How enablers facilitate illicit financial flows: Evidence from Africa

How do you quietly shuffle millions of dollars among 400 shell companies spread across 41 countries? With the help of an army of enablers.

That’s exactly what the daughter of former Angolan president, Isabel dos Santos allegedly did. In 2020, the Luanda Leaks investigations revealed how dos Santos’s network of offshore companies may have allowed her to take advantage of powerful connections, misappropriate state funds and siphon hundreds of millions of dollars abroad. Earlier this year, Portuguese authorities searched the offices of consulting firms previously employed by dos Santos for documents that could help their Angolan counterparts with the ongoing corruption probe.

Cross-border flows of dirty money would not be possible if corrupt officials and criminals were unable to enlist the services of enablers operating all around the world. And while financial institutions such as banks have been in the spotlight for facilitating corruption and money laundering on a large scale, professionals working in the non-financial sector – like accountants, consultants, real estate agents, lawyers and corporate service providers – have often escaped both public and regulatory scrutiny.

Isabel dos Santos’s case is just one of dozens that has informed Transparency International’s new report, Loophole Masters: How Enablers Facilitate Illicit Financial Flows from Africa. It is the first such study on the non-financial enablers used by political elites to hide, launder and invest their ill-gotten gains outside the African continent.

To better understand the role of such enablers in facilitating illicit financial flows out of Africa, we collected publicly available evidence from 78 cases, originating from 33 countries. These are cases which implicate politically exposed persons from across the continent in siphoning off proceeds of corruption abroad or parking their wealth offshore.

They came from a variety of sources, including court cases resulting in convictions for corruption, indictments for ongoing cases, as well as media investigations based on leaks of financial data.

By analysing the data on enablers and mapping the relationships between the jurisdictions where they were registered, where their clients were based and where they were providing their services, we have observed some concerning patterns.

Funnelling dirty money offshore typically involves layers of concealment and complex transactions. We found a range of services in our case studies that helped politically exposed, high-risk persons navigate these murky pathways.

In the cases analysed, we identified 87 professionals, including accountants and audit firms (4), business consultancies (3), law firms or individual lawyers (42), notaries (4), real estate agencies (7), tax advisory businesses (1), and trust and corporate service providers, or TCSPs (26).

While the services offered by these professionals were diverse, many of them were involved in the creation or administration of companies and trusts. This is likely due to two key reasons: the known role of shell companies in corruption cases, which require this type of service to be provided; and the fact that many cases in our database originate from leaks of data held by corporate service providers, such as the Pandora Papers, which offer exactly this type of service.

The analysis also shows that certain services may be provided by different types of enablers, and two main groups stood out. The first group, made up of lawyers and TCSPs, offer a wide variety of services. This could be because lawyers and TCSPs are versatile and offer many services that could be useful to laundering corrupt money. The other group of enablers specialise in distinct types of services, such as notaries and real estate agents, who mainly stick to real estate purchases.

^{* “Provide trust and company services” category includes the following services: Administer legal entity or arrangement; Advise on corporate/trust structures; Create legal entity or arrangement; Nominee services (directorship and/or shareholding); Provide address to legal entity.}

Whether knowingly or unknowingly, enablers are providing a wide range of services that are needed by the corrupt to maintain a cloak of anonymity, conceal the illicit origin of funds and circumvent regulations. As they have access to crucial information, enablers are well-positioned to detect suspicious cases early on and report them to authorities. When this doesn’t happen – through not being obliged to or simply failing to do so – the impacts are highly detrimental to society and the global financial system.

In many countries where these professionals are based, they are not required to ask questions about the individuals owning the company, nor to report suspicious transactions to authorities. In some countries, certain professionals have these obligations, while others providing exactly the same services do not.

While politically exposed people in our database did also rely on domestic professional enablers, many of the crucial services required to siphon their funds out of the continent were outsourced abroad – making it undeniable that foreign enablers play an important role in illicit financial flows from Africa. This is problematic because it may make the due diligence process a lot more difficult. It may also reduce the chances of suspicious activities being flagged in the country where the client is based.

We found that secrecy jurisdictions were the most important hubs for enablers providing services to clients in Africa. Four of the top five jurisdictions where enablers were based – the British Virgin Islands (BVI), Switzerland, the United Arab Emirates (UAE) and the United States – also feature among the top secrecy jurisdictions in the Tax Justice Network’s 2022 Financial Secrecy Index.

Overall, the enablers captured in the dataset were registered or incorporated in 30 different jurisdictions.

In the BVI, Cyprus, Mauritius, Panama, Seychelles, Singapore, Switzerland and the UAE, most enablers provided services related to the creation and management of legal entities and arrangements. These jurisdictions have one thing in common: At the time when the services were provided, they all allowed for the establishment of anonymous companies. None required the real owners of legal entities to be identified and recorded with a government authority.

Our analysis reveals the true global nature of illicit financial flows, with foreign enablers often providing services from third jurisdictions – rather than where they are registered and regulated. This means that clients were in one jurisdiction, the enabler in another one and the services being sold from yet another.

Lawyers and TCSPs frequently provided their services (44 and 54 per cent, respectively) outside of where they were registered. This likely reflects the diversity of services they provide, as well as a focus on providing offshore corporate services.

Enablers registered in financial hubs such as Switzerland, the UK and the UAE, in particular, were focal points from which services were provided abroad. The BVI emerged as the main jurisdiction where enablers from abroad were providing their services, largely to create legal entities on behalf of their clients.

All told, we found that enablers sold their services in third countries in 46 per cent of instances they engaged with a client. This raises questions about who has the mandate to regulate and supervise these activities, and about the visibility relevant authorities have on the whole population of enablers that may be providing a service within their country. It also raises questions about the types of checks conducted when enablers sub-contract local agents to act as intermediaries in a specific country.

African nations, both independently and collectively, have made commitments to combat illicit financial flows and recover stolen assets. They should undoubtedly intensify efforts to fulfil these pledges. However, because of the cross-border nature of illicit financial flows, it is essential to close loopholes in the frameworks of countries that act as transit or destination points for funds leaving the continent.

While the sample of cases we analysed is not representative of the wider phenomenon of illicit financial flows from Africa, the outcomes of this study align with prior research on the crucial features of corruption and associated money laundering: foreign enablers and opaque corporate structures.

Our findings underscore the need to subject professionals providing these high-risk services to anti-money laundering obligations. Lawyers, accountants, corporate service providers and other professionals who are engaged in activities that could be abused by corrupt individuals and money launderers are in a privileged position to detect suspicious behaviour. They should be required to do so.

Globally, governments need to supervise and inspect these professionals more effectively. Those found to be complicit should be investigated and prosecuted. In particular, governments of countries offering offshore services should increase regulatory and supervisory efforts of enablers.

When it comes to corporate secrecy, governments that have not yet done so must set up centralised registers to record and track companies’ beneficial owners – that is, those who really own and control companies. It’s also crucial that they provide the public with adequate access to information on companies’ beneficial owners. At a minimum, all those who have a role in preventing, detecting and following up on cases of possible financial crime – including authorities, civil society, media and enablers themselves – should have such access to the data.

Simultaneously, the international community needs to increase pressure on financial centres to adequately implement beneficial ownership transparency reforms. They should encourage countries that have chosen against making beneficial ownership registers widely accessible to ensure that at the very least foreign competent authorities are able to directly consult them. The upcoming conference of signatories to the UN Convention against Corruption is a crucial and immediate opportunity to do so.

For too long, non-financial enablers have flown under the radar. It’s time to put them under the microscope and close the loopholes that they exploit to aid the corrupt.