The secrecy enablers strike back: weaponising privacy against transparency

After decades of slow but steady transparency progress (eg automatic exchange of banking information, beneficial ownership transparency, country by country reporting), secrecy promoters have found a strategy to turn back the clock on hard-fought transparency advances. They are weaponising the rights to privacy and data protection to prevent access to information by the public as well as by competent authorities. This blog post looks at the implementation of the strategy against beneficial ownership transparency. It introduces our latest report dismantling these privacy-washing arguments. We need to reinstate the path to transparency to prevent the rich and powerful from escaping the rule of law that applies to everyone. 

Secrecy: the cheating device that was in decline 

Secrecy is the main tool used by criminals and wealthy individuals who try to escape the rule of law and who benefit from illicit financial flows. These flows refer to the billions of dollars related to tax abuse, money laundering, corruption or the financing of terrorism that escape government treasuries all over the world. Thanks to sophisticated schemes developed by lawyers, accountants, service providers and other enablers, these funds are channelled through companies, trusts and other legal vehicles, into bank accounts, cryptoassets, real estate, businesses and many transactions that cover their tracks and evade investigators. These schemes enable those engaging in illicit financial flows to enjoy ill-gotten funds without worrying about law enforcement, taxes or public scrutiny. 

In the last decade, many of the transparency advances advocated by the Tax Justice Network and other allied organisations have become part of international standards and country practice: automatic exchange of bank account information, beneficial ownership transparency and country by country reporting, to name a few. 

Civil society organisations have yet more ambitious goals: access to automatic exchange of banking information by all developing countries; public access and comprehensive beneficial ownership transparency for trusts, listed companies and investment funds; fully public country by country reporting following the GRI standard, a global asset registry, etc. 

But trend of progress on ambitious and effective transparency is now facing one of its biggest challenges in years. Secrecy promoters have discovered a successful weapon: manipulating the court system – to threaten much of the transparency infrastructure that had previously been developed. There is now a real risk of sending us back to the dark ages of dirty money. 

Secrecy promoter’s unsuccessful trial and error against transparency 

With every new transparency measure, secrecy promoters and secrecy jurisdictions fought back, unsuccessfully. When the EU started discussing automatic exchange of information, Switzerland tried to push for its own version, known as the Rubik agreements, that involved withholding taxes rather than exchanging information (to maintain anonymity). When global automatic exchange of information became a reality in 2017, secrecy jurisdictions cherrypicked who they would be exchanging information with. When countries were required to automatically exchange banking information with each other, enablers started promoting circumvention schemes (eg transferring accounts to countries not yet participating, golden visas, etc). In response, the OECD proposed mandatory disclosure rules on schemes to circumvent automatic exchanges and identified risky golden visa schemes. 

In the EU (before Brexit), the UK pushed for trusts to be subject to fewer beneficial ownership requirements and disclosure than companies and legal persons were. For instance, by 2015 only trusts that generated tax consequences were required to register information under the EU 4th anti-money laundering Directive. However, by 2018 the EU had amended its anti-money laundering directive and removed the “tax consequences” condition, and even required access to trust beneficial ownership information based on a legitimate interest. In respect of companies, the EU established public access to information. Many countries went even further, offering free online public access.  

Secrecy promoter’s success: the weaponisation of privacy and data protection 

After many attempts, secrecy promoters discovered that arguments relating to the rights to privacy and data protection – as well as to the concepts of confidentiality and safeguarding – were well-received by courts and some country authorities. 

