Finland: Stock market secrecy became a heated topic ahead of the formation of new government

Not so long ago, Finland regularly scored number one as the world’s least corrupt nation in Transparency International’s Corruption Perception Index.

Then came 2008 and the corruption scandals around financing of parliamentary election campaigns. Investigative journalists found many members of parliament had received funding from sources with conflicts of interest, including three ministers who had received funding from a company registered in Luxembourg and – apparently – owned by another tax haven company in the British Virgin Islands.

Now, a public debate on a 500 page proposal for renewal of the Finnish stock market legislation is gaining momentum. At the heart of the debate, spurred on by the political theatre playing out in Parliament, is a proposal to widen the Finnish nominee registered shareholding system. On top of it, the nominee register would also be extended to Finnish non-listed companies.

The Finnish model for stock ownership has been relatively more transparent than in other EU countries. The nominee register has been available for foreign investors, while Finnish investors have been obliged to register their ownership in a public register. Domestic tax evasion has been possible by setting up a foreign holding company, but at least this has required technical expertise and funding.

Last year, the nominee register was extended to foreign investors in mutual funds, with practically no public discussion. The working group issued by the Ministry of Finance wants to make the nominee register available to Finnish investors as well. The report commissioned by the National Audit Office of Finland estimated in 2010 that even in the current system, 90% of the profits from international financial markets are undeclared.

The MoF justify their proposals on the basis that nominee register will lower transaction fees especially for larger investors. Many have challenged this claim, saying that other factors play a far bigger role in investment decisions than transaction fees.

The shareholdings of politically prominent persons have so far been public knowledge, available to journalists. In the early 1990s, this helped to expose one of the biggest politically connected financial crime scandals in Finnish history. In the new proposal, this information would no longer be in the public domain, which contradicts the attempts to make politicians' economic connections more transparent.

The composition of Finnish elite is extremely narrow and their attitude is inward-looking. The party you represent is not relevant, but you need to have money or public influence before you’re invited to the 'inner circle', said a financial crime investigator who wanted to stay anonymous in a newspaper interview.

“Once you’re in, you’re in. The most influential group consists of business organisations and unions, and the Federation of Finnish Financial Services."

Finland held parliamentary elections on Sunday, and the new government will have to decide whether or not to commit itself to these standards.

Representatives of tax administration and media have already pointed out that:

- The Financial Supervisory Authority, which receives 95% of its funding from financial sector companies, did not file a single report of an offence to the police in 2009. It has never issued a penalty fee on misconduct of the companies it supervises.

- In 2010, the Finnish stock exchange hosted 52 foreign stock brokers, of which only one submitted a mandatory annual report to the authorities. The Ministry of Finance says it’s impossible to demand the reports. For instance, this is being done in Sweden.

- Finnish tax administration is poorly staffed in investigating financial market crimes compared to Sweden. Sweden has a separate unit for investigating financial market crimes with 80 personnel. Proposals for setting up a similar unit in Finland have not succeeded.

Recent estimates by the National Audit Office of Finland show that with GDP of 180€ billion, Finland loses approximately 800€ million per year because of the international financial market related tax evasion alone.

But not everything here in Helsinki is gloomy. In development policy, Finland made a progressive start by committing itself to promote automatic information exchange in the EU in the summer of 2010.

Matti Ylönen (with significant contributions by Jari Hanska)