The corrupt don’t like paper trails, they like secrecy. What better way to hide corrupt activity than with a secret company or trust as a front? You can anonymously open bank accounts, make transfers and launder dirty money. If the company is not registered in your name, it can't always be traced back to you.
This is known as a shell company and the person who actually benefits from and controls it – hidden behind layers of lawyers, accountants and nominee shareholders – is the beneficial owner.
The corruption risk that beneficial ownership secrecy poses led the G20 to adopt Beneficial Ownership Principles in 2014 to tackle the problem. Yet, in 2015, Transparency International’s analysis of how well G20 countries were implementing the Principles showed that 15 of these countries had weak or average beneficial ownership legal frameworks.
Since the Panama Papers came out in 2016 we have increasingly seen how shell companies are used either to operationalise corrupt deals or to launder stolen money. Our new report out today shows that some progress has been made since 2015, but that the pace of change is too slow – and the G20 countries are suffering for it.
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Exposed in 2017, the Russian Laundromat scandal shows the extent to which anonymously owned companies are enabling corruption: a group of individuals in G20 member Russia allegedly created 21 shell companies, which then moved and laundered ill-gotten money out of the country, making more than 26,000 payments to 96 different countries including every G20 country aside from Brazil.
The majority of G20 countries still do not know who owns and controls shell companies and trusts in their territories because of inadequate beneficial ownership legal frameworks. Publicly available central registers – where the details of every beneficial owner of every company are stored – would help gather this information. Only six G20 countries now have central registers, and only the UK’s is publicly available.
Even in cases where central registers exist, none of them require registry authorities to verify information and in only three countries can information be verified in suspicious cases. As things stand, no G20 country is in a strong position to investigate suspicious cases of company ownership.
“The G20 is a group of leading economies, but it seems that their leadership is slow paced when it comes to seriously cracking down on the abuse of legal entities that are incorporated or operating in their own territories. They need to step up their efforts to create strong beneficial ownership legal frameworks and ensure that they enforce them.” Maggie Murphy, senior global advocacy manager, Transparency International.
How well are G20 countries combatting financial crime? | Transparency International
Our key recommendations on beneficial ownership are that:
- governments establish a central register of beneficial ownership information and make it publicly available in open data format
- governments resource and establish mechanisms to ensure that at least some verification of beneficial ownership information takes place, such as cross-checking the data against other government and tax databases, or conducting random inspections
- financial institutions, lawyers, accountants, real estate agents and trusts should not be allowed to proceed with transactions if the beneficial owner of their customer cannot be identified
- governments undertake national money laundering risk assessments on a regular basis
- governments consider prohibiting nominee shareholders
- governments require the registration of both domestic and foreign trusts operating in their country. Information on all parties to the trust (trustee, settlor and beneficiaries) and the real individuals behind them should be recorded
You can read the full assessment and recommendations in the report: G20 Leaders or Laggards? Reviewing G20 promises on ending anonymous companies.
Beneficial Ownership Series - The Value of Beneficial Ownership | Transparency International
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