Dutch ready to ban use of shell companies with links to Russia
The Netherlands has been asking for an EU-wide ban but already started preparing emergency legislation at the national level.
The Netherlands is pushing for a European Union-wide effort to clamp down on the use of shell companies by wealthy Russians and businesses, and the Dutch government is ready to impose its own restrictions if the bloc doesn’t act.
The Dutch government wants to restrict the use of trust offices that provide services to set up letterbox companies in the country because not doing so would mean “leaving a backdoor open” in sanctions against Russia, according to Finance Minister Sigrid Kaag. 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 but already started preparing emergency legislation at the national level, 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 a revenue of 100,000 euros ($109,830) or more who use trust services for shell companies, according to a person with direct knowledge of the matter.
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The Dutch proposal includes an exemption for humanitarian purposes, said the person, who asked not to be identified as the 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 a combined balance sheet of 4.5 trillion euros, five times the size of the Dutch economy, according to a government report.
Much of the 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 about their links with sanctioned Russian nationals and companies. The government didn’t freeze of these assets.
It is difficult to say precisely how much Russian money flows through the Netherlands, Kaag told Bloomberg last week. Measured by foreign direct investments plowed into that country, the Dutch stand out as by far the most exposed among economies listed by the International Monetary Fund. But such data 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 27 billion euros, according to the Dutch central bank.
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“No one actually knows how much money is flowing to the Netherlands” through trust offices, according to Jan van Koningsveld, a director of the Offshore Knowledge Centre who also previously worked for the Dutch anti-fraud agency Fiscale inlichtingen- en Opsporingsdienst, or FIOD. The figure by the central bank only refers 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 much bigger as flows from other countries may also have a Russian person as an ultimate beneficial owner, so it will be difficult to enforce any measure, he said.
In a letter to parliament on Monday, Kaag said that 6 million euros of Russian assets were frozen in the Dutch financial sector under the sanctions so far, while Belgium froze 10 billion euros in the same period, according to media reports. None of the assets frozen in the Netherlands so far are tied to trust offices.
Kaag sees another opportunity with the sanctions against Russia. The current situation could pose “an opportunity in a crisis” to tackle the reputation of the Netherlands as a tax haven, she told Bloomberg.
“When you think about the effectiveness of sanctions, you also must not forget trust offices, otherwise you provide a silent way out,” she said.
