Sunday

11th Apr 2021

Letter

Ending shell companies does not threaten privacy

  • Smoking gun? The EU's anti money-laundering directive strikes the right balance between the public's desire for transparency and the data subject's desire for privacy (Photo: Pixabay)

In last week's op-ed Fundamental snag with new EU money-laundering rules, Martin Kenney, a lawyer based in the British Virgin Islands criticises one of the cornerstones of the new EU anti-money laundering rules: the granting of public access to a minimum set of information on the person who ultimately owns an EU-based company, commonly known as the beneficial owner.

This is not a new debate and the issue was widely discussed during the negotiations of the 5th Anti Money Laundering (AML) Directive.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

  • Recent scandals, spearheaded by the Panama Papers, have shown us that the current opaque financial system we have in place is vulnerable to systematic wrongdoing (Photo: European Parliament)

At the time, it was concluded that there was absolutely no contradiction with the newly-adopted EU framework on data protection, the General Data Protection Regulation (GDPR). Let us reiterate the arguments made at the time.

The stated objective of the directive is "the protection of the financial system by means of prevention, detection and investigation of money laundering and terrorist financing".

Recent scandals, spearheaded by the Panama Papers, have shown us that the current opaque financial system we have in place is vulnerable to systematic wrongdoing.

Without public access to beneficial ownership information, the laws of our societies are constantly undermined.

Kenney seems to equate the concept of legal persons with anonymity, something that has been a part European legal traditions for some time.

Legal persons are needed to operate complex businesses, collect capital and limit risks and the liability of individuals, they were never created as a tool to hide ownership in business or other enterprises.

Individuals who create legal structures are actively choosing to benefit from them and take advantage of things like limited liability. In return for this it is legitimate to expect transparency around beneficiaries.

Individuals could – if they wanted – trade in their own name and therefore avoid the public reporting obligations that come with legal structures.

Although we do not deny the responsibility of public authorities for investigating money laundering and terrorist financing cases, we believe public access is necessary for efficient prevention and detection of criminal acts.

Acting as strong deterrents, public registers will create an additional layer of protection for societies. Not only will they make it much harder for corrupt individuals to hide their criminal activities, but they will also prevent opportunistic behaviours that thrive on financial secrecy as the Panama and Paradise Papers revealed.

In addition, public access to beneficial ownership information can lead to more investigations by public authorities.

This was well-demonstrated by the Panama Papers: since beneficial ownership information about companies created by Mossack Fonseca became public in April 2016, more than $1.2bn [€1.11bn] has been recouped in 22 countries and investigations were sparked in more than 82 countries according to the ICIJ.

Public beneficial ownership registers can also serve other purposes.

For example, businesses themselves find it useful to know the beneficial owners of companies they are dealing with so as to better manage risks and potential liability. Our environment, human rights and social justice also benefit from greater transparency.

Kenney's claim that "only an effective and credible UBO due-diligence process on the beneficial owner [conducted by banks or lawyers like him] will frustrate illicit endeavours". This argument seems unconvincing in light of recent scandals, which have shown that intermediaries and professionals are not always on the right side of history.

More eyes needed

Although we do not question that they are an essential piece of the puzzle, we argue that the more eyes are able to scrutinise the data, the more chance we have of identifying anomalies, wrongdoing or misconduct.

Kenney also makes the point that crooks will lie and disclose incorrect information on the register. There is no doubt that this is a risk.

We have been consistently reiterating that information in beneficial ownership registers should be verified – regardless if the register is public or private. Public registers, however, will add an additional layer and offer opportunities to other users of the register (including the private sector) to spot and report inconsistencies and inaccuracies.

Proportionality

The amount of information required to be published had been deemed at the time proportionate to the objectives pursued. Only part of the information collected by authorities is put in the public domain.

Furthermore, robust safeguards have been built in to redact information from the public domain on a case-by-case basis when public access to beneficial ownership information could put individuals at risk.

