EU anti-money laundering rules chance to 'halt tax evasion'

Beneficial ownership information registers can boost the fight against money laundering and tax evasion, writes Judith Sargentini.

By Judith Sargentini MEP

03 Mar 2014

It is estimated that criminal money laundered into the financial system accounts for two to five per cent of the yearly global gross domestic product. This is not only money derived from criminal activities such as corruption, human trafficking and fraud; it also includes large sums of money from big corporations that evade taxation. 

In the current economic situation it is ludicrous that multinational companies can evade taxation while the general public has to live with cuts in public spending and other severe austerity measures. Besides the fact that our own national governments are circumvented by tax evading companies, tax evasion also has a severe negative impact on developing countries. Massive amounts of money related to resource exploitation in these countries disappear due to the use of anonymous shell companies by corrupt politicians and multinational companies. It is estimated by Global Financial Integrity – a research and advocacy organisation working to curtail illicit financial flows out of developing countries – that African states in 2010 lost a bigger sum of money through illicit financial flows out of Africa than that which came in in the form of development aid.

The common denominator of money laundering committed by criminal organisations and by tax evading multinational companies is the use of anonymous shell companies to hide the identity of the people ultimately owning the money. With the revision of the third European anti-money laundering directive we have the possibility to change things for the better. As such, I am fighting in the European parliament for the introduction of a public ultimate beneficial ownership (UBO) register. Such a register will put a halt to the use of all sorts of hidden company structures and thereby can prove a very important tool in curbing tax evasion. To make such a UBO register as effective as possible, the information in it should be publicly available. 

[pullquote]Making ultimate beneficial ownership information available to the general public will pressure companies to play by the rules[/pullquote]. Public scrutiny is a powerful tool. When the information is accessible to all citizens, they can make deliberate choices not to support or to buy from companies that do not have trustworthy company structures. The ability to access the beneficial ownership information will be especially valuable for investigative journalists and civil society. Their research can reveal information on beneficial ownership that otherwise would stay unnoticed. 

Besides that, the public availability of the information will also be beneficial for third countries outside the European Union. The beneficial ownership information in our registers can be of value for the authorities in third countries investigating cases of money laundering. 

This transparency on beneficial ownership does not conflict with privacy and data protection. By choosing for transparency on 'who owns what' there is no need for banks and other financial institutions to dig into the private lives of their customers. The latter is a tendency supported by the financial action task force that worries me. Banks and other companies are instructed to research the private lives of their clients because this could give them a clue whether the customer at hand is involved in money laundering. By creating a beneficial ownership register, limited information will become publicly available, but details of people's private life will stay private.

On the basis of the amendments tabled by the other political groups I have good hopes that a majority of the European parliament is in favour of the idea of a public UBO register. On 13 February, the committee vote takes place. By voting in favour of public registers, the parliament can make a difference in the fight against money laundering and tax evasion.