Pandora Papers sheds light on ‘gatekeepers’ of dirty money, says European watchdog

A leading European watchdog has slammed the continent’s “particularly weak” defenses against crime and terrorist financing, saying few governments adequately track the owners of anonymous shell companies and none sufficiently monitor lawyers and the accountants who serve them.

In a new reportMONEYVAL, the Council of Europe’s financial crime research arm, issues a scathing rebuke to governments across Europe for their failure to tackle illicit money flows.

MONEYVAL gives prominence to the work of the International Consortium of Investigative Journalists, which over the past decade has published numerous articles on the flow of dirty money through Europe to the rest of the world. Citing the ICIJ’s 2021 Pandora Papers project, which was based on a giant leak from 14 so-called offshore service providers, MONEYVAL said the global journalistic collaboration showed “the growing scale of the threat of money laundering and the persistence of money launderers”.

In the introductory section of the report, Elżbieta Frankow-Jaśkiewicz, Chair of MONEYVAL, said that the ICIJ’s repeated exposure of the role of lawyers and accountants in aiding money laundering has caused the group to focus its attention last year on these so-called “guardian” professions. ICIJ’s work, she wrote, has shown that these professionals “can be complicit in large-scale transnational money laundering schemes involving corrupt politicians, as well as wealthy individuals seeking to evade ‘tax”.

In its report, MONEYVAL said that no European government effectively punishes lawyers, accountants and other access control professionals who break the law by facilitating financial crime. The report says only three countries have effective enforcement mechanisms to deter big banks from moving dirty money.

In 2020, the ICIJ, BuzzFeed News and over 100 other media partners released the FinCEN Files, an investigation revealing the role of the world’s largest banks in moving massive flows of dirty money through the financial system. The investigation revealed significant compliance failures and an attitude of banks treating the fines that regulators impose on them as a cost of doing business. As part of the project, the ICIJ uncovered large flows of suspicious money through HSBC, Deutsche Bank, Danske Bank and other major European financial institutions.

Formally known as the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, MONEYVAL is primarily a research organization and does not have the legal authority to compel countries Europeans to strengthen their laws or increase enforcement budgets. The group is a branch of the Council of Europe, founded after World War II to promote human rights across the continent.

Although Europe has unified financial regulations that allow money to flow easily across borders, the continent lacks a unified anti-money laundering authority. “This combination promotes a vicious circle of erosion” around the control of dirty money, according to an article from 2018 by researchers Joshua Kirschenbaum and Nicolas Véron. The result of uneven enforcement is causing the continued emergence of havens for financial crime across Europe, which “undermines the integrity of the entire European system”, the authors wrote.

MONEYVAL’s report found that some eurozone countries historically considered tax havens are regressing while others are improving. Andorra, a small country between France and Spain, was downgraded this year in the group’s assessment of the government’s actions to stop dirty money. Another notorious tax haven, Cyprus, appeared to institute changes last year, but too late for MONEYVAL to assess them.

Malta, another tax haven, made progress last year in implementing laws and regulations to protect against money laundering, according to the report. The Holy See, the jurisdiction of Vatican City, has also made significant progress following previous critical assessments of its financial crime controls.

Only a small handful of countries have established effective databases to help law enforcement identify the owners of anonymous front companies, which are registered in the names of so-called proxies or substitutes, officers and directors.

MONEYVAL found that only five countries collect ownership data in an effective way for law enforcement to have access to it. Still, the group said Gibraltar, another historic haven of secrecy, had taken steps to increase the transparency of ownership of companies registered there.

The watchdog’s report comes after a speech outlining various challenges in tackling dirty money by the chairman of governments’ top global body that sets policy standards to end financial crime.

In the speech Late last month, Financial Action Task Force Chairman Marcus Pleyer singled out shell companies and anonymous trusts as a major permanent tool for terrorists and other criminals, and said countries around the world were struggling always to get real results. Countries “in fact need to be effective in combating money laundering and terrorist financing,” Pleyer said. “Often this means going beyond the minimum requirements to put in place a system that is fit for purpose and capable of dealing with the risks we all face.”

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