How is Europe doing in the battle against dirty money? In the UK, at last there is an Economic Crimes bill put forward in Parliament. In the EU, the Court of Justice (CJEU) has taken a step back in a recent judgement on 22 November that says the right to privacy overrides the right of the public to know who owns companies. This was in response to a case brought by the Business Registry of Luxembourg which argued that the right to privacy is paramount.
Someone, “WM”, who owns 35 companies registered in Luxembourg, employed the London firm of Mishcon Rey to argue in court that
“because disclosure of that information would expose him and his family, in a way that is distinct, genuine and current, to ‘disproportionate risk, risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation’ ”, he had a right to stay anon.
The victorious lawyer proclaimed:
“Today’s judgment represents a victory for data protection and the Rule of Law in an extremely politicised context”.
Transparency International, the organisation which leads the global fight against kleptocracy, has immediately protested:
“Recognising that public scrutiny serves as a powerful deterrent to financial crime, the 5th EU Anti-Money Laundering Directive of 2018 required countries to open up their beneficial ownership registers to all members of the public. This provision made the EU anti-money laundering legislation the most progressive at the time, but the CJEU has now erased such progress.”
Anti-Money Laundering Directive
After the 5th Anti-Money Laundering Directive (5AMLD) various EU countries started to compel their Company Registries to open up. Now the registries in Luxembourg, Austria, Belgium, the Netherlands are closing access to all except public prosecutors.
Not every country in the EU had yet acted on Directive 5AMLD, which illustrates how the EU works by slow implementation through the law-making processes of the individual sovereign nations. Luxembourg had already made a law which follows the directive. But some countries (including Spain, Hungary, Cyprus) were chided in 2020 for not embarking on legislation by the 5AMLD deadline.
Dirty money matters
Why exactly does all this matter? Dirty money includes money to finance terrorism and drugs. It also includes money which is stolen from public resources on a huge scale. Kent Bylines has recently featured reviews of various books which give the details of historic and current kleptocracy in countries such as Russia, Kazakhstan, and (formerly) Ukraine.
Transparency International argues in court that the directive does in fact allow for a balance between the right to privacy and the need to track dirty money
“In fact, the Directive stipulates that, when access by members of the general public to information on beneficial ownership would expose the beneficial owner to disproportionate risk, Member States could provide for exemptions to disclosure of information through beneficial ownership registers, specifically when such information would expose the beneficial owner to a disproportionate risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation. Member States may provide for an exemption from public access to all or part of the information on beneficial ownership on a case-by-case basis.”
Now 33 organisations from many countries affected by corruption including from Africa have written to support the need for business registers which are open, as this helps track the way money is being stolen from public resources in their own countries.
UK Economic Crimes Bill
How is the UK doing in this fight against dirty money? The UK, along with many other allies of Ukraine, scrambled to legislate for sanctions against Putin’s backers. It is all very well to name them but much more difficult to track down which assets and companies they actually own if this is hidden in shell companies. Now in the latter part of 2022, an Economic Crimes bill (ECTE) is proposed in Parliament, with aims summarised:
- Reforms to Company House
- Prevent abuse of limited partnerships
- Seize criminal crypto assets
- Share information on money-laundering
- Give new powers of finance intelligence gathering to law enforcement agencies
The UK system of registering companies has long been criticised: “You need more proof of ID to get a library card than to set up a company.”(the Mirror, quoting Graham Barrow, from the Dark Money files).
Companies House as gatekeeper
There are even scare stories of companies being registered at addresses without the consent of the owners, who then find they are being chased for debts. Latest report from Companies house shows that some 3,712 companies are registered per week, with the total registry holding nearly 5m companies (4988861). The new law gives enhanced powers to Company House to act as gatekeeper and verify data rather than the current extremely lax system.
Other parts of the world which are notorious tax havens, “treasure islands”, many of them British dependencies, are gradually falling into line with tightening up their company registers, thus cracking open shell companies.
So, will the CJEU ruling stop all this? Anti-corruption campaigners are gathering arguments to ensure that the EU, at least, recognises that public interest is taken forward, not just by law enforcement agencies but also by investigative journalists. Oliver Bullough who runs a weekly blog on financial corruption wryly points out that the CJEU ruling will not apply to Brexit Britain (which is pushing forward the ECTE Bill). One surprising point in favour of Brexit??