Grave Secrecy : A briefing paper by Global Witness - June 2012

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GRAVE SECRECY A b R E G p A ER bY G Al W ESS, Jun E 2012  tiofinlipbn Global Witness is a UK-based non-governmental organisation which investigates the role of natural resources in funding conflict and corruption around the world. References to ‘Global Witness’ in this report are to Global Witness Limited, a company limited by guarantee and incorporated in England (Company No. 2871809) Global Witness, Buchanan House, 30 Holborn, London, EC1N 2HS. [e-mail] © Global Witness, 2012 CONTENTS RECOMMENDATIONS 2 INTRODUCTION 4 1. SECRET SHAREHOLDER REGISTRIES 5 2. LACK OF INFORMATION ON BENEFICIAL OWNERSHIP 9 3. HIDING THE IDENTITY OF THE REAL OWNER USING NOMINEE DIRECTORS AND SHAREHOLDERS 12 4. LACK OF DUE DILIGENCE BY COMPANY SERVICE PROVIDERS 15 5.

Informations

• Publié par: Nan0
• Publié le: 10 avril 2013
• Nombre de lectures: 85
• Langue: English
• Poids de l'ouvrage: 3 Mo

Extrait

GRAVE SECRECY A bRiEfinG pApER bY GlobAl WitnESS, JunE 2012 

Global Witness is aKU-based non-governmental organisation which investigates the rol en aoftural resources in funding  conflict and corruption around the world.   References to ‘Global Witness’ in this report are to Global Witness Limited, a company limited by guarantee and incorporated in England (Company No. 2871809)   Global Witness, Buchanan House, 30 Holborn, London, EC1N 2HS. [e-mail]    © Global Witness, 2012

    CONTENTS        RECOMMENDATIONS   INTRO  DUCTI  ON   1. SECRET SHAREHOLDER REGISTRIES   2. LACK OF INFORMATION ON BENEFICIAL OWNERSHIP    3. HIDING THE IDENTITY OF THE REAL OWNER  IN N MINEE DIRE T R AND HAREH LDER    4. LACK OF DUE DILIGENCE BY COMPANY  ERVI E PR VIDER    5. LACK OF VERIFICATION OF INFORMATION BY NATIONAL  RP RATE RE I TRIE            APPENDIX 

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 GRAVE SECRECY: A BRIEFING PAPER

   RECOMMENDATIONS       Grave Secrecdy  particular, etails a complex story  the UK should of companies with hidden ownership  investigate the nominee directors and suspicious financial transactions,  and companies they work for that with accounts at a Kyrgyz bank that  are named in Grave Secrecy for has been at the centre of major money  potential breaches of the laundering allegations. The s   Act. tory Companies shows how companies in general can  Countries should ensure that the be used as cover to launder the  company filing requirements are proceeds of corruption, tax evasion  enforced, by imposing fines on, or and other crimes. This should not be  prosecuting, company directors possible. who  file to provide the necessary   information. Global Witness has come up with a  Those countries that do regulate number of recommendations on how  com to prevent such abuses from occurring.   their p  a a n n t y i   - s m e o rv n i e c y e     l p a r u o n v d id er e i r n s g     u l n a d w e s r     The recommendations below are  should make significantly greater ordered according to the body to  efforts to ensure that these which they are addressed. The same  standards are enforced. recommendations are presented  Countries that do not regulate throughout this report, ordered according to the problem they are  company service prov d id e e ri rs u  l nder  designed to overcome.    t s h h e o ir u   l a d  n d ti o -   m so o , n  w e i y t   h la  c u r n imina n l  gaws   penalties for the worst failures.    Countries should put pressure on Countries the secrecy jurisdictions with   which they have relationships (for    National corporate registries  example, the UK and its Overseas   should carry out due diligence, on  Territories and Crown a risk based approach, to verify  ado t a standard that the beneficial ownership  o D f e  p p u e b n l d ic e l n y  c a ie v s a ) i   l t a o ble sh p areholder  information provided to them is  istries. correct. This need not be that  reg l onerous: company service   sey icrve er sriuqoc enapm aundering  rule olab lnaitm-noye gheT providers are already required by the global anti-money laundering  p d r o o c v u id m e e r n s t  t s  o o   f o   b t t h a e i   n b  i e d n e e n fi t c if i i a c l  ation  standards to do exactly this. The  owners of companies that they fees charged on incorporation  create. National corporate   could be increased in countries   where they are currently low to  t r h e e g   i s st a ri m e e s ,     s f h or o   u b l o d t   h b   e th r e e   q o u w ir n e e d r   s t   o a   n d d o    cover the extra costs this would entail.    directors of companies.        Serious penalties should be   imposed on company officers who Eu nion provide false information or fail to ropean U   provide legally-required  The body that sets the global anti- information, so that nominees  money laundering standards, the think twice about pimping their  Financial Action Task Force, updated identity to people whose business  its standards in early 20 1  a 2A.s they do not really understand. In

