After Paradise Papers, it is high time for the EU to act

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The Paradise Papers leak comes after the Panama Papers and the Luxleaks scandal, all exposing how lawyers help evade taxes and assist embezzlement of public funds. [AndreiR/Shutterstock]

The Paradise Papers showed once again that anonymous companies are being used as a ‘getaway vehicle’ for criminality, writes Nienke Palstra.

Nienke Palstra is a campaigner for social justice NGO Global Witness

The latest round of offshore leaks dubbed ‘the Paradise Papers’ have shown once again how anonymous companies and trusts have been used with impunity as ‘getaway cars’ for tax evasion and other crimes. While the majority of media focus so far has been on tax, these anonymous companies and trusts are the same secrecy vehicles used to launder money for corruption, terrorism, and human trafficking.

One of the best ways to tackle this problem is to open up the system and reveal those behind these secret structures. This is why we’re calling for full transparency and for governments to end the endemic secrecy around the real ‘beneficial’ owners of companies and trusts by making this information available in public registers.

World Bank analysis found that around 70 percent of corruption cases involving those at the highest levels of government rely on shell companies and trusts to conceal ownership and control of tainted assets.

These latest revelations highlight how little the European Union has done to tackle corporate secrecy since the Panama Papers scandal. Amongst the secrecy jurisdictions exposed by the Paradise Papers is Malta, an EU member state. In failing to tackle this problem, the EU is complicit in fostering this dirty system of corporate secrecy, which poses real threats to the economy and security of the EU.

The Paradise Paper leaks, however, come at an appropriate moment. On 14th November 28 European countries have a unique opportunity to tackle this issue in negotiations on the 5th Anti-Money Laundering Directive. One of the remaining sticking points is the degree to which information will be made publicly available on beneficial owners of companies and trusts. Some of the biggest member states like Germany have been opposing  greater transparency in this area.

At Global Witness we believe it’s crucial for EU governments to set up these public registers for companies, trusts and other similar structures. There isn’t any time to waste; particularly if the rules are still to apply to the UK – a key member state for trust transparency – before it leaves the EU in March 2019.

Examples have already been set for others to follow. Several countries have already made progress in this area. The UK, Denmark and Ukraine, have all already created public beneficial ownership registers for companies and many more have committed to doing so.

But the creation of registers alone is not enough. They also need to be created in a format that is useful. The UK has been a pioneer in this regard; making their company beneficial ownership register free to the public and accessible in open data format. This is crucial because it allows organisations such as Global Witness to cross reference it with other data sets such as the data from offshore leaks like the Paradise Papers to spot wrongdoing and ultimately hold the corrupt to account.

A lot of attention around the Paradise Papers has so far focussed on how the super-rich can use offshore structures to hide their wealth and spend it on luxurious lifestyles. However, this same shadowy system also enables serious crimes with devastating consequences. Money which disappears into offshore locations includes huge sums of money that rightfully belong to some of the world’s poorest nations lost through corruption, tax evasion or avoidance.

The Democratic Republic of Congo is a prime example of this. It is a country rich in natural resources, but basic services such as schools, hospitals and roads suffer from a chronic lack of government funding. It is ranked by the UN as one of the least developed countries on Earth, and almost half of all children are stunted by chronic malnutrition.

Since 2010 we’ve exposed Glencore’s transactions in Congo with Dan Gertler, a billionaire mining magnate and a close friend of Congo’s President Joseph Kabila. Over the course of a ten-year partnership, Glencore pumped cash, loans and shares worth over half a billion dollars into offshore companies owned by Gertler, which allowed him to make at least $67 million in risk-free profit. Several of these transactions didn’t make much obvious commercial sense for Glencore – unless they were intended as a means for ‘rewarding’ Gertler, the president’s friend.

Glencore and Gertler have denied any wrongdoing in their Congo deals, but this new evidence suggests Glencore’s relationship with Gertler goes much further than previously acknowledged, and raises concerns over possible bribery. Why does this matter? Because Congo is losing out on billions that could be spent on public services through secretive sales of under-priced but hugely valuable copper mines via offshore companies.

Glencore’s business dealings with Gertler must be investigated by appropriate authorities in all relevant jurisdictions, including the UK, Canada, US and Switzerland. We also need tougher rules to tackle white collar crime. Financial regulators need to be more willing to fine those responsible and hold those at the top to account.

The current model where we rely on data leaks such the Panama and Paradise Papers to expose wrongdoing and hold people accountable is not acceptable. This is the job of governments and we need robust and globally joined up legislation to do this. The EU currently has this chance in next week’s negotiations; it needs to make sure it doesn’t squander it.

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