United Kingdom

A Right to Privacy - But Draw Back the Corporate Veil


By Joseph Stead, Senior Adviser on Economic Justice, Christian Aid (01/11/2014)

With the explosion of the financial transparency debate in recent years, you could be forgiven for thinking that demands for openness are new. In fact, they predate anyone alive today.

 

When in 1856, Robert Lowe, the man dubbed the ‘father of modern company law’, brought forward  in the UK House of Commons a new law permitting the creation of limited liability companies, he insisted on the vital importance ‘of giving the greatest publicity to the affairs of such companies, that everyone may know on what grounds he is dealing’.

 

This was not empty rhetoric from a back-bencher. Lowe went on to become Chancellor of the Exchequer, while the law he introduced became the first nationwide codification of company law in the world.

 

Similarly, during the history of the development of corporate structures, , there was a very clear call for transparency of ownership. This was the only way for people to have trust in limited liability companies. 

 

In previous eras, disclosure of shareholders’ identities was enough to shed light on companies’ ownership but now, when shareholders can be corporate or other entities, we have to go further. Hence the call of many campaigners, including Christian Aid, for the creation of public registers of companies’ beneficial owners.

 

Such transparency is vital to help tackle corruption and tax evasion but also to make our societies function better, by allowing people to know who they are doing business with.

 

We know that many argue that a strong trust and corporate service provider regime can achieve the same ends, but respectfully we disagree. We would disagree even if all beneficial ownership information held by TCSPs was available to the authorities on request,  and all providers were completely trustworthy into the bargain. Evidence such as that presented by Professor Jason Sharman of Griffith University, Australia in his paper Global Shell Games suggests that is far from the case.   

Unless the information about a company’s flesh-and-blood owners is public, then it will not tackle corruption. Corrupt governments will not ask for the information and their citizens will never be able to find out which companies their corrupt leaders control. Tax authorities will not know the companies to ask questions of. 

 

Furthermore, unless ownership information is public, then it will be impossible for journalists, civil society and ordinary people to spot errors in the register of who owns what and alert the appropriate authorities. Furthermore, economics suggests that markets operate better at allocating resources efficiently, the more (accurate) information they have.

 

Let us be clear, too, we recognise that individuals have a right to privacy but do not believe they should be able to hide behind corporate veils, which are too often misused by all manner of criminals, in ways which harm other people. Corporate practices have moved on since the time of Robert Lowe - and so must the law.

 

As for other aspects of financial transparency, Christian Aid has never suggested that individuals’ or companies’ bank account details should become public. We do, however, campaign for countries’ law enforcement authorities to have access to information about their individual and corporate taxpayers’ financial holdings and transactions, wherever in the world they are.

 

This is why we campaign for automatic exchange of tax-related information between governments. We believe that such information is a necessary condition of governments being able to collect the taxes that are owed; without it, there is abundant evidence – take the revelations around the role of Swiss banks, for instance - that tax is evaded on a multi-billion scale. The information sought by Automatic Exchange of Information is data  that should have been declared in the first place. 

 

While we are aware that some people regard tax as theft, we disagree and regard tax as a necessary condition of civilised societies, which need defence, justice systems, law enforcement, health care, education and social safety nets to prevent the most vulnerable people becoming destitute, with all the crime that would entail.

 

Of course personal privacy is important and entirely valid when it comes to matters that concern few or no other people, such as family, friends, beliefs, health and so on. But legal structures such as companies are not individuals, and cannot make the same demands for privacy. They have the potential to damage lives , for instance through tax evasion, bribery, money laundering and even the financing of terrorism, and individuals should not be allowed to hide their identities behind such structures, There can be no argument that such abuses are taking place, with severe consequences, especially for the poorest people who depend on what the state provides.

 

Tax evasion also limits the effectiveness of governments in meeting rights to which their citizens are entitled under the International Covenant on Economic, Social and Cultural Rights. The 162 governments that are party to the covenant have agreed to use the maximum of available resources to meet a number of rights, including the right to food, health and education.

 

These are the reasons why we believe that governments must be able to monitor individuals’ finances, to the extent necessary to enforce the relevant laws, and in some cases, especially with regard to ownership, this must include making some information public.

 

It is because tax revenue is so crucial that we also campaign for multinational companies to report their accounts on a country-by-country basis, which would help tax authorities to spot suspicious patterns worthy of investigation. UK-only companies already effectively report their accounts on this basis, so we fail to see why it would be wrong to require multinational companies to do the same, effectively levelling the playing field.