Private
finance
Debt
Tax
justice
Aid
Financial
architecture

Panama Papers amnesia causing headaches in EU: Member states reluctant to end secretive ownership

Added 19 Dec 2016
This blog piece was jointly written with the Financial Transparency Coalition

It was just nine months ago that countless business leaders, politicians and celebrities found themselves answering awkward questions about why their names appeared in leaked documents from Mossack Fonseca, a company known for setting up offshore business structures. 

The leaks, which became known as the Panama Papers, gave a firsthand look at the murky world of offshore corporate structures, and the companies that help set them up. The investigation would be the catalyst for countless government probes, and even helped topple a government

Perhaps most central and alarming about the revelations was the ease with which someone could open a company or trust and do so anonymously. Being able to hide the real owner—also known as the beneficial owner—was central for anyone trying to conduct business or move money without their name being connected to it. 

Even before the Panama Papers, the European Union was making some strides in beneficial ownership transparency through a revision of its Anti-Money Laundering Directive (AMLD). The 4th AMLD mandated that every EU member nation set up a national register of the beneficial owners of companies incorporated within its borders. 

But there was a catch.

Rather than requiring Member States to make the registers public, the directive only specified that access to the information should be granted to individuals associated with law enforcement and to those who can prove a ‘legitimate interest’ in viewing the data. Some countries, though, decided to be more ambitious and planned to make their registers public. One public register has already come online, namely that of the UK and other countries, such as SloveniaDenmarkFrance and the Netherlands have committed to do the same. Although there’s no public commitment, open registers for beneficial owners of both companies and trusts have made an appearance in German draft legislation as well. The European Parliament has also long backed fully public registers, and in April the EU Finance Ministers joined the chorus, when they invited the European Commission to look into ways to strengthen beneficial ownership transparency in the AMLD. 

So it was heartening to see a European Commission proposal in July to alter the AMLD by dropping the legitimate interest clause, making all company registers across the EU public by default. This common sense change was something civil society groups like the FTC and Eurodad have been pushing for from the start, and it only made more sense in the wake of the Panama Papers, which showed how important it is to be able to know who’s really behind companies and trusts. 

But it now looks like EU member states are suffering from a case of amnesia. 

EU negotiators, meeting on 20 December, moved to drop key provisions of the Commission’s proposal, most notably the proposal to make the registers fully public. This would mean that journalists, civil society organizations and the general public would have to demonstrate a ‘legitimate interest’ in order to get any information, unless member states voluntarily opt for public access. 

There’s also another glaring problem: no one seems to agree on what legitimate interest means. The term is so ambiguous that the Netherlands decided to make their register fully public in part because vetting who should or shouldn’t have access would simply be too difficult and costly to administer. But with no EU-wide definition, individual member states will have a great deal of discretion in deciding how open their national registers will ultimately be, if the legitimate interest clause is left intact. 

And the problems don’t end here: requirements for registering trusts are weak. The Panama Papers showed us that it’s common practice to use both trusts and companies in the complex structures that are designed to hide the names of real owners. The Commission proposed changes to the registration requirements for trusts, but even with those rules a large number of trusts could escape registration and thus scrutiny from authorities. 

It’s clear that beneficial ownership registers are coming to Europe, but how useful they will be and how accessible they will be to the public are still up in the air. Despite the backing of the European Parliament and Commission, it seems some member states wish to keep the public in the dark. 

It’s vital that we don’t let European lawmakers forget the lessons learned from the Panama Papers by backtracking. Only fully public beneficial ownership registers will allow for the transparency needed to hold politicians, business people and wealthy elites accountable.

And if we’ve learned anything from the Panama Papers, it’s that citizens want transparency and our financial system sorely needs it.