Europe must clamp down on secret company structures used by drug cartels and tax cheats The European Union this month is expected to outline important new anti-money laundering rules. But a new report from Eurodad today argues this initiative will fail unless governments remove the ability for companies and other legal set-ups to be used as anonymous fronts through which illicit cash is siphoned. Today Eurodad’s report, Secret structures, hidden crimes urges EU legislators to ensure all countries create registries to disclose the names of individuals who own companies and trusts. If this information was available in a public register, it would allow authorities to investigate wrongdoing quickly. Countries around the world are under increasing pressure to tighten up efforts to combat money laundering. Recent scandals at major banks such as HSBC have added urgency to this process. The European Commission is expected to propose new rules at the end of January. The US government announced it would overhaul its standards in November. But most countries permit concealed ownership and control of companies, trusts, foundations and other such vehicles. Out of 68 jurisdictions surveyed only six require companies to be registered in the name of the real owners. Of these, only two - India and Andorra - require that the information is updated. Real owners and controllers can conceal their identity by paying others known as nominees to put their names as shareholders or directors. Two Latvian nominee directors notionally presided over hundreds of companies some of which were alleged to have been involved in tax evasion, defrauding investors and even arms smuggling. Opaque ownership facilitates: • Tax Evasion: An estimated US$21-32 trillion of untaxed wealth is stashed offshore much of it in opaque legal structures like companies and trusts. • VAT fraud linked to carbon credits which cost the EU €5 billion in 2009. • Corruption: crooked politicians hide their assets in such vehicles or use them to carry out scams- The World Bank and UNODOC Stolen Asset Recovery initiative lists 150 cases of large scale corruption involving corporate vehicles. The banking crisis: Bailed-out banks such as Northern Rock used secret vehicles to hide their losses before the financial crisis. • Illegal logging and forest burning: A significant number of Indonesian paper and pulp companies which are contributing to environmental damage and climate change, are using opaque shell companies in the EU to disguise their involvement and dodge taxes. • Human rights abuses: multinationals can use complex company structures to avoid liability in human rights violation cases. Rui Tavares MEP, Vice-Chair CRIM Special Committee on Organised Crime, Corruption and Money Laundering, said: "An official register recording the real owners of companies would be a key step to tackle economic crime, which damages society and impedes a just recovery” Alvin Mosioma, Director, Tax Justice Network –Africa, said “Tax evasion has a significant human cost in developing countries so anti-money laundering systems should discourage or catch the professionals who facilitate tax crimes.” Alex Marriage, Eurodad Policy and Outreach Analyst said: “vast amounts of money that should have been spent on public services is hidden in opaque legal structures.” “It is important not only that the current weak rules are improved but also that there is much more effective enforcement and compliance.” The report finds that whilst many countries consider tax evasion to predicate money laundering, some significant jurisdictions still do not. This allows unscrupulous bankers, accountants and lawyers to facilitate tax evasion. In the EU helping tax evaders, can trigger money laundering charges but only where the initial tax evasion is viewed as a serious crime, meaning one with a guideline maximum sentence of over a year or minimum sentence of over 6 months. This means in some member states, which take a lenient view of tax evasion even large scale infringements would not be covered, even if the initial crime took place in another country which did consider the offence serious. New rules should lower or remove this threshold, there are no sentencing guideline thresholds for fraud or corruption. The Eurodad report shows enforcement and compliance with the current anti-money laundering rules is inadequate. For further details or comment, contact Alex Marriage, Eurodad Policy and Outreach Analyst, on amarriage@eurodad.org or + 32 2 894 46 40; or +32 4 89476529 Notes to Editors 1) The report, “Secret structures, hidden crimes: Urgent steps to address hidden ownership, money laundering and tax evasion from developing countries” embargoed until 14/01/2013it will be available at: http://eurodad.org/category/documents/reports/ 2.) Eurodad (the European Network on Debt and Development) unites 49 non-governmental organisations from 19 European nations working on issues related to debt development finance and poverty reduction. 3) The Financial Action Task Force is the Paris-based organisation which oversees efforts to combat international money laundering and the financing of terrorism. It has issued guidelines in February 2012 requiring countries to make tax evasion a predicate offence of money laundering and ensure information about the real owners of vehicles is available. 4. Data on laws in various jurisdictions is available from Tax Justice Network, Mapping Financial Secrecy http://www.secrecyjurisdictions.com/sj_database/menu.xml 5. James Henry Tax Justice Network (2012). The Price of Offshore Revisited New Estimates for Missing Global Private Wealth, Income, Inequality, and Lost Taxes (see http://www.taxjustice.net/cms/upload/pdf/Price_of_Offshore_Revisited_120722.pdf ). End Notes 6. Europol, Further Investigation of VAT fraud linked to the Carbon Emissions Trading System. 28 December 2010 (see https://www.europol.europa.eu/content/press/furtherinvestigations-vat-fraud-linked-carbon-emissionstrading-system-641 7. STAR Corruption Cases Search Centre http://star.worldbank.org/corruptioncases/assetrecovery/?f%5B0%5D=bundle%3Apuppet_masters 8. Nicholas Shaxon (2011). Treasure Islands: Tax Havens and the Men Who Stole the World, p. 230.

