Financial flows & crime
Political corruption on a grand scale relies on sophisticated techniques to disguise both the source and ultimate destination of the funds. The scale of such illicit financial flows is enormous – Global Financial Integrity estimates that developing and emerging economies lost US$7.8 trillion in illicit financial flows from 2004 through 2013, with illicit outflows increasing at an average rate of 6.5 percent per year – nearly twice as fast as global GDP. The aftermath of the Arab Spring and the revolution in Ukraine showed that the EU is a favoured destination for the proceeds of corruption, highlighting the weaknesses of European anti-money laundering systems. At the same time, the EU also sees major outflows as a result of money-laundering, tax evasion and aggressive tax avoidance.
About Corporate Accountability
From bribery, to undue influence and collusion, from fraud to money laundering, corruption in the private sector undermines the vitality of markets, the livelihoods of people and damages society as a whole. From ecological disasters to economic instability and human rights violations, private sector corruption has drastic consequences on our world. It erodes public confidence in institutions and deprives citizens of the benefits of economic growth.
The recent financial crisis is among the most glaring examples of a persistent integrity gap in private sector institutions. Corrupt and unethical behaviour in the financial industry includes not only episodes of fraud, misselling of financial products, market manipulation, conflicts of interest, insider trading and money laundering, but also behaviour that ignores the wider responsibility of banks towards depositors, tax payers and society at large. The most recent scandals demonstrate that regulatory and judicial efforts have not delivered the much-needed systemic and cultural changes required to restore trust.
In the European Union, corporate integrity standards have not yet reached a level that prevents corruption and undue influence, and the EU governance framework for corporate activities does not properly address demand and supply-side corruption.
However, the EU can help combat corruption in the private sector through stricter anti-corruption standards in trade policies, through more transparent and corrupt-free public procurement practices and through more substantial initiatives to promote best practice on corporate compliance or anti-bribery systems or, where necessary, changes to company law.
The EU can also better promote reporting of company anti-bribery programmes, company structures and their financial contribution to the countries where they operate (so called country-by-country reporting). This helps promote integrity standards by allowing citizens to hold them to account for their impact on the ground.
Related Projects
Corporate Tax Tracker
The Corporate Tax Tracker is an online platform, that allows anyone to compare and analyse banks’ activities and payments in different jurisdictions of operation. The visualisation of the data aims at providing more transparency into the corporate...Extractive Industries Transparency
Natural resources can bring considerable amounts of wealth to a country. However, an estimated 680 million people in resource-rich countries still live on less than 2 USD per day. For these people, wealth in natural resources has failed to deliver...Tax Transparency
What is the problem? In the current international financial system, multinational companies are under no legal obligation to disclose this information regarding their activities, profits and the taxes they pay in each country of operation. Key...Recent News
Press Release: Weaknesses in financial reporting from oil, gas and mining companies
A report released today by Transparency International EU (TI EU) has found weaknesses and a lack of clarity in the way that extractive companies report under current EU legislation. The report ‘Under the Surface’ assesses payments to governments...Transparency International EU’s submission to the European Commission’s public consultation on the EU’s framework on public reporting by companies
The European Commission is conducting a fitness check of the EU framework on public reporting by companies, which aims to assess whether it is still fit for purpose. The fitness check includes a recently published public consultation, which allows...About Anti-money laundering
The EU relatively stable political and institutional environment makes it an attractive destination for laundering the proceeds of criminal activities. Research estimates that illicit markets in the European Union generated about 110 billion EUR, i.e. approximately 1% of the EU GDP in 2010. Huge amounts of illicit flows are also leaving the EU. According to the European Commission, up to 1 trillion EUR could be lost every year by the EU due to tax fraud and evasion.
Not only does this constitute a serious threat to the EU financial stability and security, but also by diverting money from the public purse, it contributes to distorting public policy, eroding the role of the state as a public service provider and undermining citizens´ rights and trust in their institutions.
The EU plays a key role in preventing, detecting and stopping illicit money flowing in and out of the EU including by:
- Establishing a strong European legal anti-money laundering framework in particular through the revision and implementation of the 4th Anti-Money Laundering Directive and its regular monitoring and assessment through the Supranational Risk Assessment and other initiatives such as the work carried out PANA Inquiry Committee.
- Strengthening the role of intermediaries as gatekeepers of the European financial system
- Promoting responsible asset recovery processes within the EU and facilitating cooperation among Member States
- Promote integrity and transparency standards in the issuance of so-called golden visas, i.e. passports or residence permits granted to wealthy third country nationals by Member States in exchange for substantial investment in key economic sectors.
