Every year as much as US$2 trillion of dirty money is laundered through the global financial system, much of it by hiding the real owners of companies. Out of 400 bribery cases across more than 40 countries, the OECD found a quarter involved funnelling stolen cash through secret companies.
Last year the G20 made bold commitments to end the secrecy that allows the corrupt to hide their identity and shift dirty cash anonymously. Adopting historic principles on beneficial ownership, leaders declared the issue a ‘high priority’.
But how many actually took action once the camera’s stopped rolling? In a new report, we’ve assessed efforts across all 20 countries. For many it seems these promises may have been just for show.
Overall performance is poor – 15 of the G20 countries have weak or average beneficial ownership transparency legal frameworks in place. Brazil, China and the United States were all found to have weak frameworks.
Two countries have yet to even adopt a legal definition of beneficial ownership.
Only the UK was found to have a very strong framework in place, largely due to recently adopted legislation giving immediate access to beneficial ownership information to law enforcement, banks and businesses with duties to check they are not handling stolen cash, such as real estate agents or luxury goods providers. As of next year, a central registry containing this information will be made public. But even the UK has big issues to deal with (see box on “The UK’s islands of secrecy”).
Corrupt individuals often hide from justice by moving dirty money through companies or trusts and disguising their connection to them by hiring “nominees” to sign the papers or setting up a firm somewhere that doesn’t require them to register their real name. The real, living corrupt person behind the company is the “beneficial owner”. And “beneficial ownership secrecy” has been involved in some of the biggest scandals of recent years:
Current and former FIFA officials and sports marketing officials are alleged to have funnelled at least US$150 million in bribes through the US. The US Department of Justice’s indictment outlines in detail how they hid funds using “shell companies, nominees, and numbered bank accounts in tax havens and other secretive banking jurisdictions.” Twenty-six banks were named in the indictment.
In Brazil’s largest ever corruption and money laundering scandal, involving the state-run oil giant Petrobras and construction companies, executives allegedly channelled bribes through shell companies in multiple jurisdictions into politicians’ personal bank accounts and those of political parties. Money was accepted by ‘facilitators of corruption’, such as accountants and lawyers, to be filtered through the global financial system.
When former president Viktor Yanukovych fled Ukraine, he left behind documents showing how he was able to enjoy a life of luxury at the expense of his own citizens. Using nominees as front-men in a complex web of shell companies, from Vienna to London to Lichtenstein, Yanukovych allegedly concealed his involvement in the syphoning off of at least US$350 million of Ukraine’s public funds.
The world looks to the G20 for leadership on political, economic and other important issues of the day. To avoid looking little more than a talk shop, they must keep their promises – including on tackling corruption.”
– Cobus de Swardt, Managing Director, Transparency International
In eight G20 countries banks can still go ahead with making a transaction even if they can’t find out the identity of the real person behind the money.
Only India and the UK require companies to record and keep up to date information about the real person who owns or controls it. In all other countries staff of a company could have no idea who is ultimately in control. That has dangerous repercussions for accountability if something bad happens.
In seven G20 countries real estate agents don’t need to identify the real people who are behind the sales and purchases of property, making it incredibly difficult to stop a corrupt politician buying a luxury home with money stolen from taxpayers. Currently, hundreds of billions of dollars of property in London and New York have secret owners.
Fifteen countries rely on banks and businesses to gather beneficial ownership information, yet they don’t provide enough assistance to help them ensure that they are not complicit in corruption.
Verification of the data is extremely difficult and very few countries have a central registry system that allows for the collection and access to information that is required to ensure you are not helping the corrupt get away with it.
The UK’s islands of secrecy
The UK comes out top in our assessment, but this score only covers domestic law – it doesn’t look at standards for legal entities and trusts incorporated in British Overseas Territories and Crown Dependencies.
There, it’s a different story. In a number of the UK’s Overseas Territories – such as the British Virgin Islands and the Cayman Islands – legal systems create a veil of secrecy that obscures the identity of those who set up companies, usually for the benefit and use of non-residents.
These anonymous companies are a big obstacle to investigating money laundering. The UK needs to do more to ensure its overseas territories aren’t used as a safe haven for illicit and corrupt wealth.
