Unger report for ECON | blacklisting of countries, data analytics against crime (letterboxes) and AMLR | AML, CFT

On request of a committee of the European Parliament, the committee on Economic and Monetary Affairs (ECON), professor Unger has written a study ‘Improving Anti-Money Laundering Policy‘.

Ms. Unger is professor of Public Sector Economics at Utrecht School of Economics (Utrecht University) and an important provider of services to the Dutch government, having a strong relationship with FIU Netherlands. Though she is a economics professor Ms. Unger is also commenting on legal subjects, like the necessity of certain legislation. As far as I have seen she does not publish legal articles on anti-money laundering (AML)-matters in Dutch legal magazines.

The themes of the study
Subjects of the Unger study are themes discussed by the European Parliament, the European Commission and others to improve anti-money laundering policy:

  • identification of high-risk countries through blacklisting (‘schurkenstaten‘), chapter 1;
  • reducing laundering through letterbox or shell companies – in reality the chapter discusses the registers of beneficial owners and propagates analyzing all legal entities, their beneficial owners and employees, chapter 2;
  • harmonising European AML policies through regulations, chapter 3;
  • strengthening the European executive and covid-19, chapters 4 and 5.

It looks as if the study does not look at the practical implications of AML-legislation for the obliged entities, especially those obliged entities that are SMEs.

Country blacklists
According to the author the system of blacklisting is inadequate and politically influenced. Blacklisting may have unwanted economic, political and social side effects. Unger believes that identification of high-risk countries should be left to “financially and diplomatically independent NGOs that have transparent sponsoring“. Hopefully these service providers also deliver high quality assessments. I have my worries.

Register of beneficial owners and data analytics on all legal entities and their people (‘letterboxes’ are not needed)
Ms. Unger does not have a definition of ‘letterbox company‘ and seems not to need the concept [1].

She thinks that ownership registration of all legal entities is the solution of the problem of tax evasion and avoidance and all other types of crime [2]. She promotes worldwide registering of owners, without looking at the definition of ‘beneficial owner‘ at all [3]. As a good servant of her principals, the governmental agencies looking for criminals, Ms. Unger is only paying attention to possible loopholes and repeating the mantra on the registers you can read everywhere. She is not interested in the practical consequences for all those decent citizens whose information is made public in the open registers of beneficial owners or the human rights implications of the registrations in this digital age.

The author seems to be unawere of new European AML-legislation in regard of trusts [4].

Interestingly Ms. Unger propagates not only analyzing personal data of ‘beneficial owners‘. She also wants to analyze the personal data of the employees of all legal entities and the online activities of the entity and all persons related to it [5]:

More sophisticated analytic methods then allow for “pattern-finding and red-flagging” if background data on the owners, employees, the company structure, its presence online and in social media or financial transactions are analysed to detect irregularities or similarities to known previous schemes. Several ratios, similar to the profitability ratios in Table 5, could also point to illegitimate activities. This would rather bring suspicious activities to the attention of authorities for further investigation than being a reliable and unambiguous verdict

This shows that the surveillance society is coming and that human rights aspects are neglected.

There is more to be said on this chapter of the report [6].

Harmonisation, EPPO, European supervision
In chapter 3 the differences between the countries are noted by the author and also the implementation problems. The predictable conclusion is that more harmonisation is necessary.

In the fourth chapter the author discusses the European Public Prosecutor’s Office (EPPO) and the need of a European AML-supervisor. The last chapter is on covid-19 and crime, the latest hobby of crime-combatting agencies.

Our future
AML-legislation will contribute to the digital framework that in future will control every person on earth. Hopefully there is someone who thinks of human rights and data protection, before it is too late.



[1] In paragraph 2.1 she discusses the unclarity of the definition but does not make a choice; it looks as if a letterbox is an unwanted corporate entity. Paragraph 2.2 is about the statistics on companies, e.g. on foreign-owned firms (FOF) and Foreign Direct Investment (FDI) data and reallocation of profits to low-tax countries. At the end of 2.2.2 she writes “To sum up the literature survey, it seems very difficult to empirically grasp what a shell company or letterbox company is“. In paragraph 2.3 she is unclear on the need of the concept of a letterbox company. I have the impression that tax avoidance and evasion can also be done by non-empty companies, so why use this concept?

[2] Final text of paragraph 2.2.2., “Seen that there are serious complications to measure the size of letterbox companies and to identify empty shells, we opt for the alternative approach of good ownership registration. If one knows who the ultimate beneficial owner of a company is, criminals cannot hide in companies anymore and tax avoidance scheme with empty shells are being discovered“.

[3] Like the strange notion that a Dutch foundation (stichting), financed by the Dutch government and providing primary or secondary schools to the public, should have beneficial owners. According to European legislation (AMLD4) the managing directors (statutair bestuurders) of the school-foundation are the beneficial owners. No-one has explained the rationale of this idea; it is offensive to the directors that are placed in a unsuitable position.

[4] Ms. Unger thinks the Netherlands has domestic trusts (page 36 above table 7). In the Netherlands the legal form of trust does not exist… Has she missed that AMLD5 requires foreign trusts to be registered in EU-countries?

[5] Paragraph 2.3.1, last bullet of b.

[6] Like that the ‘best practices’ of paragraph 2.3.1 under d. (quotations from a FATF document) are peculiar, the author seems to have missed AMDL5, that still has to be implemented in many European countries. Interestingly the “automated information system TRACK” system of the Dutch Dienst Justis is mentioned as a ‘best practice’. It looks as if this is the RADAR IT-system, that was much criticized, read the letter of 27 August 2015 by the Dutch Justice Minister. Later documents on RADAR were requested, read this letter. In the Netherlands it is kept secret that RADAR/TRACK is a success.



More information:

Over Ellen Timmer

Weblog: https://ellentimmer.com/ ||| Microblog: https://mastodon.nl/@ellent ||| Motto: goede bedoelingen rechtvaardigen geen slechte regels
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