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Written by Jackie Whiting
on October 29, 2021

As we get ready to adjust our clocks here in Austria, it’s time to recap another month of stories that have made headlines around the world this past October. Of course, the Pandora Papers take center stage as what will turn out to be one of the year’s biggest breaking news events but we’re still at the beginning of understanding how these revelations will change the way our world works. 

If you still need to catch up on the facts and figures that make up the Pandora Papers, you can read our summary by clicking here. In 5 minutes you’ll know who’s behind the leak, which noteworthy individuals are named in the documents, the in’s and out’s of offshore companies and how jurisdictions are responding to the concerns regarding murky ownership details. 

Afterwards, you’re invited to read the interview between Susan White, Managing Director (Americas) at kompany and Head of Screening Automation at WorkFusion, David McCurdie. Together they explore what we've learned from past leaks, the responsibility of the private sector to implement change and how the Pandora Papers may act as an inciting incident in the evolution of beneficial ownership disclosure across jurisdictions.

And if you’re looking to add a few events to your calendar next month we have two to recommend. As mentioned last month, we’ll be joining Hong Kong FinTech Week this November. Get your ticket today and join us next week for an exciting panel discussion that will explore the ways RegTech can solve real-world problems and reduce financial crime. 

We’ll also be attending and speaking at the virtual Corporate Registers Forum in two weeks time. This year’s theme is the “Ease of Doing Business: The role of Corporate Registries” and you can learn more about the event, including how to get a ticket, by visiting their website

Now let’s get on to this month’s news stories in which we share the latest country to be grey listed by the FATF, how the European Union is responding to the Pandora Papers and the ways the real estate market can serve as a breeding ground for money launderers. 

Finance watchdog 'grey lists' Turkey in threat to investment (Reuters)

The latest country to be downgraded to the Financial Action Task Force’s grey list is Turkey. The international watchdog put the country, alongside two others (Mali and Jordan) on its increased monitoring list earlier this month for “failing to head off money laundering and terrorist financing”.

They have been told that they need to address “serious issues of supervision” in both the banking and real estate sectors as well as with gold and precious stone dealers. The country’s leaders were warned back in 2019 that FATF had identified “serious shortcomings” in their anti-financial crime systems, with specific need to improve the measures taken to freeze assets linked to terrorism and the generation of weapons of mass destruction. They will also need to show that they are prioritising cases that involve UN designated terrorist organisations like ISIL and al Qaeda. 

Turkey does not agree with its new designation as a grey-listed country.

“‘Despite our work on compatibility, placing our country on the grey list is an undeserved outcome,’ the Turkish Treasury said in a statement late on Thursday.

‘In the coming period, necessary measures will continue to be taken in cooperation with FATF and all relevant institutions, to ensure that our country is removed from this list, which it does not deserve, as soon as possible.’”

Already dealing with a sharp decline in foreign investment, Turkey will need to collaborate with the international watchdog if they hope to avoid further economic backlash. The International Monetary Fund confirms through its research that grey-listing “reduces capital inflow by an estimated 7.6% of gross domestic product (GDP), while foreign direct investment (FDI) and portfolio flows are also hit.”

After Pandora Papers, EU says it plans new rules against tax avoidance (Reuters)

Earlier this month the EU tax commissioner announced that the European Commission will present “new legislative proposals to tackle tax avoidance and tax evasion” by the end of the year. This decision comes after the now infamous document leak, known internationally as the “Pandora Papers” was released at the beginning of October. The documents have demonstrated the ways rich and powerful people leverage offshore companies to reduce their tax costs.

While it should be stated that so-called “tax optimisation” isn’t in itself an illegal activity, the pattern of the world’s wealthiest people exploiting their connections and financial advantages to lower their own tax burdens is being increasingly questioned in the face of COVID-19 economic recovery.

Paolo Gentiloni, the EU tax commissioner, made it clear that the new proposals will “expand the information that needs to be automatically exchanged among national tax authorities” as well as “tackle the misuse of shell companies for tax purposes.” He also said that the EU will be recommending new rules regarding “the publication of effective tax rates paid by some multinationals.”

Specific details about the new legislative proposals have not yet been disclosed but they are included in the preliminary agenda of the commission and publication is planned for December 22nd of this year.

Money laundering remains prevalent through US real estate (Miami Herald)

Both residential and commercial real estate are under fire for the ways they enable the flow of illicit finances into the United States. The Global Financial Integrity (GFI), a Washington-based think tank focused on illicit financial activities, has reported that at least “$2.3 billion has been laundered through real estate over the last five years."

Considering that the group based this estimation exclusively on cases that have already been reported or adjudicated, they believe the total value of “property purchased with laundered money is even more ‘staggering.’” 

President Biden has said that his administration has plans to increase the government’s ability to fight corruption and to hold individuals, transnational criminal organisations and their facilitators accountable. Included in this commitment is the president’s desire for the Treasury Department to require real estate agents to identify their clients (in this case, the "ultimate beneficial owners”) and report suspicious activity.

Currently banks are required to report suspicious activity and in some cities, title insurance companies are already required to reveal the people behind the companies that buy houses with a value of $300,000 or more using cash or virtual currency. However, the United States is “is the only major economic member of the G7 that does not impose anti-money laundering rules on real estate professionals.” 

The GFI report also states that real estate money laundering is not limited to luxury properties in big cities but also happens in places like the suburbs of Chicago and rural towns in Alaska. Of the nearly 60 cases examined, 82% involved money from abroad as well as “politically exposed persons” - including natural persons who would otherwise be disqualified from making such purchases in the United States. 

Accomplishing such a magnitude of criminal activity requires many players at different stages of the purchasing process. As stated in the GFI report, shell companies and complex shareholder structures are the most common way to launder money through real estate but they rely on a diverse group of either complicit or naive “gatekeepers” ranging from attorneys to title agents. 

New legislation to better protect the real estate industry will be a welcomed step in the fight against money laundering.

That's it for this month! But before you go...

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