Have you ever wondered why the Cayman Islands has more registered companies, 93,000, than people, 54,000? It might be because it can take as little as 24 hours to set up a company and you don’t even have to tell anyone outside the government who the real owner is.
This kind of corporate secrecy aids and abets illicit financial operations and money laundering, which is why civil society and others advocate legislation that makes it mandatory for there to be public lists of who actually owns and benefits from company assets. Public registers of beneficial ownership, as they are called, would crackdown on money laundering and make it harder for illicit funds to find safe havens.
Transparency International believes these registries should be public. In the European Union this week, lawmakers in the European Parliament will vote on whether to establish these registers, as part of the review of its Anti-Money Laundering legislation. Making this information public in the EU is not only cost-effective, but will also allow for more eyes to verify the accuracy of the information and facilitate investigations by law enforcement.
The vote comes just weeks after authorities in the British Virgin Islands (BVI) and the Cayman Islands closed public consultations on whether they should to set up registers showing who actually owns, benefits from or controls the many thousands of companies set-up in these jurisdictions. Jersey’s consultation is still ongoing.
Today corrupt officials, money launderers and tax evaders can mask the source of illicit funds by setting up elaborate structures in the BVI, the Cayman Islands and other places. Known as shell companies, they have no physical presence, no employees and no commercial activity. No one knows who the so-called ‘beneficial owners’ – who ultimately receives any profit or other benefit from these companies – really are.
The World Bank has found that places like Bermuda, the British Virgin Islands, the Cayman Islands, the Isle of Man and Jersey hosted 172 companies used in 150 high-level corruption cases exposed in recent years. Those criminal schemes used 800 corporate vehicles involving more than US$50 billion.
Greater transparency through public registers would make it much easier for banks to conduct proper risk assessments on their current or potential clients. We believe it is fundamental in the fight against corruption to limit the places where corrupt money can hide.
Beneficial ownership registers are a strong tool in the anti-corruption toolkit because they limit the use of shell companies used to launder money or hide stolen money that has been siphoned away from public purses around the world.
The global impact of corporate secrecy
Millions of dollars have been leaked out of South Korea, facilitated by corporate secrecy. The Korea Customs Service uncovered evidence that the family of former dictator Chun Doo-hwan had engaged in illegal offshore transactions. Forty companies are involved, worth approximately US$940 million.
The eldest son of Chun, Jae-kook, is suspected of money laundering via a paper company in the British Virgin Islands, set up in 2004. He also used “borrowed names”, presumably to mask the fact that he was the beneficial owner.
The International Consortium of Investigative Journalists reported that in the Philippines, the daughter of the late dictator Ferdinand Marcos was a beneficiary of a BVI trust, which she did not report on her asset disclosure statements.
The Group of Eight (G8) biggest economies have established Action Plans to crack down on the misuse of companies and legal arrangements, leading to money laundering and tax evasion. British Prime Minister David Cameron made this the cornerstone of the British presidency of the G8, and pledged to establish public registers in the UK. The EU is now considering requiring countries to keep registers of the beneficial owners of companies and trusts.
There is momentum, and it should be scaled up further. Transparency International is calling on the G20 this year to tackle corporate secrecy by adopting public beneficial ownership registers in all their jurisdictions, setting a new global standard.
The financial sector uses technical terms that are sometimes hard to define. We have developed a plain English guide that helps ordinary people follow the conversation. It defines key terms such as: beneficial ownership, illicit financial flows, money laundering. Click here for more.
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