Andorra: Offshore Business Sectors
Until recently, Andorran banks (at the time of writing (2019), there are five) 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. In addition, a number of separate asset-management firms have recently been licensed, some of which are subsidiaries of international fund management companies.
The Andorran banking system has had significant links to Spain, though these have loosened recently. 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, though only one banking institution has failed in Andorra (Sobanca in 1968).
The overriding 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, has imposed 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 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 €61 million in 2004 to €1.8 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 2 April, 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 authorised to carry out unannounced inspections and hand information to the public prosecutor's office or the government.
Since 2002, the UPB has been permitted 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, the 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.