Andorra: Offshore Business Sectors
Until recently, Andorran banks (of which there were six in 2012) were, at least in theory, owned entirely by Andorran interests, although in practice some French and Spanish banks have minority shareholdings, often in connection with the marketing of asset management or investment products. The Andorran Government has however, talked about admitting four foreign 51%-controlled banks, under stringent conditions, which will have Andorran chief executives. In addition, a number of separate asset-management firms have recently been licensed, some of which are subsidiaries of international fund management companies. These moves do not by any means imply that Andorra intends to develop a substantial foreign-owned financial services sector.
While the Andorran banking system has significant links to Spain, these links have decreased. With the sales of BBVA’s participation in the Inter-Mora bank to the Andorran shareholders in early 2006, only three of the six banks authorized to operate in Andorra have Spanish participation. These banks account for about 45% of assets and deposits of the banking system, down from around 71% in 2001. In September 2006, La Caixa announced the sale of its shares in Credit Andorra to the Andorran shareholders of the bank, meaning that only one Spanish Bank remains operating in Andorra, with about 4% of assets and deposits of the banking system.
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 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.
In June, 2004, however, Andorra was obliged to accept the EU's Savings Tax Directive, and as from July, 2005, is imposing a withholding tax of 15% (20% from July 1, 2008) on returns on savings paid to citizens of Member States of the EU, of which 75% is remitted onwards to the States concerned.
While the EU Savings Tax Directive seems to have had little negative impact on the Andorran banking system so far, a report by the IMF in February 2007 noted that the prospect of higher taxes has encouraged EU customers of Andorran banks to seek alternatives to savings instruments by moving into other financial instruments, including life policies offered by life insurance companies controlled by Andorran banks. As a result, life insurance premiums grew from EUR61 million in 2004 to EUR1.8 billion in 2005, according to the IMF.
In March 2009, Andorra’s government announced that it would cooperate with OECD principles by reaching tax information exchange agreements by November 2009, when it would pass legislation to ease its banking secrecy controls. The announcement came in anticipation of the G-20 summit on April 2, where a revised 'blacklist' of uncooperative jurisdictions was expected to be discussed.
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.
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.
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.
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.