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25th Aug 2019

MEPs vote to pierce secrecy of trusts in anti-money laundering bill

  • Almost one fifth of the world's market for offshore financial services is based in the UK, according to the Financial Secrecy Index, a study by leading NGOs, in 2013 (Photo: Neil Howard)

A draft bill designed to crack down on money laundering and fraud was backed by a vast majority of MEPs in Strasbourg on Tuesday (11 March).

With only 30 MEPs opposed, the anti-money laundering bill requires companies, trusts and foundations to list the names of people who own them in inter-connected public registers set up in each member state.

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“The scandal last week in the Dutch press, that the son of Yanukovych, the former president of Ukraine, has put a way a large sum of money in Dutch shell companies, is something I am very ashamed of,” Dutch Green MEP Judith Sargentini, one of the parliament’s lead negotiators on the file, told this website.

“This is something that could have been overcome if we had more transparency on these shell companies and such a register can provide that transparency,” she added.

Anonymous shell companies or trusts are sometimes used to hide identities so that people can avoid paying taxes, channel illicit funds, finance terrorism, and stash money from trafficking drugs and people.

The money is then transferred into the banking system, where it becomes all-but untraceable.

The obfuscated schemes sap billions from national coffers around the globe.

US-based Global Financial Integrity estimates that Africa lost more in illicit transfer flows than it received in development aid in 2010 alone.

“This transparency is vital in ensuring money is kept in those countries who desperately need it for vital public services such as schools and hospitals,” said Catherine Olier, Oxfam’s EU policy advisor.

Member states, for their part, still have to formulate a position before entering into negotiations with the parliament on the law.

The parliament’s strong endorsement to include trusts in the public register may meet some resistance from the UK.

UK authorities are said to be hesitant about disclosing the people behind trusts because it could infringe on privacy rights.

Trusts are more commonly used in the UK than elsewhere in the EU.

“Anybody can open or start a trust on the common law in the UK. It could be French holders of British trusts,” said Tamira Gunzburg, a transparency expert at the campaigning and advocacy organisation One.

She warns excluding trusts altogether from the bill would create a loophole for criminals to simply shift their money away from the registry’s other murky structures.

“Trusts have often been abused for the purpose of money laundering, this is why we need to capture it in this legislation,” said Gunzburg.

The parliament’s version of the bill already limits public disclosure to the identity of the trustee and others involved in the trust, but not to documents, which, for instance, detail the nature or the size of the assets.

The limitation amendment was introduced by British conservative MEP Timothy Kirkhope at the committee level.

He also tabled another amendment - to disclose the beneficial owner behind trusts only when they are deemed to be a high risk in terms of money laundering - but the assembly rejected this idea.

The UK, for its part, wants public registers for companies but says a distinction needs to be made for trusts.

“It is clearly important we recognise the important differences between companies and trusts,” UK Prime Minister David Cameron said in a letter last November to EU Council chief Herman Van Rompuy.

Cameron noted that automatic tax information agreements could prevent the misuse of trusts.

But separate EU rules on automatic tax information agreements hit a snag in December when Luxembourg and Austria blocked them.

The so-called savings tax directive allows governments to collect information on income from foreign accounts which exist in the 26 other member states.

Both countries refuse to sign up unless Switzerland, Liechtenstein, Monaco, Andorra and San Marino also agree to apply the EU rules.

EU taxation commissioner Algirdas Semeta on Tuesday said all five are now ready to work towards alignment with the EU on the issue, paving the way for both Austria and Luxembourg to agree to the law.

“The negotiations have been very positive so far,” he said.

Semeta’s spokesperson said Austria and Luxembourg are set to endorse the agreement at next week’s EU summit.

“Both Luxembourg and Austria said they are ready to move on the savings directive,” she said.

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