The European Parliament committees responsible for economic affairs and civil liberties voted yesterday (20 February) with an overwhelmingly majority in favour of a tightening of EU rules against money laundering. The draft law also covers “foreign politically-exposed persons”, in what lawmakers billed the "anti-Mubarak" amdendment.
The spread of international terrorism over the last 15 years has prompted a global tightening against money laundering activities which are often crucial to provide funding for terrorist activities.
The Financial Action Task Force, an inter-governmental body representing rich nations around the world, adopted in February 2012 new standards against money laundering and terrorism financing.
The new standards have been turned into a legislative proposal by the European Commission in February 2013 and have been debated by EU member states and the European Parliament for most part of 2013.
Lawmakers agreed to establish public registers of beneficial owners that will list the ultimate proprietors of companies, foundations or trusts.
The aim is to put an end to anonymous companies often used to evade taxes, or in the worst cases to channel illegal funding for criminal activities.
The United Nations estimate that money laundered globally in one year can amount up to 5% of global GDP. In Europe, the volume of laundered money can reach €600 billion every year, according to a study cited by the Socialists and Democrats group in the European Parliament.
MEPs endorsed the key principles of the Commission proposal but decided to sharpen it by agreeing the establishment of public registers in a bid to create a further deterrent to illegal activities.
Publicly accessible registers are expected to empower civil society organisations and the press in the pursue of illegal activities, in support to law enforcement authorities.
45 MEPS voted in favour of the revised text, with only one voting against and one abstaining. The draft law will now be put to a vote at the Parliament’s March plenary, allowing negotiations with member states to start in the second half of 2014.
The draft law introduces new requirements for financial institutions in their due diligence activities, but gives member states the authority to decide whether minor activities may be exempted from the tighter compliance-checking obligations.
Financial transactions companies have warned against the higher costs of the new requirements, warning they may reduce consumers' appetite to use payment services.
Financial industry representatives warned the new law may have unintended consequence by increasing underground financial activities or the higher recourse to cash, which is an easier instrument for illegal transactions than electronic money.
Casinos and other gambling activities are also included in the scope of the draft rules for their obvious potential in money laundering activities, “but decisions to exclude other gambling services posing a low risk are left to member states,” the MEPs underlined.
The new text adopted by MEPs extends the scope of the EU Commission’s proposal to cover so called “politically-exposed persons”, such as politicians or judges, who are easy targets of corruption attempts because of their job.
The Parliament committees added to the list “foreign politically-exposed persons”, in a provision that is mainly targeted against wealthy foreigners who hide their illegal revenues behind shell companies or trusts.
The former Egyptian president Hosni Mubarak is known for having perceived a salary of $800 a month, which did not prevent him from saving millions of Swiss francs in Swiss banks, according to Transparency International.
“Heads of state, members of government, members of parliaments or similar legislative bodies, and supreme court judges are among those included” in the list, reads a Parliament press release.
"The outcome of this vote is a big step forward in the fight against tax evasion and a clear call for more transparency,” said Civil Liberties Committee rapporteur Judith Sargentini (Greens/EFA).
“By approving the establishment of beneficial ownership registers, the committees have shown that they are serious in their demand to finally break with the tradition of hidden company ownership", she added.
"For years, criminals in Europe have used the anonymity of offshore companies and accounts to hide their financial dealings. Creating an EU-wide register of beneficial ownership will help to lift the veil of secrecy of offshore accounts and greatly aid the fight against money laundering and blatant tax evasion", said Economic and Monetary Affairs Committee rapporteur Krišjānis Kariņš (EPP).
"Identification of the true beneficiary behind complex company structures and non -transparent shell companies is the key component in fighting money laundering. The beneficial owners should no longer be allowed to seek refuge behind anonymity,” said MEP Peter Simon, (S&D).
"Transparency and flow of information should not be brought to a halt at national borders. Public registers of the member states need to be linked in the EU. The interconnection may facilitate and contribute to the work of investigators,” he added.
"Dirty money has no place in our economy, whether it comes from drug deals, the illegal guns trade or trafficking in human beings. We must make sure that organised crime cannot launder its funds through the banking system or the gambling sector. To protect the legal economy, especially in times of crisis, there must be no legal loopholes for organised crime or terrorists to slip through. Our banks should never function as laundromats for mafia money, or enable the funding of terrorism," commented Home affairs Commissioner Cecilia Malmström.
“Members of the European Parliament should be congratulated on taking a huge step forward in the fight against the drug traffickers, arms dealers and people smugglers that launder money,” said Eloise Todd, Director of International Policy at ONE.
“Until now, the law has prevented us from knowing who owns businesses and trusts, making it all but impossible to track money meant for government coffers. Shining a light on this murky world will change that,” she added.