The revision of the EU anti-money laundering directive being discussed in Brussels could stem the flow of illicit money around the world. It could also help developing countries tackle the scourge of tax dodging that robs them of billions of dollars every year. However, to date, the Irish Government has shown no sign that it is going to support the measures needed to achieve this.
As part of the directive, EU member states are discussing the introduction of a public register of the true owners – or the beneficial owners – of companies. Until now, money launderers, tax evaders, and terrorist groups have relied on the secrecy that is provided by a complex network of trusts and shell companies. The true owners of these companies are hidden under layers of notional owners, often lawyers or accountants acting on behalf of clients preferring to remain anonymous.
Damage done
The damage done as a result of this lack of public transparency should not be underestimated. The Africa Progress Panel led by Kofi Annan has estimated in its 2013 report that Africa loses twice as much in illicit financial flows as it receives in international aid. Other estimates put capital flight as high as €850 billion each year, depriving countries of vital capital and revenues. Much of this money flowing out of Africa flows into shell or phantom companies.
In the Democratic Republic of Congo, for example, five mining contracts were awarded to anonymous companies in the British Virgin Islands at a vastly under market rate and then sold on at market rate to major extractive companies; the estimated cost to the DRC was $1.35 billion or twice the health and education budget. The identities of those who owned and benefited from the British Virgin
Islands-based companies remain unknown. Public registries of the real, beneficial owners would address this problem and not only provide a way to identify those profiting and hold them to
account, but also to deter such practices from ever happening.
No plans
However, as of yet, the Irish Government has failed to declare support for this proposal, stating simply it has no plans to introduce a public register of the true owners of companies. The Government's position is difficult to understand. Availing of opportunities to promote the highest levels of transparency, particularly in the field of international finance and taxation, would seem to be an obvious and sensible position to adopt.
Indeed, the Department of Finance’s recent publication on Ireland’s international taxation strategy talks at some length about our commitment to transparency and to tackling tax evasion, and justifiably points to some important successes in that regard achieved under the recent Irish European presidency.
This directive also comes at a time when Irish Aid is looking to identify ways of ensuring that policies across government, including those in matters of taxation and international finance, do not undermine the development efforts of our aid programme. Through the simple introduction of a public register to hold the names of the real owners of companies, Ireland could both enhance the impact of our aid programme, and strike a blow against the activities of money launderers, tax evaders and terrorists.
A cost-benefit analysis conducted by our closest neighbours in Britain also identified additional benefits to introducing these measures including increasing confidence in businesses, lowering the cost and increasing the availability of credit to businesses. It is for this range of reasons that we have seen support for this measure coming from not just non-governmental organisations, but from many businesses too. Inevitably there is some resistance. One of the reasons commonly put forward against the introduction of a public register is that it would be an unwelcome administrative burden on companies. This simply does not stack up. The majority of businesses have simple structures. Most small- and medium-sized enterprises have a director or founder, while companies listed on stock exchanges make information about their major shareholders public. For these firms, disclosing information on their beneficial ownership would be straightforward.
Rooting out companies
The remaining 1-2 per cent of companies that use complex multi-jurisdictional structures – where beneficial ownership is separated from legal shareholding – would be burdened. But since these are the types of structures most often used for money laundering and tax evasion, any additional burden would be outweighed by the benefit of rooting out companies that abuse the system.
France and Britain have publicly committed to the introduction of a public register regardless of the outcome of discussions in Europe, with French finance minister Pierre Moscovici calling for public registers of the real owners of companies to be the standard across Europe. Anglo-French agreement is unusual, as is agreement between civil society and banks, but a huge coalition of NGOs and the European Banking Federation are all supporting this measure.
Discussions on this directive will continue over the coming months, and Ireland will be obliged to indicate whether it supports this proposal or not. Minister for Finance Michael Noonan and his Government colleagues should seize this opportunity to demonstrate Ireland’s commitment to the highest levels of transparency by clearly supporting the introduction of a register open to public scrutiny. In doing so they would also be supporting some of the poorest countries in the world to halt the flow of capital from their countries and to collect the revenue to which they are entitled.
Sorley McCaughey is head of advocacy and policy with Christian Aid Ireland
