AFD Group`s policy on Non-Cooperative Jurisdictions

July 2014
AFD GROUP POLICY ON NON-COOPERATIVE JURISDICTIONS
The AFD and PROPARCO are committed to contributing to French efforts to counter tax havens,
particularly those emphasized by France in its work with the G8 and G20. Accordingly, the two
institutions have adopted a rigorous policy designed expressly for deals they are involved with and
projects they finance in Non-Cooperative Jurisdictions (NCJs). Initially, this term covered countries
and territories considered non-cooperative by the French General Tax Code.
In response to a request from the AFD Board of Directors in November 2012, it was decided in May
2013 to give greater geographic scope to the NCJ definition. Like the EIB and the World Bank (the
IFC), the AFD now also classifies as NCJs those countries that the OECD Global Forum on
Transparency and Exchange of Information for Tax Purposes does not consider eligible to move to the
next phase of its peer review process.
The AFD and PROPARCO may engage in relations with NCJs under four sets of circumstances:
For cash management purposes;
In connection with projects carried out in NCJs (referred to as “on-shore” projects);
In connection with projects financed by counterparties registered in NCJs but carried out in
other, non-NCJ countries (referred to as “off-shore” projects);
In connection with structuration of deals involving counterparties whose shareholders are
controlled by entities registered in NCJs.
AFD/PROPARCO policy on NCJs has two basic components. (A) The first one, underpinned by the
risk-based approach used in its AML/CTF internal procedures, requires special and enhanced due
diligence whenever the legal arrangements for a deal involve an NCJ; (B) the second one is designed
to delimit the scope of any deals and projects that the AFD or PROPARCO may finance in such
countries and territories.
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July 2014
A. An approach geared to the highest level of prevention and control
Any project carried out in an NCJ is considered high-risk under the AML/CTF risk classification used
by the AFD and PROPARCO. The geographic location risk indicator gives such countries a very high
risk rating. It follows that such projects require a much higher level of due diligence than projects with
no connection to such jurisdictions:
The threshold for identifying a shareholder and verifying the shareholder’s identity is set at
5%. This triggers collection of legal and accounting information on the counterparty and on all
shareholders who have reached the threshold, as well as due diligence on terrorist financing
and the honorability of all such entities and their respective officers and directors. No issues of
integrity and/or transparency should emerge from the range of information collected. As with
all projects financed by AFD/PROPARCO, the beneficial owner(s) of the counterparty must
be clearly identified.
At the appraisal phase, the know-your-customer file must include an explanation of why the
deal requires complex arrangements such as the involvement of an NCJ or possible financial
flows passing through an NCJ. On this basis, adequate justification must be provided for any
project involving a counterparty registered in an NCJ. Similarly, irrespective of where a
project is carried out, adequate justification must be provided if the project involves a
counterparty whose shareholding structure includes one or more companies registered in
NCJs. The aim is to make sure that the financing arrangement under consideration is not being
artificially structured and will not be used for unlawful purposes.
If it proves impossible to identify the beneficial owner ; if there are any doubts about the
honorability and integrity of the counterparty, the counterparty’s shareholders and their
respective officers and directors; if no adequate justification can be provided for using an
entity registered in an NCJ as part of the project structure; and finally if there is any indication
that the deal is being artificially structured or may be used for unlawful purposes, the project
examination process will be terminated.
Throughout the life of the project and for as long as the business relationship is maintained,
any sign of involvement of an NCJ in how the project is structured must be documented. In
addition, any repayments made via transfers from NCJs not mentioned in the contract
documentation must be justified and kept on file.
B. A circumscribed scope of action
The AFD and PROPARCO have also delimited the kinds of deals that are authorized and the kinds of
projects eligible for financing in NCJs:
The two institutions are authorized to finance projects to be carried out in NCJs;
They are prohibited from using counterparties or financing vehicles registered in NCJs for
AFD cash management;
They are prohibited from financing investment vehicles registered in NCJs and that engage in
no real business activity there (e.g., investment funds, special purpose acquisition companies);
They are prohibited from financing artificially structured projects, particularly those involving
counterparties whose shareholders are controlled by entities registered in NCJs, unless that
registration in those jurisdictions is warranted by sound business reasons.
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