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The Netherlands is pushing for an EU-wide effort to clamp down on the use of shell companies by wealthy Russians and businesses. The government is ready to impose restrictions if the bloc does not act.
Finance minister Sigrid Kaag says the government wants to restrict the use of trust offices that provide services in setting up letterbox companies in the country because not doing so would mean “leaving a backdoor open” in sanctions against Russia. Such a measure would make it harder for Russian companies and their owners to set up and maintain corporate structures in the EU.
The Netherlands has been asking for an EU-wide ban and has started preparing emergency legislation, Kaag said. In a proposal presented to EU finance ministers on Tuesday, Dutch officials said they aim to prohibit the flow of money from Russian entities with revenue of €100,000 or more that use trust services for shell companies, according to an informed source.
The Dutch proposal includes an exemption for humanitarian purposes, said the source, who asked not to be identified as details of the plan are not yet public.
The Netherlands is infamous for being a financial conduit location due to its fiscal structures that are beneficial to letterbox companies. In 2019, 12,400 letterboxes in the country held altogether €4.5-trillion, five times the size of the Dutch economy, according to a government report.
Much Russia-related activities in the Dutch financial sector come from trust offices. Since the start of the latest sanctions against Russia, trust offices made up 92% of all notifications the Dutch central bank received from financial institutions on their links with sanctioned Russian nationals and companies. The government did not freeze any of these assets.
It is difficult to say precisely how much Russian money flows through the Netherlands, Kaag told Bloomberg. Measured by foreign direct investments ploughed into that country, the Dutch stand out as the most exposed of economies listed by the IMF. But such figures are distorted by the abundance of letterboxes, according to ABN Amro’s chief economist Sandra Phlippen. Russia’s annual foreign direct investment in the Netherlands stands at €27bn, according to the Dutch central bank.
“No-one actually knows how much money is flowing to the Netherlands” through trust offices, said Jan van Koningsveld, a director of the Offshore Knowledge Centre who previously worked for Dutch antifraud agency FIOD. The central bank figure refers only to flows directly from Russia, and it may not be possible to “know exactly who is the real owner behind a chain of companies”, said Van Koningsveld. The figure could be far bigger as flows from other countries may also Russian individuals as ultimate beneficial owners, so it will be difficult to enforce any measure, he said.
In a letter to parliament on Monday, Kaag said that €6m in Russian assets were frozen in the Dutch financial sector under the sanctions so far while Belgium froze €10bn, according to news reports. No assets frozen in the Netherlands so far are tied to trust offices.
Kaag sees another opportunity with the sanctions against Russia. The situation could pose “an opportunity in a crisis” to tackle the reputation of the Netherlands as a tax haven, she said.
“When you think about the effectiveness of sanctions, you also must not forget trust offices, otherwise you provide a silent way out,” said Kaag.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.