David Cameron Calls for Abolishing Phantom Firms in Major Transparency Victory

Washington, DC / London, 25 April 2013, Global Financial Integrity.

This post was originally published on the Global Financial Integrity website.

British PM Endorses Public Registries of Company Ownership to “Break through the Walls of Corporate Secrecy”
France, Germany Also Call for Meaningful End to Anonymous Shell Companies
GFI Urges G8, U.S., EU to Follow Suit

In a major victory for transparency advocates, British Prime Minister David Cameron called on members of the G8 and the European Union Wednesday to “break through the walls of corporate secrecy” that facilitates tax dodging, money laundering, and corruption—endorsing the disclosure of beneficial ownership information in central public registries. Global Financial Integrity (GFI), a Washington, DC-based research and advocacy organization, lauded the statements by Mr. Cameron—included in a letter sent Wednesday to Herman Van Rompuy, President of the European Council—and the organization encouraged the United States, EU, and G8 to follow suit.

“Anonymous shell companies are the most-widely used method for laundering the proceeds of crime, corruption, and tax evasion,” said GFI Director Raymond Baker, a longtime authority on financial crime. “These phantom firms facilitate sex slavery, terrorism, and tax evasion. Central public registries of meaningful corporate ownership information are essential to curtailing these pernicious crimes. We’re thrilled to see Prime Minister Cameron take the lead on this issue. It’s now time for the European Union, the United States, and the G8 to jump on the bandwagon.”

GFI studies estimate that anonymous shell companies and tax haven secrecy facilitate the illegal outflow of roughly $1 trillion from developing countries every year, exacerbating poverty and instability. In addition to the devastating effect on global development, the organization’s rigorous economic research—lead by Dr. Dev Kar, a former senior economist at the IMF—found that tax haven secrecy and anonymous shell companies drained $261 billion from Greece in the lead-up to the European debt crisis, jeopardizing the future of the Euro.

EU Anti-Money Laundering Directive Should Be Amended

“World leaders—particularly Europe—cannot afford to ignore this problem any further, and Mr. Cameron recognizes that. It’s imperative that the European Union amend the draft of the 4th EU Anti-Money Laundering Directive to eliminate anonymous shell companies through central public registries. The time is ripe for the EU to take action; the legislation is still sitting in Committee,” noted Mr. Baker, who testified last month in front of the European Parliament, highlighting the need to amend the proposed Anti-Money Laundering Directive to provide for the disclosure of meaningful corporate ownership information.

The Finance Ministers of France and Germany also sent a letter to the European Commission Wednesday urging that the EU’s Anti-Money Laundering Directive be amended to provide for the disclosure of meaningful information about the true owners of companies and trusts, adding to the momentum within Europe to take action on this issue.

“It’s fantastic to see the three largest economies in Europe endorse eliminating anonymous shell companies,” Mr. Baker remarked. “France, Germany, and the UK are demonstrating real leadership. The rest of Europe should join them to put an end to these terrible phantom firms.”

U.S. Loses $150 Billion per Year

Beyond Europe, GFI also called on U.S. President Barack Obama and the U.S. Congress to move forward banning anonymous shell companies.

“Next to Kenya, the United States is the easiest place in the world to open an anonymous shell company,” explained Mr. Baker. “Phantom firms and tax haven secrecy cost American taxpayers $150 billion annually at a time when federal employees are being furloughed and air travelers are facing long delays due to budget cuts. Phantom firms bleed billions of dollars from Medicare, they exacerbate the drug violence along the Mexican border, and they facilitate the sale of countless American children and women into sex slavery.”

A bipartisan piece of legislation, the Incorporation Transparency and Law Enforcement Assistance Act—yet to be introduced into the current Congressional session—would require information on the true, human, “beneficial owner” of each company formed in the United States be made available to law enforcement.

“The incorporation transparency bill is a no-brainer piece of legislation with bipartisan support. Congress should move quickly to pass it upon its introduction,” added Mr. Baker.

UK Shows Leadership

In his letter Wednesday to Mr. Van Rompuy, the British Prime Minister also called for encouraging companies to disclose taxes paid on a country-by-country basis, albeit voluntarily.

“We welcome Mr. Cameron’s nod to country-by-country reporting; disclosing taxes paid on a country-by-country basis will significantly deter abusive tax avoidance by multinational corporations,” Mr. Baker noted. “However, to be truly effective, it must be mandatory.”

Mr. Cameron’s letter came just weeks after the UK announced it would move to crack down on tax haven secrecy by piloting a multilateral system of automatic tax information exchange with the governments of France, Germany, Italy and Spain. In the letter, Mr. Cameron reiterated his intention that this be the new global standard of information exchange, underlining the leadership shown by the UK in aggressively moving to fight tax haven secrecy and illicit financial flows.

“Mr. Cameron and the British people should be commended for their leadership on addressing tax haven secrecy and illicit financial flows,” Mr. Baker commented. “Mr. Cameron is championing these issues as Chair of the G8, as co-chair of the UN High Level Panel on the Post-2015 Development Agenda, and now at the European Union and beyond. It’s fantastic. He’s really proving to be a global trailblazer on these issues.”