On 22 November 2022, the European Court of Justice ruled that public access to beneficial ownership information for the purposes of money laundering violated the right to privacy, allowing several EU countries to close their (until-then) public online registries. However, this was not an isolated case, but part of a series of lawsuits and measures of weaponising the right to privacy, confidentiality and data protection against transparency: 

1. Automatic exchange of information 

Confidentiality requirements 

As described above, secrecy jurisdictions tried to prevent automatic exchange of information from coming into existence (eg the Swiss Rubik agreements), and when it became a reality, they tried to exclude developing countries by cherrypicking with whom to engage. When this was no longer possible, the only way to exclude countries (other than circumvent the automatic exchange altogether through golden visas or other schemes) was to claim that jurisdictions failed to meet confidentiality requirements to receive the data, as required by the OECD standard:  

“The Global Forum put in place a specific process to assess whether jurisdictions committed to AEOI [automatic exchange of information] meet the confidentiality and data safeguarding requirements, as a condition to receive data.” 

Switzerland for instance invoked lack of confidentiality requirements to suspend exchanges of bank account information with Bulgaria. 

Suspend automatic exchanges between Belgium and the US 

On 24 May 2023, the Belgian Data Protection authority banned the automatic exchange of bank account information of “accidental” US citizens residing in Belgium to the US because it considered the agreement to exchange information was not in line with the EU general data protection regulation (GDPR). 

Attempt to suspend automatic exchange of information between the UK and the US 

The same attempt was made in the UK to suspend and obtain compensation for breaches to the data protection of an American whose bank account information had been automatically exchanged with the US. 

2. Beneficial ownership 

Closure of public trust registry in France in 2016 

Even before the European Court of Justice ruling of 22 November 2022, a court in France also invalidated public access to beneficial ownership information after it ruled it violated the right to privacy. The case shared some similarities to other cases: it involved an American residing in Europe, and coincidentally the first ruling came out on the 22nd of a month, this time July. This case from 2016 referred to public access to beneficial ownership information of trusts contained in a French trust registry that had been established to tackle, not money laundering, but the tax abuse risks of trusts. 

Attempt to ban the Dutch beneficial ownership registry 

In 2021 the District Court in The Hague ruled against the foundation “Privacy First”, which tried to ban the beneficial ownership registry of the Netherlands based on violations to the right to privacy. 

Alabama judge declares US beneficial ownership registry unconstitutional 

The National Small Business Association filed a lawsuit in the US against the Corporate Transparency Act which established a (non-public) beneficial ownership registry claiming that the law is unconstitutional because it violated rights of state sovereignty, privacy and due process. In response, a judge in Alabama considered that the law was unconstitutional. The exemption from beneficial ownership registration would only apply to the claimants but not to the rest of US entities. 

3. Country by country reporting 

Not public because it has confidential information 

In the case of country by country reporting, which offers a map of where multinationals have operations, employees and how much taxes they pay (if any), there was no strong need to go to courts to challenge this transparency measure because the OECD made the measure confidential from the beginning. The OECD requires under BEPS Action 13 that country by country reporting information be disclosed to authorities only. As the OECD argued in this FAQ on country by country reporting, the decision to not make the information publicly available was to “protect the confidentiality of potentially sensitive information”.  

The sensitivity of this information however is very questionable. Plenty of practice shows many stakeholders don’t think it is. The EU has long published country by country reporting information from the banking sector, and several companies have voluntarily committed to making their country by country reporting information publicly available, for example by signing up to the GRI tax standard. Investors responsible for trillions of dollars have specifically called on the OECD to make multinational corporation’s country by country reporting information public.)  

4. Mandatory disclosure rules 

Some frameworks require enablers and/or taxpayers to report certain schemes that could be used to engage in tax abuse (eg under BEPS Action 12) or to circumvent the OECD common reporting standard (CRS) for automatic exchange of information. This could be considered a silver bullet to address illicit financial flows. However, many of these regimes have not prospered: 

Argentina’s mandatory disclosure regime suspended by courts throughout the country 

Argentina’s tax administration had attempted to establish a mandatory disclosure regime related to tax abuse via Resolution 4838. However, several lawsuits throughout the country claimed the measures affected the confidentiality of professional intermediaries. Several courts invalidated the Resolution, pushing the tax administration to suspend it and then modify the regime to exempt professional intermediaries from reporting. 

