• Tue
  • Oct 21, 2014
  • Updated: 5:23pm
BusinessChina Business
MONEY LAUNDERING

EU law to publicly name company owners will help battle corruption in China

Proposal to make public the owners of trusts and companies incorporated in 28-nation bloc could stem illegal outflows of Chinese capital

PUBLISHED : Friday, 21 February, 2014, 11:49pm
UPDATED : Saturday, 22 February, 2014, 10:55am

A proposed European Union law to make public who owns secretive companies and trusts would help in the fight against corruption in China, analysts say.

The European Parliament on Thursday voted in favour of proposed anti-money-laundering rules that would require the ultimate owners of companies and trusts incorporated in the EU to be listed in public registers in EU countries.

"Public registries of the real owners of companies and trusts will give police, tax authorities, journalists and civil society a vital tool to track illicit money trails," said Robert Palmer of British corporate governance NGO Global Witness.

If the proposed rules became law, "it would be big news for China", said Rosie Sharpe of Global Witness. "China loses more money to illicit financial flows than any other country."

Clark Gascoigne of Global Financial Integrity, a US think tank, has described China as the biggest exporter of illicit capital, with more than US$1 trillion of outward illegal flows between 2002 and 2011.

Wang Bing, a Beijing-based partner with US law firm Faegre Baker Daniels, said adoption of the law would "be an effective boost for China's anti-corruption drive".

Some countries had laws protecting the secrecy of assets, Wang said, and that encouraged many Chinese officials and tycoons to put their wealth there.

"Secrecy is very important for them," he said. "If this information becomes public, it will be very hard to hide their assets. Corrupt Chinese officials will have fewer places to hide their wealth."

Global Financial Integrity president Raymond Baker said: "Nearly US$70 billion flowed illegally into or out of emerging EU economies in 2011. Anonymous shell companies are the No1 tool for laundering the proceeds of crime, corruption, and tax evasion."

Some European countries, such as Germany, were major investors in China, Sharpe said, while Luxembourg was a big recipient of investment from China, with inflows estimated at US$3.4 billion in 2010.

Luxembourg, an EU member nation, has the biggest pool of yuan deposits in the euro zone, some 20 billion yuan (HK$25.5 billion), according to Industrial and Commercial Bank of China data from June last year. It said 30 billion yuan of loans had been structured via Luxembourg at that time, while Luxembourg managed 200 billion yuan of assets.

Patrick Henri Devillers, a French business partner of Gu Kailai , used a Luxembourg company, to invest millions of euros in property firms. Gu, the wife of disgraced former Communist Party Politburo member Bo Xilai , is serving a suspended death sentence for murdering British businessman Neil Heywood.

In the filings of the Luxembourg firm, Devillers registered Gu's law firm in Beijing as his address.

Palmer said the rules were due to be ratified by the European Parliament next month. "We don't expect any problems with it passing," he said.

The final form of the legislation would depend on negotiations between the Parliament and EU member states.

Liechtenstein, a European offshore tax haven which is not an EU member, signed a tax information agreement with China last month.

Liechtenstein's government said the agreement would allow the two nations to exchange tax information confidentially.

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