A few months ago, we learned the extent to which the world’s rich and powerful have been offshoring their wealth in Luxembourg, a small country in the heart of Europe. What’s more, individuals suspected of corruption or under investigation for various crimes in their home countries have apparently been able to hide behind Luxembourgish companies when buying real estate and doing business elsewhere.
These investigations – known as OpenLux – are noteworthy for another reason, too. Unlike other major exposés that have relied on document leaks – often at a great risk to whistleblowers – OpenLux reports were based on the analysis of public records. Journalists and civil society were able to access information on Luxembourg-based companies’ beneficial owners – individuals who ultimately own, control or benefit from said companies – in a government register.
In 2018, the European Union (EU) adopted an anti-money laundering directive, which requires its member states to establish publicly accessible registers of beneficial ownership. Luxembourg was one of the first countries to follow through, making its register public the following year.
Prior to that, in 2016, the United Kingdom (UK) became the first country in the world to set up a public register of companies’ beneficial owners.
Even though they haven’t been in place for more than a few years, there is growing evidence that public registers of beneficial ownership are important tools for advancing the fight against corruption, tax abuse and other financial crimes. This is true even when their access is effectively limited because they do not allow users, for example, to search by individuals’ names or to download the data – as is the case in Luxembourg.
This fall, the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, will be reviewing the global standard on beneficial ownership transparency. Transparency International has already called for several key fixes, and public registers are at the top of our list.
The Financial Action Task Force is considering ways for tackling the abuse of anonymous companies – we have highlighted what needs changing.
Examples from the UK and the EU show that beneficial ownership registers represent a trove of information for investigators, media and civil society. Beneficial ownership registers are the tool that can allow them to lift the veil of opacity and connect the dots. The resulting impact extends far beyond Europe, strengthening the case for public beneficial ownership registers to become the norm everywhere.
1. Uncovering conflicts of interest
In 2018, Transparency International Czech Republic found that Prime Minister Andrej Babiš was the sole beneficiary of the two trust funds that owned shares of a Czech conglomerate Agrofert. Their discovery was possible thanks to Slovakia’s free and public platform where ownership information of companies that receive public contracts or licences is recorded.
Tracking down Agrofert’s ownership was not a straightforward task. Prior to a ban on the payment of EU subsidies to companies with conflicts of interest in the Czech Republic in 2017, Babiš, who until then was the sole shareholder of the conglomerate, moved his assets to two trusts that seemingly started running the Agrofert following this transition. However, Slovakia’s register showed that Babiš remained the ultimate owner of these trusts.
Following our Czech colleagues’ complaint, the European Commission confirmed Babiš’s conflict of interest in relation to EU agricultural subsidies the company was selected to receive. He has denied any wrongdoing.
This particular case also illustrated gaps in Germany’s beneficial ownership register, which failed to list Babiš as a beneficiary and shareholder of Agrofert’s German subsidiary. The oversight was corrected only recently, after Transparency International Germany alerted the authorities.
2. Exposing high-level corruption
Since 2016, Turkmenistan has suffered severe food shortages amidst an economic meltdown, with citizens having to queue daily to receive small portions of food. That same year, President Gurbanguly Berdimuhamedov signed a decree instructing the country’s Ministry of Trade and Foreign Economic Relations to approve food import contracts worth nearly US$60 million with seven specific foreign companies.
While the stated purpose of these imports was to increase the supply of food, a May 2021 investigation by the Organized Crime and Corruption Reporting Project suggests that the decree made it possible for those in the President’s inner circle to use offshore companies to conceal their conflicts of interest, thus allowing them to be granted government contracts.
Records from the UK beneficial ownership register were crucial in uncovering this. The data revealed that two of the specific companies authorised by the decree to import food were owned by the President’s nephew and his close business associate.
Meanwhile, in Brazil, public beneficial ownership registers could have opened a new path for corruption investigations into a prominent political figure, Aécio Neves. Sifting through Luxembourg’s beneficial ownership register, journalists discovered that Neves' mother owned a Luxembourgish company, recording potentially unexplained funds.
Neves – who was the runner-up in the 2014 Brazilian presidential election and currently serves as a congressman – is also under investigation by Brazilian law enforcement agencies and prosecutors, along with those in his close circle, for alleged bribery and the use of offshore companies to hide his family’s purported ill-gotten wealth. It is also alleged that Neves exerted his political influence to secure tax breaks for companies owned by Joesley Batista, a powerful businessperson in the agribusiness sector, in exchange for bribes worth about US$47 million.
3. Uncovering money laundering
Andelskasse was a small bank in Denmark that reportedly laundered US$647 million between October 2017 and September 2018. Suspicions that Andelskasse had not been conducting sufficient anti-money laundering checks on its customers led to investigations by authorities. The probe revealed serious anti-money laundering breaches, leading the government to withdraw the bank’s license.
