The Inclusion of Financial Services in EU Free Trade and Association Agreements: Effects on Money Laundering, Tax Evasion and Avoidance Ex-Post Impact Assessment

Abstract

This study examines the implementation and effects of the inclusion of financial services in existing EU free trade and association agreements (FTAs) and, in particular, their impact on money laundering, tax evasion and avoidance. The opening analysis outlines the geopolitical and trade context, as well as the EU policy framework to combat money laundering, tax evasion and avoidance. It examines the effects of the ‘Panama Papers’ leaks; assesses the consequences of tax evasion and money laundering and their link to trade in Africa; evaluates the implementation of the EU-Central America Agreement; and provides a synthesis of the key findings and policy recommendations presented in the annexed study. The annexed expertise investigates the implementation and effects of financial services provisions in selected EU FTAs with third countries, with a particular focus on their propensity to curb money laundering, tax evasion and elusion. It concludes that the liberalisation of trade in goods and services with developing countries increases the threat of money laundering, and that it is therefore likely to contribute to an increase in illicit financial flows from developing countries to the EU. The study does not find conclusive statistical data to support a causal link between the EU FTAs that are in force and an increase in illicit financial flows. Nonetheless, the far-reaching commitments made by the EU and the developing countries in the selected EU FTAs regarding access to the markets for goods and services, including in the financial services sector, translate into such agreements significantly increasing trade openness, and hence also the threat of money laundering facing developing countries. To remedy these threats, the study provides a number of policy recommendations.

Keywords: European Union, free trade agreements, good governance, money laundering, tax evasion, corruption