Enforcing sanctions against Russian kleptocrats just got harder
The invasion of Ukraine prompted many countries to finally commit to tracking down the illicit wealth Russian kleptocrats have stashed around the world — whether in French real estate, Luxembourgish investment funds or Swiss bank accounts. But over the last 11 months, this has proved easier said than done.
Kleptocrats have spent decades hiding their money through any possible means. And while anonymous companies have provided them with a major opportunity on this front, the European Union’s progressive transparency rules have proved critical in the handful of cases that have given some hope of accountability.
Late last year, however, the Court of Justice of the European Union (CJEU) ruled that the public can no longer access data regarding companies’ real owners, making the already overwhelming task of uncovering hidden assets all the more difficult. And as enforcing sanctions against Russian kleptocrats just got harder, the EU must act quickly to protect corporate transparency in the fight against dirty money.
Thanks to the 2018 revision of the EU’s anti-money-laundering directive, 22 out of the bloc’s 27 member countries had established public registers, recording information on companies’ beneficial owners — meaning the real individuals who own and control them. Thus, in the great majority of EU countries, when government investigators, journalists or activists suspected an EU company was associated with shady dealings, they could quickly find out who was behind it.
This revision marked an important change from the previous directive, under which those seeking information had to undergo long and burdensome procedures to prove legitimate interest, giving significant discretion to governments in the process. Even more problematic, the process made it possible for shady companies and actors to find out about journalists or activists looking for their information and why.
Unsurprisingly, however, some took issue with the new directive. Specifically, in Luxembourg multiple families sued the public registers, claiming open data led to an increased risk of kidnapping. The national court then sent this issue all the way to the CJEU, questioning the compatibility of public access to information on company beneficial ownership with the right to privacy — and in November, the judges’ ruling denied public access to such data.
While the ruling also acknowledged the valuable role media and civil society play in uncovering dirty money, it essentially took it away from them in the same breath. And now, activists, researchers, journalists and even authorities in foreign countries will have to return to the onerous processes with the same tip-off risks as before, even though they’ve proven time and again that they’re essential in the effort to find illicit wealth.
For example, when Cyprus — well-known for its history of protecting corporate secrecy — finally, begrudgingly opened its register for public access in June 2022, this was a major victory even though the country was still not in full compliance of the directive, as a significant share of Cypriot companies are controlled by non-residents, including many Russians. And it worked. Just weeks after Cyprus launched its provisional public register, investigative journalists uncovered a network of shell companies controlled by a man likely acting as a sanctioned Russian banker’s proxy.
However, we’re now hearing reports that Cyprus has stopped processing requests for information in light of the ruling, joining seven other countries that have already shut down public access to their registers.
The truth is government authorities are always going to be outnumbered and outspent by the corrupt and their accomplices — but they need not work alone. While law enforcement agencies are too often under-resourced, or at times unwilling to act, public registers gave us the ability to crowdsource the fight against financial crime.
To protect this resource, Brussels has a clear agenda this year.
As the EU anti-money-laundering directive undergoes its sixth revision, the European Parliament and the European Council will need to make sure it spells out — as precisely as possible — the parameters for public access to beneficial ownership data.
In the meantime, member countries need not throw their hands up in the air. And just as the CJEU itself recognized civil society and the media’s clear contributions, so must their governments, ensuring that activists and journalists retain unimpeded access to ownership information rather than condemning them to proving this with every request.
Additionally, they must explore alternative legal frameworks for preserving — and improving — corporate transparency. After all, unmasking shell companies’ owners can help fight money laundering, as well as uncover cases of tax evasion, prevent corruption in public procurement and, more broadly, deliver on the promise of open government.
The EU and its member countries need to take advantage of the opportunities ahead of them. Otherwise, 2023 will be remembered as the year kleptocrats gamed the bloc’s attempts at standing up for fundamental rights into a win for corruption./Politico/