The European Commission’s new draft legislation for how to crack down on financial crime, published today, misses an opportunity to make it much harder for tax evaders, mobsters, arms dealers and corrupt politicians to use Europe’s financial system to launder their dirty money.
There are two main loopholes in the proposed legislation, around transparency of company ownership and around tax evasion which campaigners want the European Parliament and national governments to tackle.
Criminals currently find it easy to abuse European companies to hide their identity and therefore their assets. “Who owns and controls European companies should not be secret,” said Robert Palmer, campaigner at Global Witness. “The names of the ultimate, beneficial, owners should be made public.” A European Commission study found that public registries of the beneficial owners of companies would be more cost effective than other options.
Instead, under the Commission’s proposal, companies will only be required to know themselves who their ultimate owners are. This will be of limited help. “If the police are investigating a dodgy-looking company, they can hardly go to the company in question to ask who owns it as any criminals involved in the company will be tipped off that the police are sniffing around,” said Palmer.
The proposal does not do enough to tackle professionals that facilitate tax evasion. “The Commission proposal allows bankers, lawyers and accountants who facilitate tax evasion to get away with it. They should face money laundering charges for this insidious activity which costs developing countries billions every year” said Alex Marriage, Policy and Outreach Analyst at Eurodad.
The draft legislation does include some positive measures, including tougher sanctions for banks and individuals that handle suspect funds. National regulators will be able to impose fines of up to twice the amount of profit gained by a bank caught breaching the money laundering rules. Individuals could also face fines of €5 million. It will important for governments to use these tools to hold banks and individual executives to account.
“These new measures continue to leave our financial system open to abuse. One of the particularly appalling consequences is that it allows corrupt officials in developing countries to hide billions of pounds stolen from their national coffers, depriving citizens of vital resources to escape grinding poverty. The onus is now on parliamentarians to ensure that the new legislation isn’t a wash-out,” said Palmer.
Robert Palmer in London on 020 7492 5860, 07545 645 406, [email protected].
Alex Marriage in Brussels on + 32 2 894 46 49 and [email protected]
Notes for editors:
1. At present, the EU directive means that tax evasion falls foul of the money laundering laws only in cases where there’s national legislation in place with a guideline maximum sentence of over a year or minimum sentence of over six months. The new draft legislation does not close this loophole
2. Global Witness is a non-governmental organisation that campaigns to break the links between natural resources, corruption and conflict. It has consistently highlighted how weaknesses in the global anti-money laundering system have allowed corrupt politicians access to the financial system. Global Witness campaigner Robert Palmer recently testified before the European Parliament's committee on organised crime, money laundering and organised crime.
3. The European Network on Debt and Development brings together 49 NGOs from 19 European countries who work on development finance issues. Alex Marriage is the author of Secret structures hidden Crimes