A fact sheet on financial transparency comes with a caveat: much of what can be known about money laundering, tax avoidance, and an absence of regulatory oversight and action is shrouded in mystery. It is this ambiguity that allows states to continue to pursue their interests by operating on the edge of what is legally and politically acceptable.
Last year, Tactics Institute published a major report on post-Brexit financial transparency in Europe, looking at the dynamics at play in and between states and blocs that seek to benefit from financial opacity. Here is some of the key information that provides background and context. The full report can be downloaded here.
- The United Arab Emirates (UAE) is an alleged hub of tax avoidance and money laundering
- The UAE levies no tax on the income or wealth of individuals or companies
- Since its foundation in 1971, the UAE has followed an economic model of rapid growth, aided by flows of capital and investments because of its status as a tax-free and money-laundering haven
- In economies with an overwhelming reliance on the financial sector, major investors accumulate disproportionate influence. As a result, systems of governance serve opportunistic investors at the expense of committed national actors, eroding public faith in national institutions
- Complex political relationships emerge from financially-driven state systems. The UAE and western powers is a prime example. A 2006 United Kingdom Foreign Affairs Committee report on the ‘war on terror’ devoted a whole section to the UAE, highlighting the country’s historic links to terrorism via its tax regime and stating: “even before 2001, al Qaeda was known to have financial links with the UAE.” Despite this, the UK has retained close relations with the Emiratis
- 2017 – European Community blacklisted the UAE as a state of concern for tax avoidance, money laundering, and funding terrorism
- 2017 – the US State Department report described the UAE as “one of the leading countries for money laundering”
- 2018 – State Department report outlined how the UAE operates as a station for the movement of terrorist organisations, with the country’s political and economic systems acting as barriers to freezing and confiscating terrorist assets, including from al Qaeda and ISIS. Like the UK, the US retains close ties with the UAE
- 2020 report of the Middle East North Africa division of the intergovernmental Financial Action Task Force: "The UAE's strategic geographical location between continents, in proximity to conflict zones and its own jurisdictional complexity of seven Emirates, two financial free zones and 29 commercial-free zones further increase the UAE's risk of attracting funds with links to crime and terror"
- With Brexit, the EU is losing the advanced UK financial regulatory system. This weakens some of the EU’s smaller states where the financial sector has a grip on governance, including Cyprus, Latvia, Estonia, and Luxembourg
- The UK has been a consistent blocker of centralised EU financial regulation, but other states, such as Estonia and Italy, remain in the EU and are expected to use the members’ veto to undermine attempts to increase transparency