Enforcement of sanctions against Russian kleptocrats just got harder – POLITICO
Maíra Martini is an expert on corrupt financial flows at Transparency International.
The invasion of Ukraine has prompted many countries to finally commit to tracking down the illicit wealth that Russian kleptocrats have hidden around the world – whether in French real estate, Luxembourg investment funds or accounts. Swiss banks. But over the past 11 months, that has proven to be easier said than done.
Kleptocrats have spent decades hiding their money any way they can. And while anonymous companies have provided them with a major opportunity on this front, the European Union’s progressive transparency rules have proved essential in the few cases that have given hope of accountability.
Late last year, however, the Court of Justice of the European Union (CJEU) ruled that the public could no longer access data about the true owners of companies, making it all the more difficult to already overwhelming task of uncovering hidden assets. And as enforcing sanctions against Russian kleptocrats becomes increasingly difficult, the EU must act quickly to protect corporate transparency in the fight against dirty money.
Thanks to the 2018 revision of the EU Anti-Money Laundering Directive, 22 of the 27 EU member countries had established public registers, recording information on the beneficial owners of companies, i.e. real people who own and control them. So in the vast majority of EU countries, when government investigators, journalists or activists suspected an EU company was associated with shady business, they could quickly uncover who was behind it.
This revision marked a significant change from the previous directive, under which information seekers had to go through lengthy and tedious procedures to prove their legitimate interest, leaving significant discretion to governments in the process. More problematically, the process has allowed shady companies and actors to uncover journalists or activists seeking their information and why.
Unsurprisingly, however, some have taken issue with the new directive. Specifically, in Luxembourg, several families have sued public records, claiming that open data leads to an increased risk of kidnapping. The national court then referred this issue to the CJEU, questioning the compatibility of public access to company beneficial ownership information with the right to privacy – and in November the judges’ decision was denied public access to this data.
While the decision also recognizes the valuable role the media and civil society play in uncovering dirty money, it essentially takes it away from them in the same breath. And now activists, researchers, journalists and even authorities in foreign countries will have to return to onerous processes with the same risks of exposure as before, even though they have proven time and again that they are essential in the effort to find illicit wealth.
For example, when Cyprus – well known for its history of protecting corporate secrecy – finally reluctantly opened its registry to public access in June 2022, it was a major victory even though the country was still not in full compliance. with the directive, as a significant portion of Cypriot business is controlled by non-residents, including many Russians. And it worked. Just weeks after Cyprus launched its Provisional Public Registry, investigative journalists uncovered a network of front companies controlled by a man likely acting as an agent for a sanctioned Russian banker.
However, we are now hearing reports that Cyprus has stopped processing requests for information in light of the ruling, joining seven other countries that have already closed public access to their records.
The truth is that government authorities will always be outnumbered and outspent by the corrupt and their accomplices – but they don’t need to work alone. While law enforcement agencies are too often under-resourced or sometimes reluctant to act, public records have given us the opportunity to outsource the fight against financial crime.
To protect this resource, Brussels has a clear agenda this year.
As the EU’s Anti-Money Laundering Directive undergoes its sixth revision, the European Parliament and the European Council will need to ensure that it sets out – as precisely as possible – the parameters for public access to data on the beneficial owners.
In the meantime, member countries do not have to raise their arms in the air. And just as the CJEU itself has recognized civil society and the clear contributions of the media, so too have their governments, ensuring that activists and journalists retain unfettered access to ownership information rather than to condemn them to prove it at each request.
Moreover, they must explore alternative legal frameworks to preserve – and improve – corporate transparency. After all, exposing shell company owners can help fight money laundering, uncover tax evasion, prevent corruption in public procurement and, more broadly, deliver on a government’s promise. open.
The EU and its member countries must take advantage of the opportunities available to them. Otherwise, 2023 will be remembered as the year kleptocrats turned the bloc’s attempts to defend basic rights into a victory against corruption.