Sunday

5th Feb 2023

Opinion

Fundamental snag with new EU money-laundering rules

  • Campaigners ask for justifiable intrusions into private data, believing it will frustrate crooks, money-launderers and terrorists. It won't - because criminals tell lies (Photo: Fotolia)

New European Union anti-money laundering rules known as the 5th Money Laundering Directive (MLD5) have finally come into force (10 January), meaning that all EU states are supposed to implement public registers, open to those with a legitimate interest, of all companies incorporated in their territories.

These registers are supposed to show who ultimately controls every company incorporated across most of Europe, with registers made accessible to tax inspectors and law enforcement.

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However, it would appear that some states have already missed the deadline and the European Commission has announced that it is preparing to clamp down on those countries who have failed to implement the directive.

I have stated repeatedly that I have no quibble with the notion of UBO (ultimate beneficial ownership) registers, but I have called into question their effectiveness, given the majority of UBO information is never checked and verified.

However, where I do have an issue is making the registers open to the public on the grounds of personal and corporate privacy.

In this instance, the intention of the registers has been partially described on the European Commission's website as: "Enhancing transparency by setting up publicly available registers for companies, trusts and other legal arrangements."

The associated factsheet reiterates the point, stating: "The beneficial ownership registers for legal entities, such as companies, will be public."

Sensibly, the EU has taken a different stance in regard to trust companies. It has instead ruled that: "The access to data on the beneficial owner of trusts will be accessible without any restrictions to competent authorities." This is precisely the approach I would adopt in relation to the companies register.

How do we square one arm of the EU involved with advancing the cause of private data protection, with the other arm pushing for open UBO registers offshore? Why is bank account and tax return data private, while ownership of company data is not?

The International Consortium of Investigative Journalists (ICIJ), who gave us the Panama and Paradise Papers, plus the recent Luanda Leaks, has triggered a seismic shift towards fully 'open' or unlimited transparency.

The ICIJ makes this point on its website.

It states that the information it digs up is intended to be accessible: "Not only to tax inspectors and law enforcement, but also to journalists and members of the public." The ICIJ's stance is mirrored, at least in part, by Transparency International (TI), an NGO whose stated aim is to combat global corruption.

The ICIJ and TI are to be congratulated for their noble fight against fraud and corruption.

But I cannot agree with the notion of unlimited public access to what is confidential information. I have no axe to grind with the journalists and investigators at the ICIJ.

However, I cannot support their campaign for what they perceive to be justifiable intrusions into private data, which they and others appear to believe will frustrate crooks, money-launderers and terrorists.

Due diligence versus liars

It won't: because crooks, money-launderers and terrorists all tell lies. Only an effective and credible UBO due-diligence process, which would incur significant cost, will frustrate these illicit endeavours. And only then in a few cases. Open UBO registers will intrude upon the privacy of the innocent and be worse than useless in the fight against fraud and corruption.

The ICIJ reported on 23 December that 21 of the EU's 28 states had not yet complied with the bloc's earlier 4th Anti-Money Laundering Directive, and these states were now subject of 'infringement proceedings'.

Add to this the likelihood that some states may have failed to meet the 5th directive's deadline, it says much about the EU and its ongoing attempts at inserting itself into other peoples' business. You cannot demand change from small Caribbean islands, then fail to get your own members to tow the party line.

Given the vociferous EU stance and repeated attacks on the integrity of UK overseas territories and dependencies, it is shameful that, once again, the EU is struggling to put its own house in order. This "do as I say, not as I do" attitude is at best hypocritical, and at worst a further example of the EU bullying small jurisdictions.

There needs to be meaningful dialogue between the campaigners and politicians who are demanding transparency, and the governments who provide offshore services.

If you include lawyers such as myself – who investigate those who would seek to cheat the system – then we may be able to navigate towards a sensible enforcement process that addresses more of the issues than we are currently tackling.

At this time, all I see is global zeal on the part of transparency campaigners, fomented by the Panama and Paradise Papers, and demands for unlimited forms of 'transparency' where I suspect that many of those shouting for it don't actually understand its real meaning in an offshore context.

We are all on the same side and we all want the same thing. The problem is that there is no simple solution. Hence why we need to commence a dialogue. The 'us and them' approach currently being adopted is flawed.

Author bio

Martin Kenney is managing partner of Martin Kenney & Co., solicitors, a specialist investigative and asset recovery practice based in the British Virgin Islands. Tony McClements, senior investigator at Martin Kenney & Co, and lecturer in fraud investigation at the University of Central Lancashire (UCLAN), contributed to this piece.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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