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Faking residency: OECD’s Common Reporting Standard leaves the door wide open for fraud

The OECD’s Common Reporting Standard (CRS) for automatic exchange of banking information leaves the door wide open for fraud. The OECD has recently made available a form to report potential avoidance schemes of the CRS. While this form is a first useful step – we’ve been sharing with them the loopholes and risks we’ve identified, and a suggestion on how to assess countries compliance with the CRS. However, we haven’t seen anything get fixed yet…

While the lack of access to automatic banking information by developing countries is our major concern with the CRS (all as a consequence of the OECD’s arbitrary conditions, such as the need for reciprocity or to be chosen in return through the ‘dating system’), for those countries that will manage to exchange information with each other, other risks prevail. Most notably, the need to (effectively) determine the residency of each account holder.

Evading Tax and Avoiding Tax Evasion: for decades British governments have shied away from tackling cross border crime

May 19, 2017   Blog, Corruption, Secrecy, Tax Havens

Guest blog authored by Dr Michael Woodiwiss (Arts and Cultural Industries, University of the West of England) and Dr Mary Alice Young (Bristol Law School, University of the West of England)

Al Capone: tax evader

Al Capone: tax evader

In the 1920s, an embryonic tax collecting organisation was steadily growing in the US. The Internal Revenue Service (IRS) was an agency ignored by the majority of Americans. However, the tide turned in 1931 when the IRS secured the conviction of Chicago gangster Al Capone for tax evasion.

Germany rejects beneficial ownership transparency

May 18, 2017   Blog, Secrecy

On 17 May 2017, the members of the Finance Committee of the Bundestag cast their votes for ultimate amendments to Germany’s anti-money laundering law. The governing conservatives CDU/CSU and Social Democrats SPD rejected amendments supported by the left and Green party that would have remedied three fundamental flaws in the law which prevent the public from accessing beneficial ownership information on German legal entities. These flaws consist of

  • the failure to make the registry of beneficial owners public
  • the registry’s restricted scope which is likely in breach of the 4th EU Anti-money laundering directive
  • a watered down the definition of beneficial ownership.

The law will be voted on in its current form by the Plenary of the Bundestag in the evening of the 18th May, with no opportunity to change the text further. The only way to stop and/or amend the law would be through the Bundesrat, Germany’s upper chamber. However, after recent elections, this outcome appears to be less likely.

Despite severe critiques presented at the law’s public hearing in the finance committee on 24 April, none of the fundamental weaknesses identified by TJN, German Netzwerk Steuergerechtigkeit and Transparency International have been addressed by the amendments voted for by the governing coalition (TJN’s written statement can be read and downloaded here).

On the contrary, the law has been further watered down in at least two (relatively minor) aspects (one change involves exempting trusts, Treuhandstiftungen and limited partnerships from the obligation to document the steps taken for identifying a Beneficial Owner; another is extending a restricted obligation to report suspicious transactions which was applicable in the previous version of the law only to lawyers and auditors to all professions covered by professional confidentiality, e.g. tax advisers).

The three main problems persist which prevent the public from accessing beneficial ownership information of German legal entities. Two concern the watering down of the definition of the beneficial owner, the first of which relates to the senior manager opt-out clause, which the 4th EU AMLD is allowing, but which the UK did not implement and the EU-parliament in March 2017 actually rejected in its comment on the interim proposal for amending the 4th AMLD (and which we have analysed in depth here).

The second problem relates to the obligation to identify the beneficial owner for the purposes of the registry. The obligation to identify and report the beneficial owner of the company is limited to situations in which the German company or its shareholders are directly controlled by a beneficial owner. The graph below (or in the written statement on page 4) illustrates the problem.

Schaubild-Umgehung-Transparenzregister

The Achilles heel of effective beneficial ownership registration: Why is everyone fixed on 25%?

Civil society and allies are pushing for real (and useful) transparency when it comes to disclosing the beneficial owners (BOs) of companies, meaning the individuals who ultimately own and control the companies that operate in our economies, and that could be involved in illegal activities (e.g. tax evasion, corruption, money laundering, etc.).

After many scandals, including the Panama Papers, the international community is moving in that direction, with the G20, the OECD, the Global Forum, the EU and many countries starting to regulate and require beneficial ownership registration. index

UK Parliament fails to tackle financial secrecy in its overseas territories

So near and yet so far…

Hopes were riding high yesterday that UK parliamentarians might seize the opportunity to take historic action to end decades of financial secrecy in the UK’s Overseas Territories. We blogged about this yesterday highlighting the fact that a lot of ongoing Parliamentary business was at risk of being shelved because of the sudden general election called by British Prime Minister Theresa May. There’s a phenomenon known as the wash-up period which “refers to the last few days of a Parliament before dissolution. Any unfinished business is lost at dissolution and the Government may need the co-operation of the Opposition in passing legislation that is still in progress.”

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