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JUNE 2012

mutual evaluations, which are often hundreds of pages long, to include a summary with the various recommendations put in order of priority. FATF should penalise countries that have failed to regulate company service providers under their anti-money laundering laws. FATF should require countries to have publicly available beneficial ownership registries.

consequence of this, the European Union is in the process of updating its anti-money laundering directive. Once it is in place, all EU member states will be required to update their national legislation.    The EU should require member states to have publicly available legal shareholder registries.   The EU should require member states to have publicly available beneficial ownership registries.  The EU should require member states to require directors to state whether they are nominees and say on whose behalf they are working. The information should be made public by national corporate registries. The World Bank has already recommended such action 2 i-  An. elg dhta tnbola money laundering body, the Financial Action Task Force, has recently stated that countries should ‘consider’ requiring nominees to declare themselves as such and say on whose behalf they are working 3 .  The EU should clarify that company service providers are required to do customer due diligence even if not providing any further services beyond setting up a company.     Financial Action Task Force    FATF should use its country evaluations not just to assess if laws are on the books, but to assess whether they are being enforced. It should put much more pressure on those countries not in compliance with its standards. One way of starting the The real owners of companies can hide ball rolling on this would be for all their identities behind legal structures. (Credit: Mortal Coil Media)

 

  “Almost every economic crime involves the misuse   of corporate vehicles [i.e. companies and trusts]” 4 OECD, 2001

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 GRAVE SECRECY: A BRIEFING PAPER

  INTRODUCTION    Global Witness’ new repoGrtr,a ve In an attempt to get beyond these Secrecy,s   contradictory claims, Global Witness hows how companies can be used as cover to launder the proceeds  investigated dozens of companies that of corruption, tax evasion and other  held accounts at AUB, many registered crimes. It is so easy to set up a  in the UK, and found significant company in a way that hides the  indicators of money laundering, owner’s identity that criminals,  including: terrorists and corrupt politicians can  Hundreds of millions of dollars easily move money around the world  were moving through the with impunity.H idden company companies’ accounts while they ownershipf acilitates state looting,  appeared not to be engaged in any denying the citizens of poor countries  real business activity. the chance to lift themselves out of  Many of the transactions look like poverty and leaving them dependent  payments for goods between on aid.  companies trading with each other  in the open market but are in fact In one example from the report, we  between companies that are found that a Russian shareholder of a  related to each other. This raises U h K e     c c o o m m p p a a n n y y     d w ie a d s    i t n h c re or e p  y o e ra a t rs e   d b   e w f i o t r h e     the possibility that the money was  t someone apparently uing his identity  not being used to buy goods, but  to move US$700 millio s n arodthe  being moved around for money  world.  Such exaleow u   n ho   w it is  laundering purposes.    mp s sh possible to set up a company in the UK  The suspicious activity carried out by ( b a a n si d c     e o l f s   e ch w e h c e k re) b  w i it n h g o  c u a t  r e ri v e e d n     o t u h t e     o m n  ost  just three of these shell companies  the identities o s f    t e he supposed with accounts at the bank appears to  owners. have  run to US$1.2 billion, more than The   case examinedGinr ave Secrecy  quarter of Kyrgyzstan’s GDP. a   focuses o   f o   n m  a a   j Central As   i l a a n u   n b d a e n ri k n  a g t    the  This briefing document examines the  centre or money  factors that allowed these events to allegations. Kyrgyzstan’s largest bank,  happen, most of which involve AsiaUniversalBank (AUB), was  methods for hiding the ownership and anies. We nationalised and found t   h to r   e b w e     t i h n e s   olvent  a co n n a trol  s o  t f  o c   o m m ak p e recomm use this  r a e ft g e i r m  a e     r o e f v  P o r lu e t s i i o d n e   n o t v   e B r akiyev in April  to h l o ys w i  to prevent such pr e o n bl d e a m ti s o   n in s    as  2010. The new Kyrgyz authorities  the future. The factors we look at are: claim that AUB was engaged in large scale money laundering and an  ret shareholder istries independent audit funded by the  2 1 .  .  atioformf inck oai lfecib ne nno ecS aL ger European Bank for Reconstruction and Development has backed this up.  3. real  of the  p  idH neowhirs nediytit gni eht  owner using nominee directors However, the bank’s former  and shareholders management claim that the new  ack of d il regime’s claims against them are  4. gieud  by enceany comp vres ecivorpredis  L politically motivated.  5. Lack of verification of information  by national corporate registries  

