Sanctions on Russia's elite have once again made salient the need to combat financial secrecy, in particular at subfederal levels within nations that otherwise cooperate on financial investigations, speakers said Tuesday during a virtual Tax Justice Network event. Building a global asset registry was the topic of the conference co-hosted by the Independent Commission for the Reform of International Corporate Taxation, or ICRICT, along with the Fight Inequality Alliance.
"The system of taxation for multinationals is no longer fit for the 21st century, and part of the problem is the secrecy world of tax havens," José Antonio Ocampo, chair of ICRICT, told attendees. ICRICT has included a global asset registry on its agenda for several years, said Ocampo, a professor of professional practice in international and public affairs at Columbia University.
"It is a key measure because it could trigger multiple potential positive effects associated with the reform of international taxation," Ocampo said.
"After the terrifying reality following Russia's invasion of Ukraine, it became clear how Russian oligarchs were able to dodge Western sanctions," Kira Marie Peter-Hansen, a Danish member of the European Parliament, told Law360 after the event.
"This was and is still possible, simply because of the lack of transparency," said Peter-Hansen, a member of the Green Left party in the Greens/European Free Alliance group. "We have no clue as to who owns what and where they own it."
The key point of a global beneficial ownership registry would be "identifying the natural person" who ultimately owns, controls or benefits from any asset, according to Andres Knobel, lead researcher on beneficial ownership at the Tax Justice Network.
People from around the globe, including Russia, store wealth in real estate, cryptocurrency, artwork, yachts, airplanes, trusts and companies, Knobel said. Governments within secrecy jurisdictions enable them to hide the assets from investigators and allow illicit financial flows into nations that otherwise cooperate on sanctions enforcement, he added.
Difficulties applying sanctions on the Russian Federation's wealthy benefactors and government are a testament to information-sharing gaps among governments regarding who owns assets stored worldwide, a broader issue that the Group of Seven's sanctions enforcement has made relevant, according to Panayiotis Nicolaides, director of research at the EU Tax Observatory.
The need for a global asset registry "became salient in the case of Russian oligarchs because of the structure of inequality in Russia," according to Nicolaides, also a Ph.D. researcher at the Hertie School in Berlin, who said the top 1% of Russian individuals own about half the federation's household wealth.
Nicolaides said Russia's oligarchs store significant shares of Russia's household wealth in offshore financial centers, which means that confiscating their yachts is unlikely to make a large impact on stopping the nation's military assault on Ukraine.
A report published by Transparency International on May 24, which was cited during the conference Tuesday, helped describe how Western governments are blocking themselves from enforcing measures against Russian individuals.
"The search for dirty Russian money is laudable but the findings of this report show we are ill-equipped to fully do so," Transparency International's U.S. executive director, Gary Kalman, told Law360 on Tuesday.
"In the U.S., loopholes in our laws allow professional 'gatekeepers' to our financial system ... to be exploited by corrupt and other criminal actors aiming to secretly move money through our economy," Kalman said.
Despite forceful early pledges to sanction and track Russian elites' illicit wealth after the nation invaded Ukraine, "the G7 and other leading economies' rhetoric does not match reality," according to Transparency International's executive summary of the analysis.
While high-profile yacht seizures have been making international headlines, those represent only a small fraction of kleptocrats' illicit wealth stashed offshore, according to Transparency International's summary. Even when countries came together successfully following Russia's invasion to target the nation with sanctions, financial secrecy stalled those efforts at international cooperation, which illustrates "the obstacles to effectively deliver on stated objectives facing even the most willing authorities," the nonprofit organization said.
Primary challenges to creating a global ownership registry include the lack of central registries or highly fragmented registers for certain asset classes, like art, precious metals and cryptocurrency, Knobel said. Existing registries mostly just keep information on legal ownership, which is restricted in many cases, for example, to local companies but not foreign ones and legal persons but not trusts, according to Knobel.
According to the analysis summary, over the past year, governments in the U.S., the United Kingdom, Germany, France, the Netherlands, Canada and Italy have "progressed or fast-tracked commitments to establish registers."
Nicolaides said governments should use the G-7, the Group of 20 and the European Union to work toward establishing local, national and regional asset registries that could be interlinked at the global level.
Germany, France, the Netherlands and the U.K. have registers of companies' beneficial owners, but all lack sufficient data verification, according to Transparency International's analysis summary. The organization added that Australia, Canada, Italy and the U.S. rely on financial institutions to identify the beneficial owners of companies, "which is known to be a deeply flawed approach."
Only governments in Germany, France and the U.K. have registers for trusts, but all restrict access by "'legitimate interest' or registration requirements," the organization said, adding that Australia, Canada, Italy, the Netherlands and the U.S. have no registers for trusts at all.
Transparency International said "key gatekeeper professions" uniquely placed to identify sanctioned individuals include "lawyers, accountants, bankers, investment advisers and real estate agents," who, in the U.S., Canada and Australia, are under no obligation "to conduct customer due diligence, identify the beneficial owner of legal entity clients or establish their source of wealth."
The report noted that "most countries' real estate sectors are particularly vulnerable to dirty money due to a significant loophole that allows for anonymous ownership of properties through foreign companies."
Germany is currently the only country that requires foreign companies to disclose their beneficial owners to revenue authorities in order to purchase properties, despite the U.K. Parliament recently approving legislation to address this loophole, according to the report.
The report said investigators in the U.K., Germany, France and the Netherlands can look into the true owners of properties held through companies by cross-referencing beneficial ownership registers, but the latter two offer a loophole by not requiring foreign companies to disclose their beneficial owners to any register while purchasing real estate. The U.S. and Italian governments' current plans for beneficial ownership registers will leave the exact same gap, exposing the countries to legalizing illicit financial flows from around the world.
"The global asset registry offers two main benefits," Alex Cobham, chief executive at Tax Justice Network, told Law360 on Tuesday. First, "that the wealth distribution would finally become known, allowing an informed public debate about the degree of inequality that citizens are willing to tolerate," Cobham said.
Second, Cobham said, is that "the potential for progressive taxation of wealth and capital income would be firmly reestablished, along with the elimination of most of the scope for tax abuse."
The Berlin-based presidency of the G-7 did not respond to a request for comment in time for publication.
The Jakarta-based presidency of the G-20 did not respond to a request for comment in time for publication.
The Paris-based Financial Action Task Force did not respond to a request for comment in time for publication.
--Editing by Abbie Sarfo.
Update: This article has been updated with a comment from Peter-Hansen.
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