As many readers of this blog are likely aware, Transparency International–the leading worldwide anticorruption NGO–has made the corporate secrecy problem a centerpiece of its “Unmask the Corrupt” campaign. TI is focusing in particular on the problem of shell companies whose true (or “beneficial”) owners are unknown, and which can be used by corrupt officials and businesspeople to shelter and launder stolen public funds. The TI Secretariat, along with several of TI’s national chapters, have been pushing for action at both the national and international level, especially for reforms that would make transparent the beneficial owners of these companies. I wanted to use this post as an opportunity to call attention to two of TI’s recent efforts in this area, which might be of interest to GAB readers:
- First, the TI Secretariat wants to use the G20 leaders’ summit this weekend in Brisbane, Australia as an opportunity to raise awareness of the issue and to put pressure on the G20 leaders to commit to take action on this issue. To this end, TI organized an open letter, signed by a number of prominent civil society activists and other public figures (including John Githongo, Desmond Tutu, and Richard Goldstone), calling on the G20 leaders to outlaw secret company ownership and mandate public registries of the true beneficial owners of all legal entities.
- Second, as I noted last month, the US government is currently in the midst of a rulemaking process to strengthen due diligence and disclosure requirements on beneficial ownership. TI-USA submitted a set of supportive but critical comments on the rule, urging the US Treasury Department to expand the definition of “beneficial owner” to include individuals who control the entities through means other than a formal management position, to apply the new rules apply to existing accounts as well as new accounts, and to require financial institutions not only to verify the identity of the (alleged) beneficial owner, but to independently verify that the person listed as the beneficial owner is in fact the true beneficial owner.
TI’s efforts in this direction are most welcome, and I hope they have some impact on the G20 summit and the development of new rules in the US (and elsewhere). I’m happy to take this this opportunity to publicize TI’s efforts, and I hope some of our readers out there might be able to contribute to the push that TI and other organizations are making on this issue.
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Matthew, I imagine that if true owners have to be made public, it would cause a lot of officials to transfer ownership of certain companies to family members, including extended family (more so than they already do). I’m curious if you have any take on what that itself might mean. Should any requirements for disclosure have to include whether the owners have family members in office? Without such a disclosure, would it be easy (in cases of a spouse, say) or quite difficult (cousin with a different last name) for prosecutors, journalists and transparency advocates to figure out the family connections involved?
Sarah, it’s a good question, and a valid concern. The risk of corrupt actors transferring ownership of companies they control to family members, close associates, etc. is one of the principle reasons that a number of NGOs (for full disclosure, this includes ONE, with whom I work) are pressing policymakers to make beneficial ownership information publicly available. This would enable investigative journalists, watchdog groups, and concerned citizens to access the information and help connect the dots between complex ownership structures.
Enabling law enforcement authorities access to this information is an important, but insufficient measure. Law enforcement tends to be reactive, rather than proactive, in its investigations. More importantly, it isn’t best placed to identify the associated actors in complex ownership schemes. For instance, the name of a Nigerian man in a (non-public) beneficial ownership registry (if such a thing existed) in the US or the Netherlands may not raise any red flags and trigger an investigation, but a Nigerian journalist with access to that data may recognize that the man is in fact the husband of the first lady’s cousin and start asking some tough questions.
The “Offshore Leaks” investigation initiated last year by the International Consortium of Investigative Journalists (ICIJ) poignantly illustrated the added value of the “all eyes on the data” principle. ICIJ worked with dozens of local journalists in countries around the world to trace company ownership and flag suspicious connections. It’s doubtful that law enforcement authorities – even had they had access to the data – would have been as successful. They don’t have the resources, the knowledge of foreign jurisdictions, or, in the case of some particularly opaque governments, the political will to unravel complex, cross-border company ownership structures. Of course, many countries have mutual assistance treaties to facilitate cross-border investigations, but these are often time-consuming and administratively burdensome, providing plenty of time for bad actors to shift or dissolve assets. And they assume that the home government actually WANTS the investigation to proceed, which, as in the example above, is not likely to be the case when political elite are themselves a party to the illicit activity.
This issue also points to the need for greater transparency of other types of legal entities (such as trusts and foundations), so that they don’t simply supplant companies as a favored way for corrupt actors to hide assets (of course, they’re already being misused in such ways anyways).
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