Readers are no doubt celebrating the British House of Commons approval May 1 of legislation making it harder for corrupt officials to hide money offshore. The new law requires that, starting 2021, the British Virgin Islands and the Cayman Islands along with other U.K. overseas territories must publicly disclose the actual person or persons – the “beneficial owners” – of companies organized under their laws. Some half of the companies identified in the Panama Papers were organized in the British Virgin Islands, and estimates are that between 2007 and 2016 over $90 billion surreptitiously left Russia via British overseas territories. Somewhere among the billions that mobsters, drug traffickers, and tax evaders are hiding in British overseas territory corporations are likely billions in monies stolen through corruption. Forcing the corporations to reveal who is behind them will make recovering the monies that much easier.
No reform, no matter how powerful the arguments in support, is without its doubters. Given the hefty fees banks, lawyers, accountants, and secrecy accomplices of all kinds earn helping hide money, it is no wonder the beneficial ownership legislation has attracted its share of naysayers. The most thoughtful, and certainly the one who can turn the cleverest phrase, is BVI solicitor Martin Kenney. On Monday on the FCPA blog, he castigated “the NGO ‘transparency’ brigade.” It had “once again raised its guns and placed its cross-hairs over its preferred target: the offshore service providers in the British Overseas Territories.” And thanks to the Commons vote, the brigade can now mount its most wanted “trophy,” the BVI, on its wall.
Laying aside his colorful rhetoric, Kenney has a point. Actually two.
Point one is that public disclosure is futile for, Kenney boldly asserts, criminals lie. He thus asks:
Do [transparency brigade members] honestly believe that a sophisticated global economic criminal (British or otherwise) is going to openly and freely attach their name to a dodgy company in an open company UBO [ultimate beneficial owner] register? Do they envisage simply logging onto the website, typing in the search term “Kleptocratic African Dictator X” (for example) and be faced with a list of companies he or she is using to launder illicit profits from acts of grand public corruption?
Kenney is certainly on strong ground here. Criminals do lie (I don’t recall ever representing an honest crook as defense counsel), but if experience with other forms of disclosure is any guide, we can expect a few will be dumb enough not to. Several Thai public servants have registered land or other property in their own names in the appropriate public registry and then carelessly or stupidly failed to declare it on their personal financial disclosure — making their prosecution for false declarations the easiest criminal cases Thai prosecutors have ever handled. The average corrupt official may be too smart to attach their own name to an offshore company, but that means some are below average.
Knowing their identity will become public, some “cut outs” or “straw owners,” people who put their name on a corporate ownership record to hide the true owner, may be reluctant go along with the ruse. Vladimir Putin’s second cousin may decide against claiming she owns a BVI corporation that Putin really owns. If she knows the lie will become public, she could reasonably fear that some government with a grudge against Vladimir might make the link between her and her cousin, putting her in its cross-hairs. Who knows how law enforcement authorities, or indeed someone from the “transparency brigade,” might be able to piece together bits of information from different sources to spot a straw owner. Public ownership opens the door to all kinds of opportunities once denied them.
Once a straw owner is identified, the connection back to the real owner shouldn’t be too difficult. The straw owner will have every incentive to give the real one up to avoid being punished for lying on the corporate documents.
Kenney’s second point is that making beneficial ownership records public denies legitimate businessmen and women the right to privacy. As he contends:
The argument that “if it’s legitimate then why try and keep it confidential” doesn’t fly. We are all entitled to protection of private data unless we are doing something wrong. Privacy is closely aligned to human dignity.
Kenney’s argument would be stronger if, instead of appealing to an abstract right to privacy, he were to explain how revealing beneficial ownership is harmful. Who is harmed and how great is the harm? For years I have heard opponents of corporate transparency claim there are “legitimate reasons” for keeping ownership data secret. And for years I have asked them to name one. I am still waiting.
Even if opponents can cite reasons why corporate owners are entitled to privacy, their right is not absolute. It must be balanced against other concerns. One of those is the ability of criminals to evade justice by being able to hide billions of wrongfully acquired dollars, pounds, euros, rupees, or what-have- you through secret ownership of corporations in the BVI and elsewhere.
The Commons weighed the competing concerns and struck it decidedly against making it easier to collar big-time crooks of all stripes. Hurrah!
And congratulations to those in the “transparency brigade” on snaring one of the big ones. The BVI trophy deserves a special place on your wall.