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EU takes action against secret companies

In an important win against impunity for corruption, the European Union reached agreement on Tuesday to create national registries that name the true owners of companies and trusts.

If the agreement is passed by the European Parliament next year, as seems likely, it will mean the end of secret companies in 28 European countries. There’s a catch, though.

The agreement states that these central registries will only be accessible by people or organisations with a “legitimate interest.” We think everyone has a legitimate interest to know who owns, controls or benefits from companies.

Because secret companies are used to hide the source or destination of illicit funds in so many global corruption cases, the legal advance is nevertheless significant. It will make it more difficult for corrupt individuals to hide their identity behind a maze of anonymous shell companies. It will also make it easier for investigators and the public to uncover the source and intended destination for funds that are stolen from the public or given and accepted as bribes for winning public contracts.

Transparency International, therefore, welcomes this new landmark legislation to tackle money laundering through secret companies in the EU. However, we are concerned that the final legislation will fall short of full transparency of the real “beneficial” owners behind companies and trusts demanded by anti-corruption activists worldwide. The identities of many individuals involved in grand corruption have been concealed through the use of anonymous companies, trusts and other entities.

It is a fact that the real, hidden owners of companies are sometimes corrupt, and they must not be able to ship stolen cash across the world. The massive money laundering by ousted Ukrainian President Viktor Yanukovich, for example, was only possible with the help of secret companies, willing western banks and middlemen, something EU governments have failed to tackle until now.

Compromise reached

Under the new legislation full access to company beneficial ownership data will be granted to law enforcement and relevant government bodies in central registers established by EU member states. Partial access will be provided to the public such as investigative journalists and NGOs if they can prove a legitimate interest.

This represents a compromise between those in the EU who demand full transparency (such as the European Parliament, which voted 643-30 in favor of public registries earlier this year) and those who defend some secrecy for beneficial owners (some member states led by Germany). EU Commission President Jean-Claude Juncker also failed to endorse public registries in a response to investigative journalists on Monday. Member states which supported public access included the UK, France, Netherlands and Denmark.

Regrettably, this compromise will entail the creation of a new layer of bureaucracy to manage requests, which could also slow down investigations. For trusts, information will be collected in closed centralised registers available only to government bodies and will not be available to the public.

Transparency International has begun an international campaign to Unmask the Corrupt. The first step is for countries to make companies and trusts much more transparent so they cannot easily be used to illicitly launder stolen wealth. It’s why we ask every country to create a registry of the real beneficial owner of every company operating on its soil and to make that register public.

The EU has taken an important stand against the use of secret companies as vehicles to launder illicit funds by corrupt individuals and companies. Some member states, such as Denmark and the United Kingdom, have said they will go further and make corporate registries completely public. Transparency International urges all European governments to do the same.

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