The names behind the façades

November 7th, 2013

This Op-Ed originally appeared in European Voice.

The UK is showing the way forward on financial transparency

Last week, the British prime minister, David Cameron, announced that the UK plans to create a central public register of who ultimately owns and controls companies, or so-called ‘beneficial owners’. This should make it much harder for criminals to hide their identities behind sham UK companies, and for the corrupt to steal billions of dollars from developing countries.

Currently, corporations can be formed worldwide without disclosing who actually owns or controls them. Criminals often exploit this ability to create anonymous companies for the sole purpose of hiding their identities, whilst using them for laundering the proceeds of crime, corruption, and tax evasion.

With this announcement, Cameron has started delivering on his ambitious G8 transparency agenda. Other countries – of the G8, but certainly also from the European Union – should turn words into action.

The UK’s move enables citizens, companies and governments the world over to know with whom they are doing business, and to hold individuals accountable for their companies’ actions.

Currently, European leaders are discussing how to improve access to beneficial ownership information. Some member states want to limit any changes; others are proposing central registers that would be accessible only to law enforcement. Most of the arguments given for keeping the data ‘private’ concern the privacy of those registered, the reliability of the data and the additional burden that businesses claim they would face. We would like to address these arguments here.

Firstly, the European Court of Justice has previously argued that the right to the protection of personal data must be considered in relation to its function in society. We subscribe to that opinion. Secrecy has to be balanced with other fundamental rights: keeping secret the fact that a person is involved in a company needs to be offset against the need for society to prevent financial crimes.

Secondly, regarding the reliability of data, governments are in a much better position to collect information on company ownership than the financial institutions and other regulated companies. While financial institutions have international obligations to collect relevant information about their clients, research has shown that they often fail to do so. Moreover, governments can create risk-based systems that automatically flag up the names of wanted criminals.

‘Fool the bank today, fool the register tomorrow’, sceptics might say. This is why misrepresenting beneficial ownership information should be made grounds for a charge of felony fraud. That would give authorities another avenue for prosecution when evidence of more serious offences is pending.

Finally, providing beneficial ownership information would not create an undue burden on business. Most businesses have simple structures: most small and medium-sized enterprises have a director or founder, while companies listed on stock exchanges make information about their major shareholders public. For these companies, it would be easy to provide information on their beneficial ownership.

The remaining 1%-2% of companies that use complex multi-jurisdictional structures – where beneficial ownership is separated from legal shareholding – would be burdened. But since these are the type of structures most often used for money laundering and tax evasion, any additional burden would be outweighed by the benefit of rooting out companies that abuse the system.

The UK’s attempt to increase transparency does not address several other concerns. There are other legal entities that could also be used for money laundering, corruption and tax avoidance, such as trusts and foundations, but few EU countries collect information on the ownership.

Still, the UK government’s move is encouraging. “Beneficial ownership transparency is a very powerful idea whose time has come,” Cameron said. He was right about the power of the idea; when other European leaders follow suit, his entire statement will have been proved right.

Written by Koen Roovers

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