Transparency International EU provides policy analysis and recommendations and advocate for policy change at EU and Member State levels in a number of policy areas including:
Since 2013, Transparency International EU has been monitoring closely EU legislative processes related to the adoption of stronger European anti-money laundering standards, in particular on aspects related to beneficial ownership transparency. Transparency international EU advocated for the adoption of stronger beneficial ownership transparency standards as part of the revision of the 4th Anti-Money Laundering Directive adopted in December 2017. The new EU rules establishes public access to beneficial ownership information as a principle.
To support its advocacy work, Transparency International EU carried out evidence-based research and analysis on the current state-of-play of beneficial ownership transparency standards and practices. Its most recent findings are summarised in a report Under the Shell: Ending Money Laundering in Europe published in April 2017.
Professional enablers such as accountants and real estate agents play an essential gatekeeping role in the fight against money laundering. Transparency International seeks to increase engagement with the accountancy and real estate professions on anti-money laundering issues and in particular, how to strengthen the effectiveness of business anti-money laundering practices. In this respect, it has set up taskforces involving experts and practitioners for a cross-country exchange on common challenges faced by those sectors and existing good business practices.
According to estimations, European authorities had been only able to recover €1.2 billion each year. This is 1.1% of the €110 billion, which Transcrime Institute estimates that illicit markets in the European Union generate. A number of legal, institutional and political barriers need to be overcome in order to guarantee responsible repatriation of illegally acquired assets. To further the efforts for recovering stolen assets, Transparency International EU is leading an initiative aimed at exploring the role the EU can play in facilitating responsible asset recovery focusing on the grand corruption case of Uzbekistan.
Following the 2008 financial crisis, new kinds of investor schemes have blossomed across Europe with the aim to offer fast-track residency or even citizenship to third-country nationals in return for investments in the national economy. Although, increased foreign investment in key economic sectors in Member States may seem very welcome, these programmes also raise serious concerns that these schemes may offer easy access and legitimate cover for money launderers wishing to introduce substantial amounts of illicit money in the market. Another characteristic of these schemes is that they essentially rely on their capacity to offer free access to the Schengen area. As such, the lack of transparency and checks over these schemes risks undermining EU core values and citizenship principles. Aware of the European dimension of the issue, Transparency International EU is advocating for an EU-level intervention to ensure Member States adopt stronger integrity and transparency standards in the management of these schemes.
Related Projects
Asset Recovery
While new rules to strengthen EU anti-money laundering standards have just been agreed on, the EU also holds a responsibility to take action in the subsequent stages of the corruption life cycle, i.e. the freezing, confiscation and responsible...Golden Visas
Following the 2008 financial crisis, new kinds of investor schemes have blossomed across Europe. Their names and modalities differ from one Member State to the other – the Tier 1 investor visa in the UK, the Autorização de Residência para...Role of Intermediaries in the Fight Against Money Laundering
Recent scandals, such as the Panama Papers, have highlighted systemic weaknesses in AML facilitating abuse of the financial system on a massive scale with severe consequences for societies, businesses and citizens around the world. Professionals...Enhancing beneficial ownership transparency
The ‘Panama Papers’ of 2016 were a widely discussed phenomenon. But, what did they actually tell us that we didn’t already know? That the global financial system is plagued by shady practices and secrecy? This is a well-known tale.Recent News
Press release: European Commission sees corruption risks but needs to get tougher on golden visas
The European Commission said today that schemes that sell citizenship and residency to the super rich, known as ‘golden visas’, threaten the EU’s collective security and integrity. The Commission’s report states that the citizenship schemes...Marouane Mabrouk, Ben Ali’s son-in-law, should remain on EU sanctions list
The EU should not unfreeze the assets of a Tunisian businessman and son-in-law of the former Tunisian president Zine el Abidine Ben Ali, Transparency International said today. Following a request from the Tunisian Ministry of Foreign Affairs,...Under the influence: call for an investigation in the European Parliament
Authoritarian governments meddling with elections and institutions of liberal democracies has been a major talking point for governments and citizens alike across the globe over the past couple of years. One high-profile case is the investigation...About Open Data
Open data is a key requirement for achieving progress in the fight against corruption. For this to happen, data must be accessible, accurate, intelligible and meaningful. This is one of the reasons that the G20 has opted to adopt open-data principles to help promote public integrity and reduce corruption. This move reflects a growing trend toward the increased publication and availability of open data – data that is freely shareable, comparable, released and usable. The international Open Data Charter and specific national initiatives have attempted to create a common foundation to accelerate this process.
The EU has seen progress, manly driven by the EU Commission, in advancing the publication of information in open data format. This includes the launching of such platform as the EU Open Data Portal and DG Regional Policy’s portal on structural and investment funds. Despites these improvements more robust EU policies and practices need to be in place to maximise the use of open data to fight corruption.