Ecuador’s attempt to establish a mandatory disclosure regime for tax abuse ruled unconstitutional 

Ecuador also tried to establish a mandatory disclosure regime to disclose tax abuse schemes via a law. However, lawsuits claimed that the measure violated the privacy of communications between a client and professionals. In 2022, the Constitutional Court declared the measure unconstitutional. 

The European Court of Justice invalidated part of the mandatory disclosure rules based on a Belgian lawsuit 

In the EU, the mandatory disclosure rules related to tax abuse (based on BEPS Action 12) and avoidance of automatic exchange of information (OECD Model mandatory disclosure rules) were required as part of an amendment to the EU Directive on Administrative Cooperation (aka DAC 6). There was a lawsuit in Belgium against professional intermediaries needing to report some information because it affected their rights to privacy and confidentiality of communications with their clients. The European Court of Justice ruled in their favour. 

Understanding the weaponisation of privacy 

Secrecy promoters are weaponising a very relevant right (privacy), not to protect the masses against state intrusion, but to protect the corporate schemes of the rich and powerful to engage in illicit financial flows. In fact, as discussed in this blog post based on information disclosed by the UK case law Webster v HMRC against automatic exchanges with the US, it appears that the campaign to weaponise  privacy may be better organised and financed than feared. 

Privacy is a fundamental human right. It is related to the self-determination of individuals, allowing them to have autonomy over their own decisions and activities, preventing intrusions from governments, companies or other individuals. It covers their physical space, communications and especially personal information relating to issues around their health, sexual orientation, religion etc. A cornerstone of this right to privacy is the right to protection of personal data, to give individuals control over the collection, processing, use and sharing or disclosure of their personal information. 

Many citizens, privacy advocates and experts are rightfully wary of any attempts by the state or third parties that could affect their right to privacy. These are legitimate concerns. The problem is that these legitimate concerns are being repurposed by secrecy enablers to promote their own interests in maintaining a system of financial secrecy that makes it possible for the rich and powerful to remain above the law. 

Secrecy promoters secured a ruling by the European Court of Justice to invalidate public access to information based on the right to privacy and the risk to individuals (even though the main plaintiff in the case was publicly disclosing his own wealth and whereabouts.) Regardless of the plaintiff’s hypocritical behaviour in this particular case, the reality is that public beneficial ownership registries don’t affect privacy. They only disclose a very limited amount of information about the individual. Typically, this tends to be the individual’s full name, the month and year of their birth (rather than their specific date of birth), and, crucially, the interests or share they hold in companies. No information is disclosed about the individual’s wealth nor the wealth of the companies they own. No information is disclosed about the individual’s residential address or location. Even then, most beneficial ownership registers have always allowed any individual who proves they are at risk to get an exemption from having to publicly disclose their information on the register. 

Our latest report dismantles the privacy-washing arguments being raised and used against transparency. The report covers four areas: 

1. Rights to privacy and personal data protection 
2. Rights that are put at risk by a lack of public transparency 
3. Arguments about increased risks of harm and crime 
4. Arguments about who should access beneficial ownership information 

Beneficial ownership transparency is one of the few policies that competent authorities (especially law enforcement), financial institutions, investigative journalists, civil society organisations working against illicit financial flows and other actors, all agree on. Still, a group of secrecy promoters (including lawyers protecting oligarchs) have succeeded in convincing courts that secrecy is what protect the masses from the state, to ensure their privacy. The reality is that most vulnerable people don’t own companies or trusts, and those that do most likely employ rather simple structures.  

The only ones who would see the benefit of closing beneficial ownership registries are corrupt officials, sophisticated criminals and high net worth individuals who employ complex offshore structures to undertake their affairs and hold their wealth, hidden and untaxed. 

It’s time for all, especially the courts, to see this privacy washing campaign for what it is. Restoring public access to beneficial ownership is the first step towards stopping this campaign for opacity. 

Remixed image of European Court of Justice building via © Gwenael Piaser from Flickr