Financial Transparency Coalition

Across the EU, governments are currently in the process of implementing the newly adopted reforms to the EU’s Anti-Money Laundering Directive. The FTC is following the process closely, and is especially interested in developments at the national level regarding beneficial ownership transparency. Each EU member state will set up a centralized register with information related to beneficial owners – the real, ultimate owners that benefit from or control a company – that are registered within their borders. Currently, relaxed laws let people hide their ownership of companies by using middlemen, “nominee directors”, or complex ownership structures that can often have yet another anonymous company registered as the owner.

While these registers are a good step towards real transparency, only a handful of countries have pledged to make their registers open to the public. The registers, which will begin to go live next year, would include owners of so-called mailbox, or shell, companies, which are known to be popular with money-launderers, terrorists, smugglers and tax evaders alike.

At a minimum, countries should grant access to those that can argue a legitimate interest on a case by case basis, but the UK, France and others have said they will make their registers publicly available without barriers to entry. In the Netherlands, the national parliament has called on the government to follow the British and French examples, but large business lobby groups have argued the opposite. They especially want to see an exemption for family-owned businesses as these, they argue, are especially prone to kidnapping or burglary if the main shareholders of their business are disclosed.

This critique comes at a critical time in Europe, where a number of wealthy families have been in the news recently because they became the subject of extortion or kidnapping:

The Heineken and De Mol families – widely known for their respective trade in alcoholic beverages and television formats – have experienced in a terrible way how their wealth could attract criminals. Only last month, the mentally disabled son of German ‘screw billionaire’ Reinhold Würth was abducted for hours.

Together with my colleagues Tom van der Lee, director of campaigns for Oxfam-Novib and Giuseppe van der Helm, chairman of Tax Justice Netherlands, I responded, last month, to the claims in ‘Financieel Dagblad’, the financial daily paper of the Netherlands. In our article, we argue that family-owned businesses stand a lot to gain with more openness and that the business lobbyists’ fear for beneficial ownership transparency are based on ghost stories:

There appears to be misunderstanding, one based on ghost stories about the register that are doing the rounds. No private addresses would be recorded in the register, only contact details of the companies in question. Another misconception is that it would include information about the extent of power or the value of shares. It is true that one of the methods to identify beneficial owners is based on shareholding percentages, but for family businesses this is generally not easy to convert into a cash value. For doing so one would require information that is generally not publicly available. Moreover, the register contains only basic identity information.

We also explore the possible consequences of an exemption from the reporting and disclosure requirement for family-owned businesses, if the government would choose that format (a format by the way that the European Commission and the UK Treasury department have deemed to be cost-efficient compared to registers that are closed to the public, or partly open):

[Exempting family-owned businesses] would make the register useless. Drug dealers, traffickers, tax evaders and racketeers simply could establish a family business to remain hidden. When it comes to personal safety, wealthy families are more reliant upon an effective approach to crime fighting. The new European rules against money laundering could contribute to this. Currently, a business owner can list another domestic or offshore company it controls as contact with the Business Register. That company may again refer to another legal entity, etc. so inscrutable chains emerge. This means that money of dubious origin can flow through these companies without anyone knowing whose it is. Business associates of ousted Ukrainian President Yanukovich for example had complex corporate structures in the Netherlands, the United Kingdom and Austria to hide the proceeds of their corrupt practices.

In an online response to our article, a critical reader asked if we – the authors of the rebuttal and transparency campaigners – have a hidden agenda: [n]amely to map tax structures, which unfortunately renders families into victims. 

But interestingly, as the online discussion progressed, this commentator’s true concern with the proposed legislation seemed to be that beneficial ownership transparency might expose wealth transfer constructions within family enterprises to secure business succession.

Could this be the true objection of the business associations?