 

JUNE 2012

  1. SECRET SHAREHOLDER REGISTRIES   

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WHAT IS A SECRECY JURISDICTION?   Secrecy jurisdictions are often thouofg hats  being ‘sunny places for shady  people’ – places like the British Virgin Islands, The Marshall Islands and Vanuatu.  One of the things that msaukcehs places secret – although not the only one – is that they lack open shareholder registries. This makes it impossible to find out who owns the companies that are registered there (law enforcement agencies can find this information, th oitu igs hoften very difficult for them, as  described below). Sometimes they arfeguohlG hlabo   aerrrdet  oas tax havens, t Witness prefers the term secrecy jurisdiction as such places do not just offer a way of avoiding tax but also offer tihliet ya tbo hide your identity for other  purposes, including corruption and other illegal activity. As described below, any company can have a parent company registered in a secrecy jurisdiction, makin it eas to hide the ownersh iof an coman, anwhere.  

What is the problem?disguise the real owners (which we  address in the next section). Nobody intend g to launder money in attempts to do so by opening bank  Registering a company in a secrecy accounts in their own name these jurisdiction, and thus hiding who days. Instead, they open an account in owns it, could, to some observers, a company’s name and ensure that it  make the company appear suspicious. is extremely difficult to find out who is However there is an easy way around behind the company.  this: set up a company in a major  financial centre – somewhere with an There are two main ways of doing this: open shareholder registry, such as the registering the company or the parent  UK – but ensure that this company is company in a secrecy jurisdiction  in turn owned by companies that are (which we address in this section), and themselves registered in secrecy using nominee shareholders to  jurisdictions. So iltooks reputable on

 

£ Bank account in name of company A  

A Company registered in a major financial centre, such as the UK

B

Company registered in a secrecy jurisdiction, such as the British Virgin Islands

Person up to no good

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 GRAVE SECRECY: A BRIEFING PAPER

It can be easier to set up anonymous comipna ntihes US than in more traditional ‘offshore’ centres such as the Caymann Idslsa. (Credit: Todd Wickersty/CC) 

the surface, but the owner is still, in Even governments which claim to reality, hidden. This makes the want to be more transparent, effective distinction between what are typically and accountable – the 55 countries of thought of as being ‘offshore’ and the Open Government Partnership all ‘onshore’ jurisdictions break down: it claim this – are not doing very well on is extremely easy to hide the making even the most basic of ownership of companies wherever company details available. The they are incorporated, and all information provision group jurisdictions, whether ‘onshore’ or  OpenCorporates scored each country ‘offshore, are effectively part of this on six criteria, including whether global system of secrecy. information on directors and  shareholders is available and whether In addition, even the supposedly it is possible to carry out free searches ‘onshore’ jurisdictions are not as open online. 6  The average score of the and transparent as people often Open Government Partnership assume. The World Bank reviewed  countries was just 21 out of 100, even 150 big cases of corruption between though the criteria against which they 1980 and 2010 and identified the were being judged were pretty basic. companies that were used to hide  Several major countries, including peoples’ identities. Companies Spain, Greece and Brazil, scored zero, registered in the United States topped meaning no company information is the list, with 102 out of the 817 available at all without payment or companies. registration. Increasing corporate  accountability is one of the Open The US is not often thought of as Government Partnership’s five ‘grand being a secrecy jurisdiction, but in fact challenges’. not a single state requires ownership information to be made public at the Countries that do not publish time companies are form 5 re sfo d,ena  dmrofnionn ioatwn ohe t Delaware does not even collect any  companies incorporated under their ownership information let alone laws typically argue that this is not a publish it (and of course as it does not  problem as, through mutual legal have the information, cannot make it  assistance or tax information available to law enforcement). exchange treaties, they make such