Financial secrecy in the spotlight

Celebrities, dentists, politicians, government officials and corrupt individuals in countries across the world woke up last week to the prospect of their friends, clients, colleagues and electorates discovering the lengths to which they may have gone to conceal their wealth in offshore accounts and companies. The International Consortium of Investigative Journalists, working with leading newspapers, published a series of reports on records gathered from more than 120,000 companies registered in offshore locations famous for their secrecy –from the British Virgin Islands and the Caymans in the Caribbean, to the Cook Islands and Singapore in Asia and many places in between.

Moving money into and out of secrecy jurisdictions is not necessarily illegal, but the layers of secrecy, which are supposed to be there to protect privacy, can also facilitate criminal activity. When misused, this kind of secrecy can breed and conceal corruption – which is why Transparency International renews its call to G20 Finance Ministers this week to take swift actions to limit secrecy. We believe governments should:

• Rigorously enforce anti–money-laundering laws
• Strictly enforce and supervise the standards of enhanced due diligence applied to politically exposed persons to ensure that the source of funds is legitimate and well documented
• Make it mandatory for companies to list who the true underlying shareholders are by establishing global registers of beneficial ownership (the actual people behind the accounts, not just nominees), and
• Require politically exposed persons to file comprehensive asset declarations and make them available to the public.

A recent Eurodad report listed 27 countries where companies are not required to record beneficial ownership. In 36 countries, including the United Kingdom and Switzerland, only legal ownership is recorded, which means nominee shareholders can be used instead of the true beneficial owners.

Researchers from Griffith University in Australia recently carried out a mystery shopping exercise covering more than 3,700 company service providers in 182 countries. Alarmingly, the survey showed that 48 per cent of respondents were prepared to set up an anonymous shell company with either limited or no identification checks. This shows just how easy it is to form a company, in spite of global regulatory restrictions.

In fact, anyone with access to the internet can set up an offshore company. It takes about 10 minutes and consists of little more than a few sheets of paper and a few thousand dollars. This makes it too easy for corrupt individuals to hide their ill-gotten gains.

How to stop it

This week, Transparency International is sending a letter to all G20 Finance Ministers outlining what needs to be on the table when they meet with Central Banks Governors in Washington DC from 18-19 April. The letter welcomes that both the UK and Russian Presidencies of the G8 and G20 respectively are putting transparency high on the agenda. At the same time, it stresses that now is the time for G20 Finance Ministers to match their committed words with committed action.

Mandatory registries, for example, that include the beneficial ownership information of companies and the settlors, trustees and beneficiaries of trusts or regulatory systems would make it easier to expose and prosecute financial crimes such as bribery, tax evasion and money laundering.

Back in 2009, G20 leaders called for the Financial Action Task Force (FATF) to prioritise work to strengthen standards on customer due diligence and transparency – including by looking into beneficial ownership. In February of this year, Finance Ministers vocally supported FATF’s subsequent recommendation that “Countries should ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities.”

The FATF recommendation could have gone further. Having information that can be accessed in a timely fashion by competent authorities can be useful to prosecution once money has already been laundered, but it does little to prevent it. G20 Finance Ministers should discuss a tangible, benchmarked action plan, outlining exactly what steps need to be taken to start incorporating beneficial ownership information into annual corporate registries. Making those registries public will allow wider scrutiny and monitoring.

G20 leaders could look to Brussels, where there’s currently an ongoing debate over the revision of the EU’s Anti-Money Laundering legislation. Calls for more transparency surrounding company registers and access to beneficial ownership information are coming not only from civil society, but also many banking and industry representatives, who state that registries of beneficial ownership information would help facilitate their due diligence requirements and thereby make it more difficult for individuals or companies to hide and enjoy the fruits of their corruption.

This issue of opaque structures, particularly in the developed financial centres of the United States and United Kingdom, has never been addressed seriously. Only when there is practically no place or way left to hide money will it be possible to effectively fight corruption.