Europe’s ‘phantom’ companies are helping criminals

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

European finance ministers meeting in Brussels today should take clear action to clamp down Europe’s anonymous shelf companies, which are used for money laundering and other criminal purposes, writes Eloise Todd.

Eloise Todd is the Brussels director of ONE, an NGO co-founded by rock star Bono which seeks to end extreme poverty and preventable disease, particularly in Africa.

When someone says “money laundering” to me, there is a certain image that comes to mind: a slick, ruthless operator working in the shadows, bullying, intimidating and playing the system. Think Tony Soprano or Tony Montana. But what if the system didn’t need to be played? 

Across the EU, it is common practice and entirely legal to set up a company of which the owners are anonymous. These anonymous shell companies or “phantom firms”, allow criminals to launder money, avoid tax and hide the profits from criminal activity with incredible ease. This robs governments, in both developed and developing countries, of resources that could otherwise be invested in improving public services and stimulating inclusive economic growth.

Today, as finance ministers from the member states meet at the Economic and Financial Affairs Council, it is important that they take the necessary steps to ensure that this practice is brought to an end. Ownership about who owns and controls companies, trusts and similar legal vehicles established in the EU should be made public. Company ownership should not entitle owners to anonymity that enables them to abdicate responsibility or accountability for their actions. That is exactly what current EU law allows.

In 2010 alone, €32.93 billion in funds were illicitly channelled out of Africa. A World Bank study found that phantom firms were used in more than 70% of corruption cases analysed. In the Democratic Republic of Congo (DRC), for instance, phantom firms were used to purchase mines for as little as one sixteenth of their actual value, and then resell them at full price. In just five such deals 2010–2012, the DRC lost at least €1 billion in revenues, an amount nearly double the country’s combined annual budgets for health and education in 2012.

If you think this is just a problem for Africa then think again. EU governments combined lose nearly €1 trillion a year from tax evasion, more than total EU health care budgets and phantom firms play a huge role in that deception.

Phantom firms also play a role in human trafficking, the second largest – and fastest growing – criminal industry in the world today, with an estimated 1.2 million children trafficked each year. In just one such case, dozens of phantom firms created in Portugal and linked to bank accounts in Belgium were used to provide trafficked Brazilian workers with fraudulent paperwork and sent to work in countries across Europe.

This week, ONE launched our “Stash the Cash” campaign across the continent. We want to show how ludicrous it is that we can’t find out who owns these companies. It is essential that member states and the European Parliament use the opportunity of the 4th Money Laundering Directive which is currently being revised to put an end to this damaging secrecy. The EU can take an important step forward by requiring that information about who owns and controls companies and trusts in the EU be made public.

Making company ownership public would give citizens, civil society and journalists, including in developing countries, access to the data they need to follow the money and root out corruption.

Also, transparency of ownership information would knock down the walls of secrecy that currently make investigations into financial crime more costly and less effective, facilitating the efforts of governments to locate and recover stolen assets.

In developing countries the effects could be even greater. Cracking down on corruption would make more funds available to invest in basic social services and improve their economies. In doing so the EU would be seizing an opportunity to lead the world as the vanguard of a transparency revolution.

NGOs

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