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2014-12-23 15:59:50
New rules in the European Union take aim at corporate secrecy
Dec 19th 2014
CORPORATE secrecy has shot up the global political agenda over the past couple
of years. Non-governmental organisations (NGOs) have been kicking up a stink
about the liberal use of anonymous shell companies which exist on paper only,
with no real employees or offices by corrupt officials, money launderers and
other financial ne er-do-wells. For proof of the economic harm this can cause,
look no further than the billions of dollars siphoned out of Ukraine through
shady shells by Viktor Yanukovich and his cronies.
New legislation in the European Union, agreed on December 16th, marks a big
step forward in the fight to curb such shenanigans, by centralising and
shedding more light on information about who owns and controls companies. Under
the new rules, countries will have to set up central registers of companies
beneficial owners that is, the real people behind firms or the ownership
structures that sit atop them. Access to this information will have to be made
available to law enforcement and relevant government agencies, such as tax
authorities, and also to journalists and NGOs that can prove a legitimate
interest . Information on trusts will also be collected in national registers,
but this will be available only to government agencies. Member states will have
two years to pass the new standards into law.
This is a remarkable victory for those who have campaigned to prise open
ownership of the world s millions of private firms and corporate structures.
Just a few years ago, the idea was widely seen as a pipe dream. But that does
not mean that anti-corruption activists are completely happy. A system which
limits access is likely to be more cumbersome, expensive and could be used as
an excuse to deny meaningful public access. It remains unclear how countries
will assess who has a legitimate interest , said Carl Dolan of Transparency
International, a campaigning group. The compromise may end up replacing one
big loophole with many small loopholes.
Campaigners are also frustrated that there will be no public access to
information on trusts, a private financial structure that holds assets for a
beneficiary. Britain, which is home to many of these, had pushed for them to be
more shielded from transparency than companies on the ground that they are
private legal arrangements and thus more deserving of privacy than
limited-liability corporate structures.
Countries can go further than the EU's new standards if they choose, and some
have already said they plan to do so. Britain, France and Denmark, for
instance, will offer full public disclosure of company owners which the
European Parliament voted overwhelmingly in favour of earlier this year.
Ukraine plans to do the same. Others may soon feel obliged to follow suit.
Europe s move is a setback for those including, but not limited to,
practitioners and regulators in offshore financial centres who say that
central, publicly accessible registers are a bad idea. Their arguments span
issues of financial privacy, the complexity of beneficial ownership (defining
control is not always straightforward) and concerns that owners of dodgy
companies will provide false or out-of-date information to registries.
A group of offshore financial regulators is pushing for an alternative
approach, whereby the onus would be on the lawyers and other service providers
that register companies to collect ownership information and to hand it over to
the relevant authorities when presented with legitimate requests. Such an
approach would work if these sorts of professionals are subject to proper
regulation and harsh penalties for non-compliance, as they already are in some
offshore centres. But campaign groups are strongly opposed because the proposal
offers no public access.
Thanks to the EU's new rules, European law enforcers should soon find it easier
to track the money flows of organised crime, bribe-takers and the like. That
will help to push up detection rates for illicit funds, which are estimated to
be as low as 1% worldwide, with a seizure rate of just 0.2%, according to the
United Nations Office on Drugs and Crime. But the global picture remains
patchy. Eyes will now turn back to America, where company registration is in
the hands of individual states. There, corporate anonymity and thus abuse
remains rife.