35
have more urgent related measures (eg increasing staff and budget for the financial intelligence unit) or
even other measures (eg measures related to the Covid-19 pandemic). However, policy is not necessarily a
zero-sum game. Staffing the financial intelligence unit can be done as well as regulating complexity. In fact,
this brief described sufficient evidence that complexity is a risk factor used in more than half of the cases
studied by the “Concealment of Beneficial Ownership” report, and that it is used mostly by sophisticated
individuals and criminals engaged in illegitimate or illegal activities.
The second approach, to enforce existing regulations, is somewhere in between. It is not a radical
proposal, and it has two very good points. First, current regulations (eg beneficial ownership transparency
disclosures, customer due diligence obligations, etc) already address complexity, they should simply be
enforced by authorities. Second, if enforcement of current laws is absent, there is no guarantee that any
new proposed measure will actually be enforced either.
The Tax Justice Network’s response to these points questions the suitability of existing measures. To put
this in perspective, consider beneficial ownership definitions. These may require general obligations, such
as identifying any individual with effective control over an entity. This a very comprehensive rule. Any
regulated entity that invested sufficient resources in complying with this rule, eg taking the time and
requesting information to understand the ownership structure and relationships within an entity, would
likely identify the right person. However, there is no guarantee that all regulated entities will spend the
time to do this, let alone that they will get it right even if they spend sufficient resources.
An alternative approach, preferred by the Tax Justice Network, is to give very clear (and mechanical)
instructions such as “identify every individual who holds at least one share, any individual with a power of
attorney or any individual who manages the entity’s bank account”. This latter approach may end up
identifying many individuals who have no control at all. However, it should likely include the relevant
individual among the many registered, and it should be easy to implement and to supervise by regulated
entities, corporate registries and authorities. In this case, authorities would have to verify that 100 per
cent of all shareholdings were identified. A mere cross check with the registries of banks and notaries
would show whether anyone with a power of attorney or right to manage the bank account was identified.
This mechanical supervision would be very different from auditing a regulated entity and checking that in
all cases, they rightly identified the individual with effective control.
The mechanical approach would lead to registering information on many individuals (every holder of
shares, every holder of a power of attorney, etc). This should not be a problem as long as authorities have
enough information on the nature of each beneficial owner (eg John holds 95 per cent of the shares, Mary
has power of attorney). By already having information on all potentially relevant people, it is much more
likely that authorities will find (and prosecute) the right individual, than if they have to trust that the
regulated entity managed to find the right individual after performing customer due diligence. In other
words, both approaches need enforcement, but the mechanical one is much easier to enforce and
supervise.
To give another example, one could consider airport security. Security personnel are required to identify
suspects and prevent illegal materials from boarding planes. However, upon suspicions of the use of liquid
substances for terrorism purposes, most airports prohibit taking more than 100 ml of liquid within
personal luggage. This measure is certainly extreme and affects millions of people who were simply
carrying drinking water or perfume, however, the mechanical check that no one is carrying liquids (or
weapons or sharp objects, etc) is much easier to implement and enforce than the general requirement to
“prevent terrorists from boarding planes with bombs”.
This leads to another pragmatic issue. While there is no guarantee that any new measure will be enforced,
some outcomes are easier to achieve than others. Faced with resource constraints, it is rather difficult for
civil society organisations to argue that governments should properly staff and equip authorities. On the