As European Parliament and Council of the European Union representatives reached an agreement last week on tightening anti-money laundering rules, some questioned whether the new rules go far enough in unmasking the real owners behind shell companies used in the schemes.
Transparency International’s EU branch praised the 4th Anti-Money Laundering Directive as “an important step forward” in the battle against corruption, but lamented the fact that registers listing the beneficial owners of companies will not be open to everyone automatically. According to the agreement reached by the parliament and council representatives, which still must be approved by the full parliament next year, only law enforcement and government agencies will have unfettered access to the beneficial owner registers to be set up by EU Member States. Others, such as journalists or NGOs, can obtain access to the information if they prove a legitimate interest. Information on trusts will be housed in closed central registers, which will not be available to the public.
TI said the new directive would create another layer of bureaucracy to manage requests for information, with the potential of bogging down investigations.
“Yesterday’s decision to provide access to those with an interest in following the corruption money trail is a big step forward. However, a system which limits access is likely to be more cumbersome, expensive, and could be used as an excuse to deny meaningful public access,” Carl Dolan, director of Transparency International EU, said in a statement. “It remains unclear how countries will assess who has a ‘legitimate interest.’ The compromise may end up replacing one big loophole with many small loopholes.”
TI cited a UN/World Bank report on large-scale corruption showing that 70 percent of the cases involved corrupt politicians, anonymous companies, and trusts to avoid detection. And Nienke Palstra, TI’s policy officer for the EU, said requiring members of the public to prove a legitimate interest in order to access the information, places the burden on the public rather than criminals “who treat the European financial system like their personal launderette.”
However, the anti-corruption watchdog said the compromise is an improvement over the original proposal from the European Commission by including trusts and other entities in addition to companies in the registers. Once the directive is approved by the full parliament and published in the official journal, Member States will have two years to implement the new rules. Member States have discretion to go beyond the directive, and TI praised the U.K., France, Denmark, and the Netherlands, all of which have announced plans for full disclosure of beneficial owners of companies.
European Parliament said any concerned person showing a legitimate interest would be able to access basic information, such as the beneficial owner’s name, month and year of birth, nationality, residency, and ownership details. While financial authorities and banks will have total access, the public may be subject to online registration or administrative fees.
In addition to greater transparency of beneficial owners, the updated directive requires banks, auditors, lawyers, and others to be more vigilant about suspicious transactions, and clarifies rules on politically-exposed persons. Banks and other organizations must take additional steps to identify the source of wealth or funds involved in situations of “high-risk” business relationships with a politically-exposed person.
“The new rules agreed today will provide much greater transparency of the shadowy business structures that are at the heart of money laundering schemes, as well as schemes used by businesses to avoid their tax responsibility,” Judith Sargentini, lead MEP on the proposal for the Civil Liberties Committee, said in a statement.