Andorra: Law of Offshore
Banks and other financial institutions in Andorra are regulated by the Andorran National Financial Institute (INAF) under the Law Regulating the Financial System 1993.
Andorran banks are all members of the Agrupacio de Bancs Andorrans, which operated a system of self-regulation until the regulatory law was passed in 1993. The banks have very conservative policies, and high solvency ratios: depositors' funds are guaranteed under a 1997 law, but only one banking institution has ever failed in Andorra; Sobanca in 1968, and the remaining banks stepped up to honour its liabilities in order to preserve the confidence in the system.
The over-riding characteristic of Andorran banks that attracts foreign depositors and investors, apart from the absence of taxes, is secrecy. Numbered accounts, made available only to top-quality clients, are said to be known only to 'the customer, the banker and God'. General accounts, also secret under the law, are highly protected as well.
The Andorran Penal Code includes specific provisions against disclosure of details of a bank account to anyone, including the authorities. Only a court order (judge's warrant) can force disclosure.
In June, 2004, however, Andorra was obliged to accept the EU's Savings Tax Directive, and as from July, 2005, has imposed a withholding tax initially of 15% (20% from July 1, 2008 and 35% from July 1, 2011) on returns on savings paid to citizens of Member States of the EU, of which 75% is remitted onwards to the States concerned.
In response to international concern over money-laundering, Andorra introduced the 'Law of Protection of Banking Secrecy and of Prevention of Laundering of Money or of Assets Deriving from Crime' in 1995. This law requires financial institutions to report any suspicious money movements to the INAF; and the INAF is then entitled to pass on such information to foreign countries if an Andorran judge orders it. However, this will only be done if there is prima facie evidence of a crime (which in Andorra definitely does not include tax avoidance or evasion), and even then is only permitted to countries which have banking secrecy laws, thus excluding, for instance, the UK and the US. In most circumstances, the effect of the law is to strengthen secrecy, not weaken it.
The Law is quite explicit about wanting to balance the attack on money-laundering on the one hand against the need to preserve banking secrecy on the other. Article One reads: 'The present law has as its object the protection of banking secrecy and the prevention of the laundering of money or assets deriving from drug trafficking and other criminal activities'.
The Law defines money-laundering (and offences against banking secrecy) in terms of the existing Penal Code: this provision clearly excludes tax matters from the ambit of the Law.
The Law imposes 'know-your-customer' rules on financial institutions and intermediaries ('fiduciaries').
The Law permits disclosure only in the context of judicial proceedings and in response to an Order from a 'Batlle' (Andorran court).
The Law doesn't just impose a passive duty on financial institutions and intermediaries; there is a positive requirement to report what appear to be suspicious transactions (preferably in advance) to the duty Batlle. The Batlle then either takes appropriate action, or authorises the transaction; the financial authorities are kept informed in either case. The Law specifically prohibits any person who is reporting a suspect transaction from giving any information about it to the subject of the suspicions, or to any third party.
Financial institutions or intermediaries which infringe the Law are subject to penalties depending on the severity of the infringement:
- Minor infractions are punished with a fine of up to EUR1,000;
- Serious infractions receive up to six months' suspension and a fine of up to EUR12,000;
- Very serious infractions receive suspension up to 3 years, or permanent suspension, and a fine of up to EUR250,000.
The Penal Code provides imprisonment up to four years for malicious infraction of the privacy law, and seven years if done for gain.
In August, 2001, a Department for the Prevention of Money Laundering (Unitat de Prevenció de Blanqueig - UPB) was established. The UPB, which is equivalent to a Financial Intelligence Unit under Egmont Group rules, is authorized to carry out unannounced inspections and hands information to the public prosecutor's office or to the government.
The governing council of the UPB consists of two financial officials who are appointed by the Minister of Finance, a judge nominated by the Consell Superior de Justícia, and two police officers who are appointed by the Minister of the Interior.
Since 2002, the UPB has been permited to enter into cooperation agreements on criminal matters with foreign authorities. Subsequently, the UPB has signed agreements with the corresponding anti-money laundering authorities in Bahamas, Belgium, Dutch Antilles, France, Luxembourg, Monaco, Peru, Poland, Portugal, Spain, and Thailand. It has cooperated with foreign authorities to detect and prosecute criminal activities and freeze accounts in various occasions. It has also shared information and cooperated with other Egmont group members.