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Is Ireland a ‘safe haven’ for the world’s dirty money?

The International Financial Services Centre, Dublin. Image: shutterstock.com/Paul Daly

John Devitt

Chief Executive, TI Ireland

Gulnara Karimova once described herself as ‘one of the prominent young faces in Uzbekistan’. She was a fashion designer, film-maker, writer and pop singer, regularly rubbing shoulders with the glitterati in New York and Monte Carlo where she promoted her jewellery and fashion brand.

Karimova was more than an influencer and social butterfly, however. A Harvard graduate, with a ‘PhD in political science’, she was also a celebrated philanthropist in Uzbekistan and served as a board member of numerous charities. When she wasn’t promoting herself, she was helping raise funds for Aids and cancer research.

But there was yet another side to Central Asia’s answer to Princess Diana.

Karimova is the elder daughter of the former authoritarian president of Uzbekistan, Islam Karimov. Karimov became infamous for his regime’s use of child labour to harvest the former Soviet Republic’s cotton and for his security service’s use of torture on political dissidents.

He also provided political cover for his daughter and inner circle to embezzle state assets and extort businesses that didn’t pay tribute to his mafia family.

With Karimov’s waning health and allegations of serious corruption surrounding Karimova, she found herself cut adrift from her family and the protection that offered. In 2015, a year before her father died, she was convicted in Uzbekistan of theft, extortion, fraud and money laundering.

Meanwhile, the US authorities were investigating claims that she benefited from almost US$1 billion paid in bribes and protection money by companies seeking to win or retain business in Uzbekistan’s mobile telecommunications sector.

She is now serving a combined sentence of 18 years in a Tashkent prison after she was convicted of additional financial crimes.

It should come as no surprise that Karimova didn’t launder the proceeds of corruption in Uzbekistan but chose more reliable and reputable locations to manage her illicit fortune. One of these was Dublin’s International Financial Services Centre.

Gulnara Karimova. Image: shutterstock.com/Jaguar PS

Reports suggest that between between US$100 and US$300 million of corrupt payments were laundered through funds managed in Dublin.

It was not the only recent case where Ireland’s financial services were used by corrupt officials to launder some of the world’s dirty money.

In 2014 the Criminal Assets Bureau (CAB) obtained an order to freeze €250,000 in assets linked to alleged corruption on the part of Juthamas Siriwan, the former governor of the Tourism Authority of Thailand. Siriwan was accused of receiving kickbacks to award the Bangkok International Film Festival to a US company and was sentenced to 50 years in jail.

Also in 2014, US$6.5 million worth of investments on behalf of the son of former Nigerian president Sani Abacha were frozen by the High Court. Those assets were repatriated to Nigeria last year.

Transparency International Ireland published a report recently suggesting that these cases could be the tip of something much bigger. The report, titled ‘‘Safe Haven?’ Targeting the Proceeds of Foreign Corruption in Ireland’ examines the extent to which Ireland is prepared to detect, freeze and repatriate the proceeds of overseas corruption laundered through the Irish economy.

The report suggests that Ireland is ill-prepared to address many of the incentives that facilitate the laundering of the proceeds of corruption and organised crime through our financial services sector and the wider economy.

Ireland’s criminal justice system seems to lack the resources it needs to detect large-scale money laundering. More than 20,000 suspicious transaction reports (STRs) are filed by financial institutions and designated non-financial professionals and businesses to the Garda Financial Intelligence Unit each year.

As the FinCEN Files report in 2020 showed, however, even the best resourced agencies are struggling to deal with such a volume of STRs.

A Department of Justice-sponsored report led by James Hamilton, a former director of public prosecutions, last year made a similar point and called for greater resourcing of the Gardaí and a national strategy aimed at tackling corruption and economic crime.

In addition to enforcement, any national strategy must examine the financial incentives for the laundering of the proceeds of corruption and organised crime. Among the most prominent of these are special purpose vehicles (SPVs) which have been used for decades to avoid tax and disguise the identity and source of investors’ wealth.

Despite some welcome reforms, new opportunities for money laundering appear to have been inadvertently created. For instance, new Investment Limited Partnership legislation was fast-tracked in 2019 and 2020. These SPVs currently allow for foreign investors to avoid registering their beneficial ownership details and thereby provide an ideal opportunity to hide the proceeds of crime.

Ireland’s policymakers, regulators and law-enforcement agencies face a Sisyphean task in dealing with this problem so long as these and other inducements are not addressed.

The government could take immediate and relatively frugal measures in mitigating these incentives, however. It could start by commencing the beneficial ownership transparency provisions in the Investment Limited Partnership Act 2020. It could prohibit the continued sale of shelf companies that can be used as fronts for everyone from corrupt officials to arms traffickers. It could also make data on the Register of Beneficial Ownership free of charge (as is the case in the UK), so that journalists and civil society investigators can more easily trace company ownership.

There are many steps to be taken as part of an integrated strategy to tackle illicit financial flows, but whichever comes first, we need to move quickly to close the loopholes that make meaningful law enforcement impossible. Until then, many of Karimova’s counterparts can sleep well at night knowing that the proceeds of their crimes are as safe as houses.

John Devitt is Chief Executive of Transparency International Ireland, and editor of ‘Safe Haven?’ Targeting the Proceeds of Foreign Corruption in Ireland’. Learn more at www.transparency.ie

An edited version of this opinion piece was published by the Business Post on 9 March 2021

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