It’s time Europe walked the walk on money laundering

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

The EU must grab the opportunity to shine a light on the secretive world of shell companies when it revises its money laundering rules, writes Catherine Olier.

Catherine Olier is Oxfam's EU policy advisor

What do US food trader Cargill, German car maker Daimler AG, and computer giant Apple all have in common? At first, it may appear very little, but the three companies share a common practice: the use of secrecy to advance their business at the expense of the public interest.

While working towards different goals, they have all used the secrecy of shell companies to circumvent at least the spirit of the law – and they’re certainly not the only ones doing so. Globally, the practice is rife. Europe is now in a unique position. It could end this highly suspect practice, simply by requesting, in the revision of the anti-money laundering rules, that all information on company ownership is made public. 

At a stroke, that would shine such a light into shell companies as to make them useless as secret vehicles. Shell companies exist only on paper. They do not create jobs. They do not have real offices. While they can have a legitimate purpose, they are often used to sidestep the spirit of the law.

A recent Oxfam report revealed that a Colombian subsidiary of Cargill, the world's largest agricultural commodity trader, created 36 shell companies in order to fragment its purchase of a large tract of land. As a result, they avoided national laws on the concentration of land, destined for small farmers with limited resources.

Cargill acquired over 52,000 hectares of land, more than 30 times the legal limit. All of its shell companies had the same address in Bogotá, showed exactly the same economic activity, and had the same sole board member. They bought the land very quickly after their creation. Shell companies can also be used to bribe foreign officials in order to win businesses, as in the case of Daimler.

In 2010, the German and Russian subsidiaries of the multinational automobile corporation pleaded guilty in front of a US court of using shell companies in secrecy havens like the Bahamas and Seychelles, and secret bank accounts, fuelling corruption of foreign government officials to the tune of €3 million.  

Shell companies can be used by cross-border businesses to hide their profits and reduce their tax bills. A report by the US Senate alleged that Apple had been setting up shell companies with no employees in places like Ireland to avoid paying billions in taxes. This is not illegal. But at the very least, it is not fair or moral, and it does not demonstrate good corporate citizenship.

Overall, the report says that Apple’s tax avoidance efforts shifted at least $74 billion away from the reach of the US tax authorities between 2009 and 2012.

Knowing that the EU loses around one trillion euros to tax evasion and avoidance every year, decision-makers should make a priority to lift this veil of secrecy. Whether the purpose is to purchase land, bribe officials or avoid tax, secrecy is, in many ways, the strongest weapon at companies’ disposal to make unfair gains at the public’s expense.

This is recognised by many organisations ranging from FATF, the international anti-money laundering rules settler, to the G8 and the EU Institutions.

Everyone likes to talk but it is now time to walk the walk. We should take all necessary measures to prevent the misuse of shell companies by knowing who their real owners are. We need to ensure that information on these owners is publicly available and open to citizens’ and media scrutiny.

European governments and the European Parliament now have a unique chance to actually make this happen. They are currently revising a directive on anti-money laundering and should take a bold stance by requesting that information on all companies’ owners is made publicly available by law. Many legitimate businesses are already publishing this information; the only businesses it will affect are those with something to hide.

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