Richard Murphy writes:
The Tax
Justice Network is
calling for the European Parliament, the European Commission and the Heads of
State of European Union Member States to address three serious shortcomings in
the fourth European Anti-Money Laundering Directive (2015/849,) a common European framework
designed to establish an EU-wide approach to preventing the laundering of the
proceeds of crime.
It is scheduled to come into force by mid-2017 across the
European Union.
Unless the proposed rules are tightened, shell company
abuses will become easier in Europe.
The common thread in the Panama Papers is secrecy,
enabling perpetrators to launder illicit proceeds of corruption, tax
evasion, drugs money and much more.
In order to escape law enforcement, they
depend on secrecy – very often through using shell companies, trusts and
foundations available in most countries worldwide.
Intermediaries such as
lawyers, notaries, family offices and banks help create and handle those
structures.
In 2005 (2005/60), the rules for identifying the owners
of offshore companies who seek to open accounts, hold shares or buy property in
the European Union included rules to identify the real owner(s) of offshore
companies – the so-called “beneficial” owner(s).
According to the existing rules from 2005, a beneficial
owner in the European Union has to be the ‘natural person’ actually controlling
the legal entity, no matter how many lawyers of nominees, shell companies or
trusts are placed in between (see Article 3.6, on page 8).
So a Panama or British
Virgin Islands company has to reveal its real beneficial owners to the relevant
EU banks, lawyers and notaries involved.
Failing to comply with those
obligations (by, for example, recording a nominee director instead) is
sanctioned, and can be a criminal offence.
Now, the European Union in its 2016 amendments under the
4th Anti-Money
Laundering Directive propose adding an exception to this requirement for all
legal entities.
The incoming rules contain an ambiguity that will invite
abuses, allowing an exception where the bank, notary or lawyer can record
(instead of the true beneficial owner) the “natural
person(s) who hold the position of senior managing official(s)” (see Article 3.6.a.ii, on page 14).
Of course these “senior managing officials” could be
nominee directors – the bread and butter of secrecy: they are a shield between
the companies (and the assets they hold); and the real beneficial owners.
These
nominees sometimes manage of thousands of shell companies each – and under the
incoming rules they can be defined across the European Union as the beneficial
owners.
Furthermore, the fourth Anti Money Laundering Directive
contains some good news: it will create registries of beneficial owners of shell
companies.
However, in November 2014 Germany’s government (together with Malta
and Cyprus) opposed a mandatory provision to publish this new registry’s data,
even against the more progressive positions of the UK, French, Italian and
Spanish governments.
Publication is only permitted, not mandatory.
The UK
and Netherlands have agreed to a public registry, but many governments
including Germany will preserve the veil of corporate secrecy in Europe – and
across the World.
Last but not least, the current Directive suffers another
major loophole: while foundations are covered by the new mandatory registration
of ownership, trusts (the Anglo-Saxon cousins of foundations) have been
excluded.
As was revealed on 7 April 2016, British Prime Minister David Cameron
intervened personally in 2013 to stop offshore trusts from being included
in EU proposals for a crackdown on tax avoidance.
These structures can be used
to cause the same or even worse damage as shell companies.
John Christensen said:
“We have always said that any registry of beneficial
ownership must include offshore companies, trusts and foundations.
“To fail to
do that would simply result in a stampede towards any vehicles not included in
public registry. It’s not rocket science.”
Alex Cobham,
Director of Research at TJN, said:
“Politicians across the world who are welcoming the
Panama Papers have to realize that they don’t need to rely on lucky leaks.
“They
can simply close their markets – where all the real economic activity takes
place – to any entity from a jurisdiction that does not freely publish
registers of beneficial ownership.
“Pretty soon, you’d find those jurisdictions
turn themselves around.”
Andres Knobel,
a consultant at TJN, said:
“The current EU plans are a huge missed opportunity and
would exacerbate the impact of offshore secrecy across Europe.
“We have to
remind our political leaders that the people want public transparency, not more
of the same institutional corruption.”
Nicholas Shaxson said:
“Why should we allow masked offshore investors to
undermine the integrity of our economies?
“If you are going to set up legal
entities in Europe, then it should be clear who owns them so that
crime-fighters can do their jobs.”
Liz Nelso, a
director of TJN, said:
“After Panama Papers, we have to let go the naïve notion
that anonymous private companies serve any legitimate purposes.
“These
shell companies are like weapons, and if we cannot control their producers, we
must ensure tight regulation of their owners.”
Markus Meinzer said:
“The EU has already planned to reopen the Directive in
the 2nd Quarter of
2016 in order to beef up anti-terror financing provisions after the disastrous
recent attacks.
“Surely the scale and system of abuse revealed through Panama
Papers warrants to add crucial public transparency to this proposal.”
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