Europe must clamp down on secret company structures used by drug cartels and tax cheats

The European Union this month is expected to outline important new anti-money laundering rules. But a new report from Eurodad today argues this initiative will fail unless governments remove the ability for companies and other legal set-ups to be used as anonymous fronts through which illicit cash is siphoned.

Today Eurodad’s report, Secret structures, hidden crimes urges EU legislators to ensure all countries create registries to disclose the names of individuals who own companies and trusts.  

If this information was available in a public register, it would allow authorities to investigate wrongdoing quickly.

Countries around the world are under increasing pressure to tighten up efforts to combat money laundering. Recent scandals at major banks such as HSBC have added urgency to this process. The European Commission is expected to propose new rules at the end of January. The US government announced it would overhaul its standards in November.

But most countries permit concealed ownership and control of companies, trusts, foundations and other such vehicles. Out of 68 jurisdictions surveyed only six require companies to be registered in the name of the real owners. Of these, only two - India and Andorra - require that the information is updated.

Real owners and controllers can conceal their identity by paying others known as nominees to put their names as shareholders or directors.

Two Latvian nominee directors notionally presided over hundreds of companies some of which were alleged to have been involved in tax evasion, defrauding investors and even arms smuggling.

Opaque ownership facilitates:

·         Tax Evasion: An estimated US$21-32 trillion of untaxed wealth is stashed offshore much of it in opaque legal structures like companies and trusts.

·         VAT fraud linked to carbon credits which cost the EU €5 billion in 2009.

·         Corruption: crooked politicians hide their assets in such vehicles or use them to carry out scams- The World Bank and UNODOC Stolen Asset Recovery initiative lists 150 cases of large scale corruption involving corporate vehicles.
The banking crisis: Bailed-out banks such as Northern Rock used secret vehicles to hide their losses before the financial crisis.

·         Illegal logging and forest burning: A significant number of Indonesian paper and pulp companies which are contributing to environmental damage and climate change, are using opaque shell companies in the EU to disguise their involvement and dodge taxes.

·         Human rights abuses: multinationals can use complex company structures to avoid liability in human rights violation cases. 

Rui Tavares MEP, Vice-Chair CRIM Special Committee on Organised Crime, Corruption and Money Laundering, said:

"An official register recording the real owners of companies would be a key step to tackle economic crime, which damages society and impedes a just recovery”

Alvin Mosioma, Director, Tax Justice Network –Africa, said

“Tax evasion has a significant human cost in developing countries so anti-money laundering systems should discourage or catch the professionals who facilitate tax crimes.”

Alex Marriage, Eurodad Policy and Outreach Analyst said:

“vast amounts of money that should have been spent on public services is hidden in opaque legal structures.”

“It is important not only that the current weak rules are improved but also that there is much more effective enforcement and compliance.”

The report finds that whilst many countries consider tax evasion to predicate money laundering, some significant jurisdictions still do not. This allows unscrupulous bankers, accountants and lawyers to facilitate tax evasion.

In the EU helping tax evaders, can trigger money laundering charges but only where the initial tax evasion is viewed as a serious crime, meaning one with a guideline maximum sentence of over a year or minimum sentence of over 6 months. This means in some member states, which take a lenient view of tax evasion even large scale infringements would not be covered, even if the initial crime took place in another country which did consider the offence serious. New rules should lower or remove this threshold, there are no sentencing guideline thresholds for fraud or corruption. The Eurodad report shows enforcement and compliance with the current anti-money laundering rules is inadequate.

For further details or comment, contact Alex Marriage, Eurodad Policy and Outreach Analyst, on amarriage@eurodad.org or + 32 2 894 46 40; or +32 4 89476529

Notes to Editors

1) The report, “Secret structures, hidden crimes: Urgent steps to address hidden ownership, money laundering and tax evasion from developing countries” embargoed until 14/01/2013it will be available  at: http://eurodad.org/category/documents/reports/

2.) Eurodad (the European Network on Debt and Development) unites 49 non-governmental organisations from 19 European nations working on issues related to debt development finance and poverty reduction.

3) The Financial Action Task Force is the Paris-based organisation which oversees efforts to combat international money laundering and the financing of terrorism. It has issued guidelines in February 2012 requiring countries to make tax evasion a predicate offence of money laundering and ensure information about the real owners of vehicles is available. 

4. Data on laws in various jurisdictions is available from Tax Justice Network, Mapping Financial Secrecy http://www.secrecyjurisdictions.com/sj_database/menu.xml

5. James Henry Tax Justice Network (2012). The Price of Offshore Revisited New Estimates for Missing Global Private Wealth, Income, Inequality, and Lost Taxes (see http://www.taxjustice.net/cms/upload/pdf/Price_of_Offshore_Revisited_120722.pdf ).

End Notes 

6. Europol, Further Investigation of VAT fraud linked to the Carbon Emissions Trading System. 28 December 2010 (see https://www.europol.europa.eu/content/press/furtherinvestigations-vat-fraud-linked-carbon-emissionstrading-system-641

7. STAR Corruption Cases Search Centre http://star.worldbank.org/corruptioncases/assetrecovery/?f%5B0%5D=bundle%3Apuppet_masters

8. Nicholas Shaxon (2011). Treasure Islands: Tax Havens and the Men Who Stole the World, p. 230.