The Case For A European Asset Registry

For scholars of tax evasion, tax avoidance and inequality the use of various schemes in tax havens to hide wealth by the ultra-rich has been the subject of intense study. An amount equivalent to 10 per cent of the global GDP is held today as offshore wealth and this has been relatively stable for the past 20 years. It is estimated that around US$8 trillion is held today in tax havens. Wealth can be hidden relatively easily through legal instruments that promote secrecy, such as shell companies or other entities that hide the real beneficial owner. To this day, most of what we know about wealth in these locations has come from leaked data, investigative journalism and economic research, rather than from a coordinated policy response by the world community.

In a note[i] we published one month after the start of the war with my co-authors Theresa Neef, Lucas Chancel, Thomas Piketty, and Gabriel Zucman, we put forward the argument that a coordinated response today is more urgent than ever. We explain why the current secrecy rules that govern our world obstruct the power of sanctions and undermine Western economic and security policy. At the heart of this research is the extensive use of secrecy locations by Russian oligarchs which is tightly linked to the structure of inequality in Russia.

Estimates from the World Inequality Database (a series that tracks wealth inequalities) indicate that Russia exhibits the highest wealth inequality in Europe, with 10 per cent of the wealthiest holding 74 per cent of total household wealth and the top 1 per cent holding 48 per cent. Wealth inequality can be traced back to the unequal privatisation process that followed the collapse of the Soviet Union. Adding to this, the use of tax havens by the Russian elite has been a common practice. Studies estimate that there is as much Russian wealth held abroad as is held by the entire Russian population domestically. The richest 0.01 per cent of Russian nationals owned more than 12 per cent of the total Russian wealth and held 60 per cent of it in offshore tax havens. Inequality exacerbates the shift of wealth to tax havens and limits the impact of sanctions.

Whilst hiding wealth is more pervasive in Russia and an issue that came into the spotlight due to the war in Ukraine, its implications are truly global. Ultra-wealthy individuals worldwide make use of the various schemes and end up hiding wealth behind the veil of secrecy. The international dimension of this practice requires a broader, more systematic response. In our research we propose the establishment of a comprehensive European Asset Registry, where beneficial ownership of assets and wealth is properly recorded. This would improve inequality, as well as fair and progressive taxation that is based on proper wealth measurements. When needed, such a register would facilitate the effectiveness of sanctions.

In practice, a common and centralised European Asset Registry could bring together information in EU countries under one roof. Crucially, this information exists but remains fragmented. For instance, land registers hold information on ownership in some but not all countries, whilst in other countries, registers do not go as far as to require the individual beneficiary information. Shell companies are used to report only the legal entity or to hide individuals who control companies.

Another example is that of national commercial registers, which exist in countries to record ownership of companies, yet access is sometimes restricted, and the information recorded varies from country to country. Securities are often recorded by national and private central security depositories, but access is neither free nor publicly available. Lastly, many European countries have set up beneficial ownership registries in the past few years. However, exceptions limit their effectiveness. One would imagine that in today’s age of information a government’s job would be easier in tracing wealth, but domestically as well as internationally, very limited exchange or cross-checking take place.

There are varying levels of ambition in the shape and structure of a European Asset Registry and much depends on country decisions in the EU. Countries could agree on a common unified structure, run by specialised personnel who gather and cross-check information from all countries. Information could be accessed centrally by countries and sanctions could be applied at the EU level. Alternatively, harmonisation of information can take place in EU countries without the need for a common central structure. However, this should be accompanied by a common enforcement mechanism as an implementation commitment between countries. This is important, since EU countries that often have a more favourable policy towards attracting wealth are also less likely to apply sanctions. A European Asset Registry could pave the way for a global one in the years to come.

Countries in the EU have proven their effectiveness when immediate action is needed. Time and again we have witnessed prompt, coordinated responses. During the debt crisis, they implemented new fiscal rules, took bold decisions on building a banking union and decided to share the huge costs of financial rescue. During the COVID pandemic, they coordinated measures on social distancing, implemented EU-wide monitoring of cases, and ensured prompt vaccination of the entire population. Immediate action is needed also to address the latest crisis.

While war might be far from home, its implications are knocking on everyone’s door. Mere mortals share the cost of the crisis in unprecedented energy bills, high inflation, reduced job security and increased uncertainty. Yet, others find themselves lucky in the laws we have created for them, to serve them in hiding their wealth. Today’s crisis presents a unique opportunity to address injustice and a European Asset Registry could be a first step.

Footnotes:

[i] https://www.taxobservatory.eu/publication/effective-sanctions-against-oligarchs-and-the-role-of-a-european-asset-registry/

Panayiotis Nicolaides
Director of Research, specialising in tax evasion and tax avoidance.