A commonsense solution for money laundering

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

A default option of full financial transparency is needed to fight the scourge of money laundering and the EU has a leadership role to play, argues Mark Moody Stuart.

Mark Moody Stuart is the Chairman of Hermes Equity Ownership Services, a member of the UN secretary-general's High Level Advisory Group Panel on Sustainable Energy for All and Chairman of the Foundation for the UN Global Compact. He has previously served as the chairman of Anglo-American, and Shell.

Anonymous shell companies and trusts are the preferred vehicles for those seeking to hide their identity and launder ill-gotten gains. The European Union – its Parliament and member states – has the opportunity over the coming weeks to make life much harder for money launderers by requiring the public disclosure of information about who owns and controls companies, and by cracking down on the abuse of trusts for money laundering.

As things currently stand, anyone can register a company in the European Union with less information than is required to obtain a driver’s licence. The EU’s laws have become so distorted that an individual can register a business in another person’s name – even that of a perfect stranger – making it virtually impossible to identify the real owner. This makes these “anonymous shell companies” the perfect vehicle for money launderers and tax evaders.

If you talk, as I have, to some of the brave people who occupy the often dangerous job of Anti-Corruption Commissioner in developing countries, you will hear tales about their struggles to claw back the stolen billions sitting in banks in the developed world. Their efforts are stifled by the ease with which criminals can create complex, multi-layered company structures in which a shell company can be owned by another shell company or a trust, resulting in a nearly impenetrable web of secrecy that can thwart even the best law enforcement efforts. From Abacha to Marcos and the Gaddafis, corrupt leaders have used shell companies and trusts to accumulate and safeguard staggering fortunes – based on the theft of public resources – by hiding their identities.

To tackle this problem, we need full transparency about who owns and controls companies and a crack-down on the abuse of trusts. Last year’s G8 summit rightly put the issue of secretive shell companies at the top of the political agenda. Since then, both the French and UK governments have announced their intent to push for a revision to the law that would require the public disclosure of information about company ownership, with other member states also signalling their support for this commonsense measure. On trusts, a broad coalition of member states – the UK notably excepted – has indicated its intent to prevent the abuse of trusts for money laundering.

In a perfect world, where governments and law enforcement agencies had sufficient political will and resources to pursue stolen funds, providing those agencies with information about who owns and controls companies and trusts might suffice. But all too often, this is not the case. In some countries, most especially those prone to corruption and with limited resources to pursue complex investigations, the enthusiasm of officials to pursue stolen assets can be dampened – and they can be bought off for a tiny percentage of those funds.

This is why making public information about who owns and controls companies, and preventing the abuse of trusts, is so important. Making information public will enable journalists and civil society groups to help expose cases of abuse, including in countries beyond the EU, an important consideration in an increasingly globalised world in which criminal activity occurs across borders. It would also help to improve the accuracy and timeliness of the data.

The default option should be full transparency.

Companies themselves recognize this as a commonsense approach and are calling for public disclosure because they want more information on who they’re doing business with and what risks they are taking on. The head of the British Institute of Directors and the European Banking Federation – the umbrella group for European banking associations – have both called for public registers of company ownership. Markets function best when there is good information.

The rationale for taking these measures is clear. These practices have a corrosive impact on societies, while the surrounding secrecy provides no public benefit. The benefits of requiring public disclosure of information about company ownership and tackling the abuse of trusts hugely outweigh the costs, costs that would be minimal for the vast majority of law-abiding companies and trusts.

As the EU updates its Anti-Money Laundering Directive over the coming weeks and months, it should commit to making beneficial ownership information public and preventing the use of trusts for money laundering. Doing so would be good for development, good for business, and good for law enforcement’s efforts to investigate and prosecute crime.

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