Europe is working on additional legislation regarding beneficial ownerships registers. European politicians are still expecting that public registers with ‘ultimate beneficial owners‘ (ubo’s) will help in combatting financial crime, even when such registers pose risks to the persons registered and the effectiveness is not proven. These registers will involve the exchange of sensitive personal data on a large scale, needing good security measures by all organisations involved and needing good systems for preventing wrong information being exchanged.
Who is the ubo?
It looks as if different types of ubo’s are mixed through different kinds of legislation. The definition of the ubo in anti-moneylaundering legislation (AML) includes persons who have no financial interests in the entities they are ubo of (e.g. managers, even minor members of a management team). Tax legislation has its own definition of ubo, that is completely different from the AML-ubo. It is unclear why imformation on the AML-ubo is relevant for the tax-ubo.
Recent publications by European sources show that the EU wants to continue on the chosen path, mixing up different systems and disregarding risks for decent people.
No compliance information database
It looks as if Europe is not interested in the compliance activities by private parties in their countries. Strangely enough there are no European initiatives to supply companies and organisations with better information (through a good database) on AML-legislation, anti-corruption laws and other legislation intended to combat financial crime, including information per country on characteristics of their legal and other systems and other information (e.g. on products, services and new developments) relevant for the compliance activities by these companies and organisations. This information is all available in Europe.
By not supplying this kind of assistance Europe favours large(r) organisations that can buy such information or create such databases themselves.
Recent publications on Europe and the ubo-registers
On 8 November 2016 the following was published:
Interlinked system of beneficial ownership registers coming soon, Jourová tells MEPs
PANA Press release – Taxation 08-11-2016 – 17:44
The European Commission expects to have in place by next year an interconnected, pan-European system of beneficial ownership registers, as part of the fight against money laundering and tax evasion, the European Commissioner, Věra Jourová, tells MEPs of the Inquiry committee into the Panama Papers scandal, in a hearing on Tuesday.
Ms Jourová, Commissioner for Justice, Consumers and Gender equality, said the linked registers would promote cooperation between member states in the battle against money laundering, tax evasion and terrorism financing. “We foresee having the registers, and soon, I hope next year, they should be interconnected throughout Europe.”
During the hour and half exchange with MEPs, Jourová faced questions about the effectiveness of the Commission’s measures, and particularly against the role of intermediaries. One MEPs pointed to the example of Nordea bank which in 2015 was fined just €5 million — compared to €5 billion in pre-tax profits — for “major deficiencies” in their anti-money laundering compliance checks.
Jourová maintained that the sanctions — which could amount to at least 5 million euro or at least 10 percent of annual turnover — were “robust and strong” and had a deterrent effect.
High-risk third countries
Under the Commission’s proposals, European banks would also have to carry out additional checks (“due diligence measures”) on financial flows originating from countries with deficiencies in their anti-money laundering and countering terrorist financing regimes. But Jourová acknowledged that while EU legislation might be effective within Europe, its effectiveness was blunter outside. “Viz-a-viz high-risk third countries, we are in a weak position and can only exert influence,” she said.
Many of the European Commission’s proposals against money laundering, tax evasion and terrorist financing are contained in the 4th Anti-Money Laundering Directive (AMLD) which needs to be transposed into respective national laws by June next year. She insisted that member states had an obligation to implement EU legislation.
The Commissioner told MEPs that 22 member states had already been reprimanded for ”non-communication” of the 3rd AMLD, 6 of which were referred to the European Court of Justice for non-transposition. She added that “effective enforcement of existing legislation is as important as the framework.”
The EU Commissioner said that the recent revelations contained in the “Panama Papers” which was triggered by an anonymous source, highlighted the need for stronger protection for whistle– blowers. Under EU law, whistle-blowers are protected in sectorial legislation, for example on market abuse. Jourová said the Commission was currently deciding whether to provide more protection through additional sectorial measures, or whether to adopt a horizontal approach.
In another article the public is informed that tax authorities will have access to beneficial ownership information gathered through AML-sources:
Tax authorites to gain access to beneficial ownership information
On 8 November 2016, the Council agreed on a proposal granting access for tax authorities to information held by authorities responsible for the prevention of money laundering.
The directive will require member states to enable access to information on the beneficial ownership of companies. It will apply as from 1 January 2018.
The proposal is one of a number of measures set out by the Commission in July 2016, in the wake of the April 2016 Panama Papers revelations.
The EU has made significant progress in recent years to enhance tax transparency and strengthen cooperation between the member states’ tax authorities. And recent amendments to anti-money-laundering legislation recognise the links between money laundering and tax evasion, as well as the challenges faced in prevention.
Media leaks such as the Panama Papers, revealing large-scale concealment of offshore funds, have highlighted areas where further measures still need to be taken. The transparency framework must be further reinforced at both EU and international levels.
Automatic exchange of information
In particular, tax authorities need greater access to information on the beneficial ownership of intermediary entities and other relevant customer due diligence information. The directive will enable them to access that information in monitoring the proper application of rules on the automatic exchange of tax information.
Where a financial account holder is an intermediary structure, financial institutions are required by directive 2014/107/EU to look through that entity and report its beneficial ownership. Applying that provision relies on information held by authorities responsible for the prevention of money laundering, pursuant to directive 2015/849/EU.
Access to that information will ensure that tax authorities are better equipped to fulfil their monitoring obligations. It will thus help prevent tax evasion and tax fraud.
Agreement was reached at a meeting of the Economic and Financial Affairs Council, without discussion. The Council will adopt the directive once the European Parliament has given its opinion.
The directive requires unanimity within the Council, after consulting the Parliament. (Legal basis: articles 113 and 115 of the Treaty on the Functioning of the European Union.)