Tomorrow the European Commission, the civil service part of the EU, will propose new rules to tackle money laundering and tax evasion through secret shell companies and trusts, as flagged in today’s Financial Times. Global Witness has frequently shown that it’s all too easy for criminals, corrupt officials and tax dodgers to hide their identity, and their assets, behind complicated company and trust structures. The Panama Papers revealed how this works in practice.
Of course Brexit raises serious questions about what will happen to this proposal and how it will affect the UK and its tax havens. But as I explain in this blog, there’s a good chance that the updated money laundering directive will have an impact on the UK.
But first, a bit of background. Last year the EU agreed that each country would create central registers of the ultimate owners of companies and provide access to members of the public who could show a “legitimate interest”. However, this fell well short of the full public access that’s needed to really tackle the problems exposed by the Panama Papers. (My colleague Rosie Sharpe provides 8 reasons for public access in this blog).
The European Commission is now proposing to update the anti-money laundering directive (AMLD) so that these company registers would be open to the public by default. The Commission has also proposed greater transparency measures against trusts, which are murky legal instruments that are a favourite of tax evaders
The proposals will have to be agreed by the member state governments and the European Parliament, but this is great news. It is part of a global trend towards greater transparency over shell companies which will make it harder for criminals to move their money in secret.
But what are the implications of Brexit on this? Bear in mind that a lot of this blog is based on speculation – we really don’t know what the future holds on a lot of this.
Firstly, while the UK has been a champion of greater transparency around companies, David Cameron has blocked previous efforts to get more transparency around trusts. Given the loss of political clout in Brussels following the Brexit vote, it may be hard for the UK government to continue to block change on trusts.
And I’m hopeful the UK government will implement the Directive itself. At the very least we have two years of negotiating a UK exit deal, which would take us over the June 2017 deadline for transposing the directive into national law. While the UK remains part of the EU it will still be required to implement EU law.
Secondly, there’s a good chance that some of the UK tax havens will adopt the new transparency standards voluntarily. To date, the Isle of Man and Jersey have both said that they are very likely to adopt the directive, including the company transparency provisions. This is because while they are not members of the EU, they are both treated as third party countries with equivalent standards of financial regulation. This gives them some access to EU markets. In order to continue to meet this test, the islands would have to adopt the updated money laundering directive, including the proposed transparency measures.
A statement from Jersey Finance (representing the industry on the island) following the Brexit referendum makes the point that even with the UK leaving the EU, Jersey would seek to remain a third party country in relation to the EU and would therefore still have access to the EU markets if it maintains its equivalent standards. The Jersey government seems to support this position. The Isle of Man government, however, appears to be a bit less optimistic on maintaining some form of its existing relationship with the EU.
What is undeniable is that these centres will lose the protection they’ve currently had from having the UK in the EU. The tax justice campaigner Richard Murphy suggests that the havens may even find themselves on EU tax haven sanctions lists post-Brexit.
Thirdly, an unknown is Gibraltar, which is formally part of the EU and so at present is required to implement the directive. Apparently it is already discussing ways of remaining in the EU if the UK left.
Ultimately we’ll have to see what the negotiations lead to, including what sort of deal the UK secures and how the tax havens figure in this. Whatever the outcome, Global Witness will continue to push for the EU to adopt these transparency proposals.