Anonymous private wealth. Luxurious homes, state-of-the-art yachts and aircraft, priceless jewellery, valuable pieces of art, and more. Symbols of an ever-increasing global problem of financial inequality, and a proven driver also of corruption and tax abuse.
Such wealth in the hands of a mere fraction of the global population is unsustainable – and as long as opacity continues to undermine transparency, the super-rich and secretive will not have to account for anything.
But progress has been building, says the Tax Justice Network (TJN), towards an emerging international standard of requiring public beneficial ownership information for valuable possessions such as real estate, art, or private aircraft, and for companies, trusts, and other legal vehicles.
One component of such a standard is the current global push for beneficial ownership transparency (BOT) of companies and the recent resolution by the Financial Action Task Force to tighten up its Recommendation 24 (R.24), which deals with BOT. For the first time, R.24 will require that information be collected in a centralised register, and that authorities verify the data to ensure its accuracy.
“The opportunities to get the kind of global change that we’ve been pushing for for years, suddenly seem tangible,” said TJN’s Alex Cobham while introducing a recent webinar on another component, the proposed establishment of a global asset registry.
The idea of such a registry has been around for a while, but it came to prominence through renowned economist Thomas Piketty, whose work focuses largely on wealth inequality and income. Piketty has spoken of the French land registry – which started life as the Napoleonian cadastre for registering land ownership and transfers – as a key legacy of the French Revolution, one that remained in place after the upheaval.
“At that stage, land property was wealth amid very little other wealth,” Cobham said, “and having that cadastre meant that people could see, and the public, politicians and civil servants could consider and debate, the degree of wealth inequality. On top of that, if they were minded to they could also tax that wealth, simply through the existence of a register.”
Piketty argues that a global asset registry would effectively provide the modern-day equivalent of that register, at the transnational level, by registering financial and non-financial assets of high value.
But such a register, Cobham conceded, is likely to lie beyond the current levels of political willingness, and there are several other obstacles that lie in the way.
Requirements and challenges
“What we need is to know the beneficial owner of any type of assets that a person might hold,” said Andres Knobel, TJN’s lead researcher on beneficial ownership. “A beneficial owner or ultimate beneficial owner refers to identifying the natural person – and that is a key point, it has to be a natural person – who ultimately owns, controls or benefits from any type of asset, be it gold, art, a private jet, a house, or a bank account.”
The challenges to achieving this are numerous, said Knobel. “Information might be available, but it might be fragmented and scattered through many intermediaries … or we might have a vessel or ship register that collects some type of information but in most cases this only refers to the legal ownership information, so we might know that a company owns a vessel or a private yacht, but we have no other details of who is behind that.”
A further example, Knobel said, is the real estate sector, also seriously beset by BOT challenges. While many countries do have real estate registries, these tend to focus only on local companies or vehicles, and on legal persons such as companies, foundations, and partnerships.
Even in financial institutions where the collection of beneficial ownership is a regular requirement, the problem is that the thresholds for disclosure are high in many definitions. “This means that they only identify an individual as long as they have, say, more than 25% of the shares of a company or 25% of the voting rights of a company. This means that in a very simple company with just four shareholders, each holding 25%, none of them would pass the threshold to be identified as a beneficial owner.”
The first step to overcoming these challenges is to establish an asset register and while there are many in existence, especially for real estate, there is a need for registers of other valuable items. The second step is to establish beneficial ownership registries that also cover foreign legal vehicles that might own local assets, and which have lower thresholds or none at all. Argentina, Ecuador, and Botswana are among the countries applying the no-threshold approach, said Knobel, so any person with at least one share or one vote has to be identified as a beneficial owner.
The third step is to determine who would have access to this information and who would verify it.
Until this level of transparency is reached, Knobel said, there are some intermediate steps that might help, such as tapping into insurance companies’ data or requiring auction houses, for instance, to disclose who has bought expensive pieces of art.
Gaps in information hinder effective sanctions
The proposal of a European asset registry, said Panayiotis Nicolaides, director of research at the EU Tax Observatory in Berlin, gathered momentum when the Russian invasion of Ukraine began. “This is very much aligned with the proposal of a global asset registry as well … we saw a scramble by governments in response to the Ukrainian war to locate wealth and to impose the sanctions.”
However, the imposition of sanctions was significantly hindered by the worldwide lack of information and coordination gaps in the ownership of assets. “There was a significant gap in locating the wealth pretty quickly, and I still believe there is this gap.”
Co-operation, is the key to success, Nicolaides said. Successful proposals in tax transparency over the last few years have all been based on increased co-operation between countries and the various fora, such as the G7 or G20, which can facilitate cross-border co-operation.
So at this stage the European asset registry is not quite on the agenda. “We are a little bit far from that and we should find the right political corridors to push for this solution. Global initiatives usually start at the G7 or G20 level, and so we should talk to the politicians at the very top.”
Tax the wealthy and improve the world
Njoki Njehu, coordinator of the pan-African Fight Inequality Alliance, said her organisation is fighting for equal taxation of rich and poor. “So the conversation about the global asset registry interests us a great deal because if you’re going to tax wealth you need to know where it is.”
The issue of the location of wealth came to the fore with interest in the holdings of Russian oligarchs, sparked by the onset of the Ukraine invasion. “This opened a door that for a long time remained closed, and it is an opportunity for activists to step into the discussion on how, and why, the global asset registry would be useful in the fight against inequality.”
Wealth, power, and influence are inextricably linked, Njehu said, and some have access while others are denied. In the context of her organisation’s work, the global asset registry is about identifying who has the wealth, taxing that wealth, and making resources available to meet basic needs such as food, health, education, water, infrastructure, security, and more.
Other solutions for wealth inequality and anonymity
“We know that the big tax havens are not in the global South,” said Njehu, echoing the findings of the TJN’s latest Financial Secrecy Index, which listed the world’s top 10 secrecy jurisdictions as the US, Switzerland, Singapore, Hong Kong, Luxembourg, Japan, Germany, the UAE, the British Virgin Islands, and Guernsey. To find a country from the global South, one would have to scroll down to position 33, Angola.
Tax havens destabilise the global financial system and perpetuate inequality. In their 2016 book Global Tax Fairness, co-authors Thomas Pogge and Krishen Mehta include a chapter titled ‘Let’s Tax Anonymous Wealth!’ which is written by economist and investigative journalist James S. Henry. In it, Henry stated that trillions of dollars of anonymous wealth have been stashed with the help of the highly efficient global haven industry, comprising private bankers, asset managers, accountants, lawyers, trustees, hedge fund managers, high-end real estate brokers, and corporate registrars. Shell companies, trusts, banks, and nominee owners are but a few of the vehicles used to spirit the funds away.
Meanwhile, governments – especially in developing countries – are deprived of vital tax revenue that could be used for much-needed purposes such as addressing climate change, boosting public health systems, or supplying basic services to citizens.
“At a time of extreme wealth inequality, this is unacceptable,” wrote Henry.
His proposal was to establish a global withholding tax on the concealed currency, at an annual rate of 0.5%, and this would be a potentially lucrative and much more equitable source of revenue. Henry stressed that the suggested tax would merely supplement other essential reforms.
Such potential reforms, said Cobham, are the previously mentioned European asset registry or the UN tax convention that ministers of the African Union have recently called for. But while the world is moving towards these solutions, they are still some distance away.