Following this investigation, Danish media outlet Børsen gained access to a list of the bank’s high-risk client companies. Journalists used the Danish beneficial ownership register to identify the owners of these legal entities. Many appeared to be linked to suspicious activities or were under investigation for money laundering offences in their countries. This raised serious concerns about whether the bank had adequately identified the beneficial owners of their customers, conducted the necessary due diligence and reported suspicious transactions to authorities.
Among the individuals of interest was, for example, Italian-Nigerian billionaire Gabriele Volpi, who reportedly made a fortune by operating various ports and providing services to the African oil industry. He is under investigation for tax evasion and money laundering in Italy.
In Denmark, a company connected to Volpi was one of the customers of Andelskasse. Data from the beneficial ownership register shows Volpi as the main beneficiary of a company which, among other things, was reportedly used to purchase assets such as a private aircraft.
4. Enhancing law enforcement efforts
When the UK Border Force seized a consignment of glass eels – a critically endangered species and priced delicacy in Asia – on its way to Hong Kong, the National Crime Agency (NCA) found a connection between the named recipient of the consignment and a company registered in the UK.
Using the UK beneficial ownership register, authorities soon discovered the identity of the individual behind the company and used further evidence to establish his involvement in what is considered one of the world’s biggest wildlife crimes.
With this information, the NCA established that the UK company and its beneficial owner were trafficking eels for over two years, selling over 1,775 kilograms of eels valued at US$73.4 million, which led to his eventual conviction over illegal import and movement of protected species.
The tragic August 2020 Beirut port explosion in Lebanon provides further evidence for the importance of public beneficial ownership registers in cross-border investigations.
The blast was caused by a large store of unstable ammonium nitrate, which had been confiscated and offloaded from a Moldovan-flagged ship. There are still many open questions about who the owners of the ship and the explosives are, but information in the UK beneficial ownership register may lead authorities closer to an answer.
Investigative journalists and civil society pieced together some disturbing details about the explosion, connecting the company that owned the abandoned ammonium nitrate to businessmen sanctioned by the United States over their ties to Syrian President Bashar al-Assad. Allegedly, these businessmen tried to cover their tracks by not declaring themselves as the owners of Savaro Ltd – the company that reportedly owned the explosives – even when rules in place in the UK required all companies to declare the real individuals behind companies.
Until recently, data in the UK beneficial ownership register listed a Cypriot woman, Marina Psyllou, as the director and beneficial owner of the company. Psyllou, however, denied being the ultimate owner. Evidence available from the Panama Papers and Offshore Leaks shows Psyllou as the registered owner for several other companies, suggesting she could de facto be a nominee of these companies.
Since 23 August, Savaro lists a new beneficial owner, a Ukrainian lawyer Volodymyr Hliadchenko. He will likely have to handle a lawsuit filed against Savaro in the UK by the Beirut Bar Association, one survivor and families of the two people who were killed by the blast. The lawsuit has the potential to clarify the real ownership of Savaro and help establish accountabilities for the Beirut explosion.
5. Tracking unexplained wealth
Public registers also allow investigators to track unexplained wealth or, in other words, funds and properties belonging to people in positions of power or influence that raise questions when compared with their official salaries or declared revenues and assets.
Transparency International UK, Finance Uncovered and OCCRP used UK beneficial ownership data and leaked data from Cayman National Bank’s Isle of Man branch to reveal the real estate and business empires of Anar Mahmudov and Nargiz Mahmudova – the children of Eldar Mahmudov, Azerbaijan’s Minister of National Security between 2003 and 2015.
Anar Mahmudov opened his first company when he was just 16. Now, in this late 30s, he is linked to companies that, in 2012, took in more than US$65.9 million, as well as properties in Lithuania, Spain and the UK. His sister Nargiz lists a flat on the shores of Lake Geneva as her address and is also the owner of a historical building in Mallorca, Spain.
The joint investigation identified over €100 million worth of companies and properties jointly held and owned by the family. The family have offered different explanations for the origins of their fortune, from a wealthy ancestor to a successful aunt. Clearly, their father’s official government salary of no more than 1,500 euros per month cannot alone explain the family’s wealth. The true ownership of these assets was obscured by a network of companies spanning from St Kitts and Nevis to the Isle of Man, ending in UK-registered businesses.
The UK beneficial ownership register helped to shine a light on the suspect deals of the family. Now, authorities must investigate the source of wealth of these investments.
Make public registers the global standard
Information about the real individuals behind companies is critical for everything from a fair tax system to stopping corruption and wildlife trafficking. The advantages of having beneficial ownership information easily available to authorities as well as to the public are so abundantly clear, that neither anti-corruption professionals nor the wider public can make sense of the slow pace of improvements in this area.
FATF members now have a chance to send a loud and clear message that half-baked measures to ensure beneficial ownership transparency will no longer be acceptable. Beneficial ownership registers with verified data should be a requirement under the new global standard.
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