In London, Muscat pledges transparency on companies’ real owners

Prime Minister Joseph Muscat has set out a commitment to establish a central register of company beneficial ownership information for companies incorporated in Malta, and to exchange information of beneficial ownership information in line with the EU Directives which will come into force in 2017.

The declaration was presented at the London Anti-Corruption Summit at a time fraught with global suspicion over the revelations of the Panama Papers, and the effects of the offshore industry on national tax bases.

Muscat spoke briefly on the national outrage back home at news that Konrad Mizzi, his energy minister, had set up an offshore company in Panama.

But while Muscat said he would grant law enforcement agencies full access to beneficial ownership information for companies, critics at home will question what action he will take on political exposed persons who make use of offshore companies. His minister for education Evarist Bartolo, said he wants to see a registry of bank account holders who use tax havens and to prevent Maltese depositors from using tax jursidctions that don't have a tax information exchange agreement with Malta.

“Whilst the emphasis on us politicians is due, because we are in public office, the issue of corruption is not limited to us only but also to sports and commercial enterprises, the judiciary, even the distribution of international aid,” Muscat said. “There isn’t one single country or sector that is immune from this phenomenon [of corruption].”

When Muscat briefly touched upon Mizzi’s resignation, he said that part of the national debate on Panama Papers was about a legal system that might not be correct, a veiled reference to offshore.

In a run-through on Labour’s party financing rules, Muscat could not resist a dig at political players “exploiting loopholes” by demanding loans instead of donations, without expressly referring to the Nationalist party’s ‘Cedoli’ loans’ scheme. Labour is insisting that the PN loans scheme defeats the purpose of the party financing law, because loans are not covered by the law. The PN is asking for €10,000 loans, payable in ten years' time at an interest of 4% per annum.

Muscat’s comments drew criticism from the PN. “He shamelessly says he took a decision on Mizzi and Schembri, which was to keep them in their place and promote [Manuel Mallia]. He had to admit he had the only EU minister to be involved in the Panama Papers scandal, and to cover up his own sins, lied about the PN’s loan scheme. His threats, both here and abroad, is just anti-democratic. He want muzzle anyone on the truth of his crisis of corruption.”

UBO central registry

The EU’s fourth anti-money laundering directive – dubbed the 4AMLD – makes it incumbent upon all member states to transport its requirements, whose novelty is the introduction of a central UBO-register, a public register which identifies the ultimate beneficial owners (UBOs) of companies and trusts.

This could have far reaching consequences for the privacy of UBOs of EU entities, who can be natural persons or corporate entities that own over 25% of shares. The register will be accessible to the public when they can demonstrate a “legitimate interest”.

In case of trusts, member states must provide a central UBO register accessible to competent authorities, but not to the public. UBO-information will include the identity of settlors, trustees and beneficiaries.

Muscat also said that the information would be shared on public-private information sharing partnerships and that his government was in the implementation phase of the necessary laws.

“Malta is also committing to implement the principles of the Open Contracting Data Standard and enhance its current systems which are in line with EU and international standards and will apply such standards to major projects in energy, health and infrastructure sectors,” Muscat said.

In a host of other pledges, Muscat said his government would undertake IMF fiscal transparency evaluation, create a central database of companies with final convictions to share information on corrupt bidders, strengthen asset recovery legislation, and join the International Sport Integrity Partnership to fight corruption in sport.

Justice in offshore

The big issue overshadowing the conference convened by UK prime minister David Cameron however is tax havens and financial secrecy, that make it easy for corrupt practices to find systems of laundering illicit gains.

While Cameron was caught on camera telling the Queen about the ‘fantastically corrupt’ countries attending the summit, the UK is at the heart of the global financial secrecy industry. The Tax Justice Network’s Financial Secrecy Index identifies the UK as the world’s number 1 player, when taken together with Cayman, the British Virgin Islands, Jersey, and all its other offshore crown dependencies and overseas territories.

“The absolute minimum for Cameron to be able claim genuine progress in his anti-corruption summit would be for Britain to oblige these satellite havens to join the UK in implementing a public register of the beneficial owners of offshore companies and, importantly, to include offshore trusts and foundations in that public register. If trusts and foundations are not included, a public register will be of limited value and Cameron could end up creating an opportunity for the UK’s extremely lucrative trusts sector,” the Tax Justice Network said.

The British Virgin Islands has however rebuffed calls by David Cameron for British overseas territories and crown dependencies to publish details of who owns offshore firms. Cameron’s anti-corruption summit risked ridicule after it emerged that Panama, and UK overseas territories like the British Virgin Islands (BVI), which have been at the centre of tax avoidance controversies, had not been invited.