Part two of a two-part series on the Engel List

Illicit financial flows and corruption are a major concern in Latin America, as governments across the Americas try to prevent billions of dollars from leaving the region each year due to tax evasion and other financial crimes. They are also a major concern for the United States, which recently launched an anti-corruption campaign focused on three neighboring Latin American countries: Guatemala, Honduras and El Salvador.

The trio – known as the Northern Triangle of Central America – worries US policymakers because deep-rooted poverty in those countries has allowed corruption and a migration crisis to spill over into the United States.

In response, US lawmakers signed into law in December 2020 the United States-Northern Triangle Enhanced Engagement Act, which requires the US State Department to design targeted anti-corruption sanctions aimed at activity in the three countries. It also requires the State Department to publish an annual report on corrupt and undemocratic actors, known as the Engel List, in honor of the law’s legislative sponsor, former U.S. Representative Eliot L. Engel. (You can read our previous coverage in the following article: Global Tax Implications of the Engel List).

In the wake of this American campaign – the American Call to Action in Central America – it is worth examining the landscape of tax transparency and enforcement in these three countries. The Organization for Economic Co-operation and Development (OECD) has been working with Latin American tax administrations to improve tax transparency and on May 3, 2022 released a report detailing its latest findings. The report, Tax Transparency in Latin America 2022shows that tax authorities in Latin America are slowly improving their tax exchange networks, but also shows that the region as a whole needs more time to improve its strategy.

It further provides crucial information on tax transparency in the three Northern Triangle countries that could prove invaluable in the United States’ ongoing fight against corruption.

The OECD intervenes

In 2018, the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes launched a program focused on Latin America to help tax administrations in these countries strengthen their information sharing activities. information. This program, called the Punta del Este Declaration, includes:

  • implement and improve information exchange systems,
  • implement automatic information exchange systems, and
  • implement beneficial ownership transparency systems.

Guatemala, Honduras and El Salvador have all joined the Punta del Este Declaration and are at relatively new stages in their journey towards tax transparency.

Early results from Northern Triangle tax transparency programs are promising

According to the report, Guatemala recently received assistance from the Global Forum on Beneficial Ownership Transparency and the implementation of a so-called “exchange of information on request” system to better help the country share data requested from other tax authorities. Honduras is at an even earlier stage in its journey and in 2021 participated in an induction program where it was coached on tax transparency standards. El Salvador is very new to the program, having signed the Punta del Este Declaration in 2021, but its signing is a promising start.

Once the three countries are able to fully implement their information exchange systems, the revenue and information benefits could bear fruit. According to the OECD, Latin American countries have raised €3.6 billion in additional revenue since 2009 through on-demand information exchange systems. Information exchange systems have also helped Latin American countries improve their voluntary disclosure programs, which have raised billions over the years. Between 2009 and 2021, voluntary disclosure programs in Latin America collected almost €26 billion according to the OECD.

The effort has a global reach

This effort to increase tax transparency across Latin America is precisely what governments need to fight corruption and hold bad actors accountable. For the United States, these developments come at an opportune time. As the United States continues its campaign in Central America, improved tax information exchange systems in Guatemala, Honduras and El Salvador could play a role in its fight. This is important not only for the United States or the three countries targeted, but also for the ongoing global fight against tax evasion.