OpenLux shows failures of beneficial ownership registers

A year-long investigation by a collation of journalists, led by French publication Le Monde, involved obtaining and assessing more than 3 million official documents from more than 260,000 companies, spanning a period from 1955 to 2020.

Transparency International and the Anti-Corruption Data Collective (ACDC) found that 80% of investment funds did not declare their beneficial owners. In addition, 15% of funds gave conflicting information to different revenue authorities. These findings will further fuel claims that the EU and countries like Luxembourg have to go much further to identify the real beneficial owners.

Tax justice campaigners say the investigation shows the limits of beneficial ownership registers.

“What makes OpenLux so striking is that it‘s not a leak from a shady service provider, but a deep dive into public government data that had been made unwieldy to connect dots with,” said Markus Meinzer, director of financial secrecy and governance at the Tax Justice Network (TJN).

Although the French newspaper played a crucial part, Le Monde was not the only media organisation involved in this project. Investigative journalists from the Miami Herald, the Organised Crime and Corruption Reporting Project (OCCRP) and Süddeutsche Zeitung, among others, sifted through the financial statements.

Luxembourg was one of the first EU member states to make its beneficial ownership register public in 2019 after the European Commission issued a directive in 2018 to establish public registers. Nevertheless, critics claim the OpenLux leaks show that the registers fall short of the policy objective.

“OpenLux makes two things clear. First, for beneficial ownership transparency to be useful at all, it must be made publicly available so that society can hold wrongdoers and government to account. Second, financial secrecy remains a central pillar of Luxembourg’s economy,” said Meinzer.

Since the LuxLeaks scandal broke in 2014, the Luxembourg government has made many changes to its tax system and how its tax authority works with multinational companies. Past practices like unilateral advance pricing agreements (APAs) are no more.

After LuxLeaks, the European Commission opened investigations into several so-called ‘sweetheart deals’ in the country. The result was that EU pressure led to the Luxembourg government changing its policies.

“Luxembourg should perhaps be commended for providing better public access to its beneficial ownership register than most other countries, but the fact remains that today’s revelations only came to light once journalists laboriously analysed the data and linked it up with other public records,” said Meinzer.

Luxembourg is a leading financial centre with a lot to offer international businesses – its funds industry manages more than $4.5 trillion in assets. According to Le Monde, the investigation found that 90% of the companies with identifiable beneficiaries were foreign controlled. Among the 157 nationalities, France had the most with more than 17,000 French-owned companies on the list.

Top French brands on the list include Chanel, Decathlon, JCDecaux and Yves Rocher. It also found that 37 of the 50 wealthiest French individuals and families, such as Bernard Arnault and the Mulliez family, structured their assets and investments through dozens of Luxembourg holding companies.

Yet the problem is that the beneficial owner is unidentifiable in many cases. This comes down to the problem of how to define a beneficial owner, allowing arbitrary decisions about what should be left out of declarations.

“It does not make sense for the definition of a beneficial owner to only include certain shareholders or the person making investment decisions,” said Maíra Martini, research and policy expert at Transparency International.

Non-governmental organisations (NGOs) and campaigners are calling for this definition to be cleared up to close a “loophole” in the public registers. However, the problem of definition is just one part of the story.

Even once the beneficial owners are identified, the European Commission would have to bypass unanimity in the EU to change national fiscal policies across the economic union. This is technically possible, but it is not a small task.

Sven Giegold, member of the European Parliament (MEP), said he plans to request a hearing in Parliament to get the European Commission to address the “poor” implementation of public beneficial ownership registers.

“It must be possible to search the register for the beneficial owners of companies,” said Giegold. “The EU Commission must finally take action against incomplete transparency registers with infringement proceedings.”

Eva Joly, ex-MEP and commissioner of the Independent Commission for the Reform of International Corporate Taxation (ICRICT) agreed. “The time has come for Ursula von Leiden to use Article 116 of the Treaty to circumvent the unanimity rule and finally impose fair taxation on transnational corporations. In the same way, the fight against money laundering must be reinforced with exemplary sanctions,” she said.

“The OpenLux scandal shows again it is time for the European Union to double-up its efforts in transparency and fight against tax avoidance and evasion,” added Joly, suggesting a 25% global effective minimum corporate tax, public country-by-country reporting (CbCR) of multinationals and a European Union wealth asset register are all necessary.

The EU tax haven blacklist, which does not include EU member states such as Luxembourg, will be reviewed on February 16 when finance ministers meet. The Council of Ministers meeting on February 25 will also see ministers vote on public CbCR under the Portuguese presidency.

The OpenLux investigation has highlighted the importance of transparency as governments look to plug revenue gaps left by COVID-19 spending and ensure taxpayers pay their fair share. The release of this research will lead to more tax transparency measures being on the European Commission’s agenda this year.