Legal
EU Vote To End Anonymity Of Company Owners Raises Concerns

European Union lawmakers have pushed forward a controversial plan that would publicly identify the ultimate owners of companies, prompting fears from the international trusts industry and law firms about a threat to privacy.
European Union lawmakers have pushed forward a controversial plan
that would publicly identify the ultimate owners of companies,
prompting fears from the international trusts industry and law
firms about a threat to privacy.
Under updated draft anti-money laundering rules approved by
members of the European Parliament in the economic affairs and
the justice and home affairs committees on Thursday last week,
the ultimate owners of companies and trusts have lost their
anonymity and will have to be listed in public registers in EU
countries. A further vote is due in March.
While casinos are included in the scope of the draft rules,
decisions to exclude other gambling services posing a low risk
are left to member states.
"The outcome of this vote is a big step forward in the fight
against tax evasion and a clear call for more transparency," said
Dutch Green MEP Judith Sargentini, in a statement.
"By approving the establishment of beneficial ownership
registers, the committees have shown that they are serious in
their demand to finally break with the tradition of hidden
company ownership," she added.
Concerns
The proposals have already led organisations such as the Society
of Trust and Estate Practitioners to warn that any such register
must not compromise the legitimate privacy of users of trusts,
for example. The issue of whether the ultimate beneficiaries of
entities such as trusts should be fully disclosed has been a
thorny one for policymakers in recent years, particularly given
attempts to crack down on alleged tax evaders and certain forms
of avoidance.
Deputy Chief Executive of STEP George Hodgson said that the
decision could potentially impose bureaucratic burdens on
millions of families in the UK and require them to publicly
register details of plans they may have put in place to provide
for family members.
"In the UK most homes owned jointly are legally held in trust, as
are life insurance policies and trusts are widely used to provide
for vulnerable family members. HM Revenue and Customs research
confirms that in around a quarter of cases, trusts are used to
help protect vulnerable family members rather than hide illicit
funds," said Hodgson.
"While STEP supports efforts to make anti-money laundering rules
more effective, most UK trusts are very low risk in money
laundering terms. The establishment of public registers will
result in little gain for significant cost and loss of privacy
for UK families," he added.
Filippo Noseda, partner and joint wealth planning practice group
leader at international law firm Withers, criticised the
legislation for being a tool used for the collection and general
accessibility of data and said he believed the best way to fight
money laundering was through improved regulation.
"This new legislation, if adopted by the parliament in March,
will mean that families' internal affairs become public
knowledge, regardless of whether there is any tax at stake. What
this means is a crass intrusion into the private sphere and of
family life (something that is protected by the European
Convention on Human Rights), without any public interest and in
violation of the principle of proportionality," said Noseda.
Geoffrey Todd, a partner in the private client and tax team at
law firm Boodle Hatfield, said: "Whilst it is appreciated that
greater transparency may help prevent criminal activity and tax
evasion, many might feel the proposals go beyond what is required
to achieve this aim.”
EU fine print
According to the new anti-money laundering directive, public
central registers would list information on the ultimate
beneficial owners of all sorts of legal arrangements, including
companies, foundations and trusts. The draft rules would apply to
banks and financial institutions, and also to auditors, lawyers,
accountants, notaries, tax advisors, asset managers, trusts and
real estate agents.
The committees’ amendments are to be put to a vote by parliament
as a whole in March. The new parliament to be elected in May will
begin negotiating the legislation with the European Commission
and the Council of Ministers, which will be chaired by Italy, in
the second half of this year.
The EU believes the new rules will ensure greater transparency
and better overview of financial transactions, making it harder
to set up fake companies and transfer dirty money from one
account to another.
Money laundering accounted for 2.7 per cent of the world's GDP
($1.6 trillion) in 2009, according to the UN. New technologies
have made it even easier for criminals such as drug dealers,
financial schemers and counterfeiters to launder their dirty
money.
Common techniques include issueing invoices for fictitious
services for less than the value declared, enabling a company to
justify the amounts it has in its bank accounts, making them
legitimate.
Another method is to "pre-wash" illicit funds in bank deposits
made through shell companies or businesses (also known as front
companies) that are directly or indirectly linked to a criminal
organisation.