Global Financial Integrity

 

Put an End to Money Laundering, Bribery, and Corruption

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Curbing Cross-Border Corruption via Anonymous Companies Should Be a Priority for Global Leaders in 2014, Says Transparency International’s Cobus de Swardt

Cross-posted from the UNCAC Coalition blog.

Corruption around the world is facilitated by the ability to launder and hide proceeds derived from the abuse of power, bribery and secret deals. Dirty money enters the financial system and is given the semblance of originating from a legitimate source often by using corporate vehicles offering disguise, concealment and anonymity. For example, corrupt politicians used secret companies to obscure their identity in 70 percent of more than 200 cases of grand corruption survey by the World Bank.

For far too long, corrupt figures have been able to easily stash the proceeds of corruption in foreign banks or to invest them in luxurious mansions, expensive cars or lavish lifestyles. They do this with impunity and in blatant disregard for the citizens or customers they are supposed to serve.

Importantly, the corrupt are aided by complacent and sometimes complicit governments of countries with banking centers that facilitate money laundering and allow the corrupt to cross their borders to enjoy stolen wealth. Weak government actions are failing to prevent the corrupt from evading justice and have enabled cross-border transfers of corrupt assets. Complacent governments responsible for protecting the public from such criminal acts are de facto supporting impunity for corruption.

Banks, real estate companies, and retailers of high-end goods are the final links in this chain as they facilitate criminal behavior by accepting illicit money as payment. Even basic due diligence and record-keeping recommendations are frequently overlooked.

The overall problem is indeed huge. According to the United Nations Office on Drugs and Crime, the amount of money laundered globally in one year is up to five percent of global GDP. The ease of laundering and hiding stolen assets is of great concern to TI, many other organizations, governments and citizens and must be ended urgently.

Extensive research by numerous institutions have mapped the systems of money laundering, as well as the activities in international financial havens that permit corrupt individuals to easily set up “shell” holding companies. They indicate the complicity of all manner of financial institutions and the associated professional firms that handle the cash proceeds of corruption in secret, dark channels.

Take secret companies. Laws in many jurisdictions ensure that the identity of those relocating their money through them cannot be disclosed. This secrecy permits individuals and corporations to hide enormous financial transfers of stolen and illicit funds with few or no questions asked about the real, living person, who controls the money, nor where they came from. This person is the “beneficial owner” – not a nominee or another company. In many cases shell companies can be set up in a few hours and then be used to transfer millions or billions of dollars with virtually no public oversight to determine the source or the intended recipients of such transfers. This creates an incentive for massive theft of public money to continue, and for the thieves to enjoy the proceeds of corruption.

An inventory of grand corruption cases compiled by the Financial Action Task Force (FATF) in 2011 showed that politicians and public officials often abuse corporate secrecy. For instance, out of 32 grand corruption cases analysed (including embezzlement, bribery, extortion and self-dealing), foreign accounts were used to hide the proceeds of corruption in 27 cases. In most cases, the assets were hidden in more than one foreign jurisdiction, including countries such as the United States (19 cases), United Kingdom (13 cases), Switzerland (15 cases), as well as well-known offshore havens such as the Cayman Islands, Singapore, Hong Kong, Jersey and the Bahamas. Moreover, in 28 cases, the individuals involved (or their families) made use of corporations and shell companies to hide the actual beneficiaries – those who actually used the money for investments, luxuries and lavish lifestyles.

The good news is that there are glimmers of hope. At the G8 summit last year in Northern Ireland, leaders committed to “take action to tackle the misuse of companies and legal arrangements.” They further produced a “G8 Action Plan Principles to prevent the misuse of companies and legal arrangements”, and member states agreed to add to these principles with national action plans.

In October 2013, the United Kingdom set the tone. During the Open Government Partnership summit, British Prime Minister David Cameroon announced the creation of a central register of the beneficial owners of companies in the UK that would be publically accessible. In November 2013, leaders of Britain’s 14 Overseas Territories, including Gibraltar, agreed to consider establishing public registries listing the beneficial owners of trusts and companies. In a communique published by the Foreign and Commonwealth Office following the Joint Ministerial Council meeting, the leaders pledged to launch consultations “on the question of establishing a central registry of beneficial ownership, and whether this information should be publicly available.”

This is a start, but we need much more action by all leaders on this global threat to economic security. Governments leading the reform of the international financial system should commit to establish public corporate registers that include beneficial ownership information. The public has a right to know who owns, controls or ultimately benefits from these companies.

Each government should take concrete steps to end corporate secrecy by ensuring that their existing registers on companies contain beneficial ownership information about the true identity of the person or persons who own and profit from any company, legal trust or foundation. In addition, those countries with influence over secrecy jurisdictions such as Hong Kong, the Cayman Islands or Jersey, to name just a few, should push them to establish public registers of beneficial ownership.

Ending all theft of public money and eliminating bribery as an acceptable way of doing business are indeed complex challenges. TI will continue to work with dedicated individuals in government, the private sector and civil society to seek and implement solutions.

Stopping the facilitation of cross-border corruption through secret company ownership is an important step that we ask global leaders to act on in 2014.

About Cobus de Swardt

Cobus de Swardt is the managing director of Transparency International, a global NGO. Through more than 100 national chapters worldwide and an international secretariat in Berlin, we work with partners in government, business and civil society to put effective measures in place to tackle corruption.

Cross-posted from the UNCAC Coalition blog.

Image: Flickr / Some Rights Reserved by  Nicolas de Camaret