Financial Transparency Coalition

This blog post is the second in a two-part blog series. In this post, I survey this year’s progress and momentum in global policy on transparency issues. In the first post, I examined several of the year’s biggest global trends and their relationship to financial transparency.

The European Union has made huge policy progress this year. From anti-money laundering to country-by-country reporting, when it comes to transparency issues, the EU was an all-star.

In perhaps the biggest news out of the EU this year, after months of deliberations, EU nations agreed to national-level registries to collect information on the beneficial owners of companies incorporated in EU nations in the 4^th European Anti-Money Laundering Directive. In response, Koen Roovers of the Financial Transparency Coalition commented that “The amount of progress made over the last year and a half is encouraging, and the fact that all EU nations agreed to centralized registers is a significant step.”

Another event of significant importance in the EU also happened late this year: the EU finance ministers agreed on two taxation measures aimed at combating corporate tax avoidance and aggressive tax planning. Those strategies are the anti-abuse clause of the Parent Subsidiary Directive and the mandatory exchange of information between EU tax authorities. Pierre Moscovici, European Commissioner for Economic and Financial Affairs, Taxation and Customs, noted that these decisions “open up a new front in our fight against corporate tax avoidance and aggressive tax planning.”

Finally, in October the EU Commission released a report in favor of country-by-country reporting. The report notes that CBCR is not expected to have significant negative economic effects.

Lower Income Countries, many in Africa in particular, have shown a new level of commitment and focus on transparency, taxation avoidance, and sustainable development.

This focus shone clearly in several multi-state summits, statements, and workshops. First, the U.S.-Africa Leaders’ Summit, which President Obama convened to strengthen and enhance relations between the United States and African nations, served as a platform for the creation of the U.S.-Africa Partnership to Combat Illicit Finance. Through this announcement these leaders took one important step forward on illicit financial flows.

Second, finance ministers from low-income countries called for a more fundamental reform of the international tax system in order to get their fair share of global tax revenues and play a more significant role in the development financing process. Finally, in the wake of its ground-breaking report on Base Erosion and Profit Shifting (BEPS), the OECD convened an important workshop for fourteen lower income country tax officials to plan enhanced engagement with the project.

Some lower income countries also took commendable actions alone. For example, Kenya decided to end tax incentives enjoyed by foreign firms, which together cost the nation about $1.1 billion annually. The Indian government, which has consistently shown a commitment toward stemming and recovering illicit financial flows, has set up a special investigation team to find illicit funds hidden in foreign jurisdictions by Indian citizens. Ukraine, similarly, established the Forum on Asset Recovery, aimed at recovering “the proceeds of corruption through international cooperation.”

This year, momentum toward public registries has grown. As I noted in my Transparency Year in Review of 2013, the UK’s actions on public registries set off a spark for other nations to catch. Indeed, in 2014 that spark has lighted the beginning flickers of a flame across Europe and the world.

First and foremost, the U.K. no longer stands alone on this issue. Several nations, including Denmark, France, and Ukraine, have announced their support of public registries, which reveal the true owners or beneficiaries of the companies incorporated inside their borders.

Then, by a vote of 643 in favor and 30 against, the European Parliament endorsed the establishment of establish public registers of companies, trusts, and other legal structures. The ball is now in the court of the EU Member States. As Koen Roovers of the Financial Transparency Coalition has noted: “the European Union should see the writing on the wall.”

Going beyond promises and straight into practice, the U.K. has dived headlong into this effort. In June of this year, the Queen gave a speech announcing new legislation to “establish a public register of company beneficial ownership” in the United Kingdom. This came on the heels of Prime Minister David Cameron’s letter asking leaders of the UK’s overseas territories and crown dependencies to create public registries.

Finally, in perhaps the most surprising move on this front, Jersey, the British Virgin Islands and Cayman Islands ran consultations on whether to create a public registry of beneficial ownership.

While there is still much more work to be done, 2014 has shown progress and promise on many of the FTC’s most important transparency policies. From Europe to Africa, the world’s leaders are embracing policies and practices that bring transparency to the financial system—reducing tax evasion, thwarting criminal activity, and stemming the finance of terrorism. It would seem that we have a lot to look forward to in 2015.