PANA inquiry meets Prof Mark Pieth and EU national MPs

Find all background material for this hearing on the event page.

During the European Parliamentary Week 2017 from 30 January to 1 February 2017, the European Parliament’s PANA inquiry committee, together with the Committee on Economic and Monetary Affairs (ECON), met with EU national parliament representatives in an Interparliamentary committee meeting with the objective of discussing the lessons to be learned from the Panama Papers and the Bahamas Leaks.

Professor Mark Pieth, known for his vast experience in anti-money laundering and recent co-author with Joseph Stiglitz of the report “Overcoming the Shadow Economy”, was one of the invited speakers, together with Mr Ed Groot, chair of the recently inaugurated Dutch Parliamentary Committee of Inquiry into Tax structures; Mr Ahmed Ahmed Laaouej, Chair of the Belgian Special Committee on the Panama Papers; and Mr Kai Jan Krainer, Vice-Chair of the Committee on Finance of the Austrian National Council.

After this meeting, MEP Fabio De Masi (Die Linke) and GUE/NGL staff held an informal meeting with Mark Pieth in order to further analyse the details of the regulations being discussed in the European parliament today, such as the amendments to the anti-money laundering directive and the EU anti-money laundering black list.

At the hearing, national parliamentarians from GUE/NGL member parties raised some relevant issues:

Miguel Tiago (Portugal – PCP-GUE/NGL) pointed out that countries are the big losers at the end of the day, as offshore jurisdictions are an integral part of capitalism, of the functioning of the system. There should be strong taxation of any financial operations to offshore jurisdictions. And we should stop audits of the financial sector carried out by the private sector, as auditors tend to be on the side of the people who are paying them.

Nassos Athanasiou (Greece – Syriza-GUE/NGL) noted that we cannot talk about the Panama Papers and while keeping silent about what happened in Milan, as reports by Bloomberg: 10 million dollars were going out of Deutsche Bank. Also, we cannot talk about the shadow economy without discussing the sovereign debt of EU countries.

Arnold Merkies (Netherlands – SP-GUE/NGL) criticised how the Dutch government, aiming to preserve its status as one of the major gateways of untaxed profit transfers out of the EU, tried to postpone the implementation of OECD and European Commission solutions for hybrid mismatches.

GUE/NGL MEPs raised other relevant questions at the PANA committee meeting:

Fabio De Masi (DIE LINKE.):

“We have European banks engaging in criminal activities. Therefore, the point is to decide what to do.”

“The Austrian government and the German government are against public CBCR of companies and they are claiming impact on competition.”

“In the EU Parliament we are having a discussion on the registration of beneficial owners for anti-money laundering purposes, however a proposal has been introduced to leave heritage trusts out of the regulation, leaving an important loophole open”.

Miguel Viegas (PCP):

“Belgian legislation allows for notional interest to be deducted providing a major tax advantage for companies, and affecting the whole EU struggle against tax evasion.”

“In Switzerland, cash transfers above CHF 100,000 are required to be reported. This is a good example on how regulations are implemented at the national level.”

“What would the ideal threshold for the registration of beneficial owners be? 25%, 10%, 5%? What kind of alternative or complementary solutions should be implemented to improve the effectiveness of such measure?”

Regarding the high threshold of 25 percent ownership in FATF’s beneficial ownership definition (that is, an individual with less than a 25 percent interest does not have to be identified); Prof. Pieth observed that such threshold was definitely too high, because it allows “smurfing” techniques; that the possibility of registering a senior manager allowed for nominee figures to be used; but also that it is not logical that non-public limited companies cannot identify beneficial owners with more than 25%, and so at least one real person should be identified as a beneficial owner.

Pieth also pointed out that if registers where made public, the problem of nominee figures would be reduced, as the higher exposure would not allow for the “gardener” of a wealthy individual to be registered as the owner of one or several companies. In addition, in its annual filing, any corporation, trust, or foundation incorporated in the country should be required to disclose the location of its economic activities; its assets, employees and profits within each jurisdiction in which it operates as well as the taxes it pays in that jurisdiction. Such public country-by-country reporting should be mandatory in order to provide information for all stakeholders and related parties.

Moreover, on the topic of blacklisting, Pieth reminded the committee that the problem was as much about tax as about money laundering, and that the EU is in a difficult situation when blacklisting because it is part of the problem, and blacklisting is difficult when you are part of the problem. So there needs to be an agreement on common denominators.

If you look into the Panama Papers, you find a wild mix: tax optimization through transfer pricing, foreign ministers, organized criminals, traffickers of human beings. For such reason, Stiglitz and Pieth question the existence of any social benefits of such complex and opaque arrangements as those revealed by the Panama Papers, while at the same time observe that they have huge social costs, as such structures do not result in more economic activity, but rather the appearance of movement of activity from one location to another.

One of the very relevant observations by Pieth was that even when some jurisdictions, such as Panama or Switzerland today, appear to be complying with international anti-money laundering recommendations in paper, on many occasions it is found that in practice the implementation needs to be very closely monitored. As an example, Pieth mentioned that even when on one side Panama is trying to comply with all international recommendations, on the other side it is not willing to investigate on the recently revealed Oderbrecht Brazilian construction case.

At the hearing of 27 September 2016, the journalist Oliver Zihlmann, head of the joint Investigation team of Le Matin Dimanche and SonntagsZeitung, had revealed a loophole in the Swiss Anti Money Laundering regulation which allowed Swiss lawyers to not be forced to operate due diligence. The combination of the Panamanian and Swiss legislation led to no obligation of due diligence for any of the Panamanian and Swiss intermediaries. According to Pieth, the Swiss Government and legislators have so far refused to act, even though the FATF has held Switzerland “non-compliant” on account of this in its recent evaluation.

Pieth also observed that the role of legal advisors should be indeed reviewed, since legal advisors creating offshore structures and shell companies and opening bank accounts for its clients, should not be seen as classic legal advisors, but as financial operators. Who are you giving the advantage of professional secrecy? These lawyers do not deserve professional privilege.

On a side note relating to the football leaks scandal, Pieth noted that football agents should be subject to anti-money laundering regulations in a similar way in which a real estate agent is.

Mr Ed Groot expressed that The Netherlands is one of the most important hubs of economic flows. However, it should be questioned whether some of the activities going through The Netherlands are desirable or morally acceptable, since today The Netherlands is part of the problem.

Mr Ahmed Ahmed Laaouej observed that more than 1000 names are currently being analysed in Belgium in connection to the Panama Papers. And together with the cases being looked at by the tax administration there are also criminal cases. Mr Laaouej also explained that Belgium is looking into a tax reform for corporate tax where notional interest would disappear, something that would indeed be a good news for Belgium and its neighbouring countries.

Mr Kai Jan Krainer remarked that policies need to be built up on three pillars, being the first one transparency, for which reason Country-by-Country Reporting should be made public.