared?

Information shared under CRS includes:

  • Account number
  • Taxpayer ID number
  • Name
  • Address
  • Date of birth
  • Income (interest, dividends, insurance income, etc.)
  • Sale proceeds
  • Account balances
  • Ultimate beneficiary owners (UBOs) for company accounts

When Did Reporting Begin?

Andorran institutions began collecting information in 2017, and reporting began in 2018. The country currently uses a “Narrow Approach,” which means it only collects and shares information for tax residents of jurisdictions in the European Union.

Combined Catalyst: Pressure on Andorra’s Banking System

The scandal surrounding Banca Privada d’Andorra (BPA) in 2015, accused of money laundering by the US Treasury Department, combined with CRS has put significant pressure on the Andorran banking system. Due diligence and KYC processes have become more challenging for individuals and companies.

Andorra’s Banking Privacy: Going the Way of the World

Despite a financial secrecy score of 66/100, Andorra ranks 105 on the Financial Secrecy Index due to its small size and limited impact on the global economy. The country is moving towards greater transparency without sacrificing low and fair taxation for residents.

In conclusion, Andorra’s banking sector is shifting towards greater transparency in response to international pressure. While the country remains an attractive destination for tax-compliant individuals and companies, it is no longer a secret haven for those looking to avoid taxes or launder money.