This strikes the right balance between the public's desire for transparency and the data subject's desire for privacy.

It should also be noted that there is precedent paving the way, which should reassure data privacy defenders. It has been a long-standing practice that many European countries have publicly available, detailed information on the board members and managing officials.

Denmark has an online register for shareholders, where you can freely access shareholders full names and service addresses as well as full dates of birth for a small fee.

In another arena, the EU Transparency Register includes the names and contact details of individuals who seek to lobby EU policy makers. Data is freely accessible and can be downloaded.

This shows that it is possible to disclose carefully selected information on an individual for a well-defined and legitimate purpose.

What we read between the lines in Kenney's indictment against transparency is not as much a concern about individuals' privacy than the fear of losing a lucrative business that has been thriving on financial secrecy for too long.

Societies are in dire need of transparency and accountability. In the future, there will be more Panama Papers and more Paradise Papers if we do not adapt the way the financial system works.

Instead of pushing back, we invite Kenney and his profession to think about it as an opportunity and find ways to accompany this structural shift.

Author bio

Laure Brillaud is senior policy officer at Transparency International EU.

Disclaimer

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

Ombudsman slams EU bank watchdog for 'revolving doors'

The European Banking Authority allowed its executive director to take a job at one of the world's largest financial lobbying groups. The move has been slammed by the European Ombusdman, who called it maladministration.

After 50 years, where do Roma rights stand now?

Beatings, forced sterilisation, police violence and fire bombings by right-wing extremists against Romani communities are still a reality in Europe. The corona pandemic only worsened this situation.

Does new EU-ACP deal really 'decolonise' aid?

Since 2018, when the EU and the African, Caribbean and Pacific (ACP) countries started negotiations on the deal that would replace the Cotonou Partnership Agreement, calls for "de-colonising aid" and a strong role for local actors in development have grown.

Column

Why Germans understand the EU best

In Germany, there is commotion about a new book in which two journalists describe meetings held during the corona crisis between federal chancellor Angela Merkel, and the 16 prime ministers of its federal constituent states.

News in Brief

  1. Turkey blames EU for sexist protocol fiasco
  2. France to close elite civil-service academy
  3. Covid-19 cases in UK drop 60%, study finds
  4. White House urges 'calm' after Northern Ireland riots
  5. Italy's Draghi calls Turkey's Erdoğan a 'dictator'
  6. Slovakia told to return Sputnik V amid quality row
  7. EU risks €87bn in stranded fossil fuel assets
  8. Obligatory vaccination not against human rights, European court says

The ICC probe into Palestine: where is the EU?

In the eyes of the prosecutor of the International Criminal Court, there are grounds to believe that war crimes were committed by the Israel Defense Forces in occupied Palestine.

Stakeholders' Highlights

  1. Nordic Council of MinistersDigitalisation can help us pick up the green pace
  2. Nordic Council of MinistersCOVID19 is a wake-up call in the fight against antibiotic resistance
  3. Nordic Council of MinistersThe Nordic Region can and should play a leading role in Europe’s digital development
  4. Nordic Council of MinistersNordic Council to host EU webinars on energy, digitalisation and antibiotic resistance
  5. UNESDAEU Code of Conduct can showcase PPPs delivering healthier more sustainable society
  6. Nordic Council of MinistersWomen benefit in the digitalised labour market

Latest News

  1. The Covid bell tolls for eastern Europe's populists
  2. Four deaths after taking Russian Sputnik V vaccine
  3. Post-Brexit riots flare up in Northern Ireland
  4. Advice on AstraZeneca varies across EU, amid blood clot fears
  5. Greenland election could see halt to rare-earth mining
  6. After 50 years, where do Roma rights stand now?
  7. Why Iran desperately wants a new nuclear deal
  8. Does new EU-ACP deal really 'decolonise' aid?

Join EUobserver

Support quality EU news

Join us