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Why we need to know who really owns a company

G8 leaders should capitalise on growing momentum behind making the financial system more transparent when they meet in Northern Ireland on 17-18 June 2013.

David Cameron has called for transparency to be at the core of this year’s G8 agenda. There is a simple, cost-effective way of taking a huge step towards realising this vision – simply requiring all companies to publicly register the names of their real owners.

“Too many people have been able to hide behind a secret bank account far beyond the reach of justice.”

- Huguette Labelle, Chair of Transparency International

Concentric circles

Today, bribe payers and corrupt officials, along with money launderers and tax evaders can mask the source of illicit funds through concentric circles of shell companies which have no legitimate economic purpose or business operations.

The existence of these shell companies is included within public corporate registers, but the registrars responsible for them are not always required by law or practice to ask for the name or details of the company’s real owner – known as the “beneficial owner”. In those jurisdictions where such information is required, it may suffice to put down the name of a “nominee” - a straw man willing to put his name down as the shareholder, even if he has no economic interest in the company.

This opacity makes it extremely difficult for banks to conduct comprehensive risk assessments on their current or potential clients. At the same time, those wishing to hide or conceal their ill-gotten gains benefit from the secrecy that these types of legal arrangements provide.

To illustrate the severity of the problem, the Stolen Asset Recovery Initiative of the World Bank found that corporate vehicles concealing ownership were utilized in nearly all cases of grand corruption and over half of those involving companies included shell companies somewhere in the chain.

Shedding light on shell companies

Getting away with corruption requires a safe haven and accomplices, but above all secrecy.

Most countries have several public and commercial business registries in place that collect an array of information on companies incorporated in their jurisdiction.

However, this information is disparate, varied, not well consolidated and differs in terms of what is available publicly. Detailed information can usually be accessed by Financial Intelligence Units, Law Enforcement Agencies and Asset Recovery Agencies upon request. However, this access to information is only as good as the information collected by the registrar. Today, as much as 77% of EU Business Registries do not even collect the names of the real beneficial owners of companies.

G8 leaders should agree next week to jointly pass legislation that requires companies registered in their territories and overseas jurisdictions to provide full and regularly updated information on their real beneficial owners, to be included in public registers.

Providing inaccurate information or failure to maintain the information up to date should result in serious sanctions including criminal sanctions for intentionally providing false or misleading information.

Transparency is inexpensive and cost-effective

Establishing these registers is a simple and cost-effective way of moving towards a more transparent financial system.

The European Commission says that requiring business registers to include beneficial ownership information would cost EU governments €15-30 million a year, but in return they would recover €14-20 million in assets and around €50 million in extra tax revenue that would otherwise have drained away.

Transparency is one of the three priorities of the UK’s G8 agenda. As this year’s host, it is encouraging that David Cameron has called for the G8 countries to agree to public registries but he is facing an uphill battle.

If Cameron succeeds in encouraging other countries to sign up to this measure, he will have made genuine progress towards an ambitious target and right now the momentum is there to be capitalised on.

In figures: the scale of corporate complexity
  • The FTSE 100 largest groups registered on the London Stock Exchange comprise 34,216 subsidiary companies, joint ventures and associates. (Source: ActionAid)
  • Out of 150 high-level corruption cases 172 companies used 800 corporate vehicles involving more than US $50 billion (Source: 2011 World Bank StAR report “The Puppet Masters”).
  • An anonymous shell company can be set up online in less than 10 minutes, for prices which start at around 700 euros. For an extra 400 euros, the owner of the new shell company can get a bank account and credit card linked to the shell company

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