As they discuss the European Anti-Money Laundering Directive next week, European parliamentarians and diplomats have the opportunity to end secret company ownership — a tactic used by criminals around the world.
Anonymous companies can open bank accounts, wire money, buy property and transact business like any other company. They are an attractive method for hiding, moving and using money and other assets. The negative effects of financial secrecy in Europe go way beyond this continent’s borders. This is an issue for the entire world, including the developing countries and especially Africa.
While Europe supports development aid or foreign investment flows into Africa, for example, illicit financial flows are moving in the opposite direction.
It is established that Africa loses more money every year through illicit financial flows than it gets in aid. Indeed, anonymous companies facilitate money laundering, tax evasion and embezzlement from developing countries to the tune of $1 trillion each year. A World Bank study of 200 big corruption cases showed that 70 per cent imply the use of shell firms.
Consider the Democratic Republic of the Congo, which lost an estimated $1.36 billion between 2010 and 2012, when national assets were sold at below-market prices to anonymous companies registered in the British Virgin Islands.
We do not know who benefited when these assets were sold for profit, because we do not know who owns the companies. But we do know that the amount lost would have been enough to fund the country’s health and education budgets for two years.
In a country that has some of the world’s worst malnutrition and child mortality rates, and an estimated 7 million children out of school, this should trouble us all. And dozens of similar examples do, unfortunately, exist throughout Africa.
The argument for enhanced transparency is not just humanitarian. Africa’s foreign investors, including European firms, have also been hit by anonymous company ownership.
In 2012, a US-registered company, Cobalt International Energy, saw its company value drop $900 million when details emerged that three of the most powerful officials in Angola had held concealed interests in the company, triggering an investigation by the US Securities and Exchange Commission.
Should be transparent
It does not have to be this way, of course, and momentum has been growing for change.
The Africa Progress Panel and the Financial Transparency Coalition are part of the growing movement of non-profit organisations, governments, and think tanks who demand that the details of a company’s true owners, its uniquely identifiable human owners, should be transparent and publicly available.
In 2013, the G8 committed to further transparency on company ownership, and in April this year, the British government announced it would establish an open, publicly available beneficial ownership register.
We know that European politicians find these arguments compelling, too, because in March, the European parliament voted 643 to 30 in favour of public registers of company ownership in the future AMLD. But, unfortunately, the commission and the member states are not unanimous.
The future AMLD has been discussed for two months — behind closed doors — in the so-called trilog process involving the EU Parliament, the Commission and the Council. Under the influence of some member states like Germany, the creation of public beneficial ownership registers is under tough fire.
But a glimmer of hope is coming from some member states like Denmark and the Netherlands, who announced last week that they were in favour of that process. Sweden also hinted it may join the movement. Now, all the EU member states must follow suit and do away with anonymous companies for good.
Alvin Mosioma is the chair of the Financial Transparency Coalition and executive director of the Tax Justice Network–Africa.