Guest Post: Just Because UBO Data Isn’t Available for Everyone to See, It Doesn’t Make It Secret

Today’s guest post comes from Geoff Cook, CEO of Jersey Finance (a non-profit organization established to promote Jersey as an international financial center of excellence). Mr. Cook’s piece continues a debate over the UK’s recent decision to require British Overseas Territories to adopt centralized public registers with information on the ultimate beneficial owners (UBOs) of legal entities registered in those jurisdictions. The discussion of this issue at GAB was prompted by Martin Kenney’s post on the FCPA Blog, which sharply criticized the UK’s decision. GAB published two replies to Mr. Kenney’s criticisms, the first from Senior Contributor Rick Messick, and the second from Editor-in-Chief Matthew Stephenson. Earlier this week, GAB published Mr. Kenney’s response, and today Mr. Cook continues the discussion by explaining why, from the perspective particularly of a jurisdiction like Jersey, public UBO registers are unnecessary and potentially dangerous.

It is claimed that jurisdictions such as the Crown Dependencies that fail to introduce public registers of company ownership are advocating secrecy and encouraging the laundering of “dirty” money through the financial system. But the call for public registers, which serves a political agenda, is proposed in isolation, ignoring other effective measures for exchanging information that have been implemented during the last few years.

The Common Reporting Standard (CRS), for instance, has been largely ignored in the debate.  Through this OECD inspired agreement, the values of all bank accounts and investments in whatever form are exchanged automatically each year to the owner’s home tax authority. Company ownership details are included in that exchange. Jersey was an early adopter of the system in 2017 and has already swapped information with the other 50 countries that participate. More countries are joining, and will be exchanging data again in September – not a measure that fits with a secrecy agenda.

Jersey has been examined by independent standard setters such as the OECD as recently as 2017, and found to be in the top drawer for the quality of its standards and response to transparency. Jersey is one of only two jurisdictions to have the top rating so far, yet the standards attained by global organizations that truly understand the financial system are rarely quoted in the debate. Instead we are accused by detractors of obstruction and secrecy, with no regard for what is actually taking place.

On beneficial ownership, Jersey has a system that prevents the misuse of companies, identifies and verifies owners, promotes quality data and yet minimizes concerns regarding privacy and personal safety. Once again, the effectiveness of the Jersey system, which has been independently endorsed, is not even mentioned by some politicians, NGOs,or media.

Jersey’s verifiable register has been established for many years – well before there was a clamor for central registers – and is still modified when it is helpful to do so. Thus in 2017, through an agreement with the UK, Jersey agreed to provide non-urgent data within 24 hours when requested by the UK authorities, and within an hour for urgent inquiries.  We agree to these measures because we want to play a leading role in countering money laundering and financial crime. Jersey’s authorities are not forced to comply, and many other places around the world do not co-operate to anywhere near this extent, yet Jersey is still accused of secrecy by dint of a view rooted in prejudice rather than fact.

Financial institutions in Jersey have an obligation to flag up suspicious activity and in 2017 nearly 2,000 such reports were submitted to the authorities for further investigation; during the same period, the States of Jersey Police dealt with 574 requests for assistance from law enforcement agencies overseas. Far from secretive, Jersey has the mechanisms in place to tackle criminal activity.

Despite what some think, the smartest accountants and lawyers cannot find ways around these verifiable systems unless they are willing to risk financial penalties or jail in Jersey. In such circumstances, taking all this into account, accusations of secrecy just do not stack up. Further, with all these rigorous checks, with the back-up of CRS to ensure nothing is missed, criminals would be unwise to choose Jersey for their corrupt activities.

Let’s set aside the constitutional arguments about whether Crown Dependencies ought to be forced to implement a public register, and consider only the fundamental issue of transparency and what is effective.

The system Jersey operates is in line with recommendations of the Financial Action Task Force (FATF), the organization set up by the G7 to develop measures to combat money laundering. Jersey firms have a statutory requirement to keep information on the ownership of companies when they are established and, furthermore, have to ensure it is kept accurate and current. The regulator has the statutory power to conduct routine examinations of businesses carrying on regulated trust and company services, and any compliance failings are identified. It’s a rigorous system, and Jersey is serious about enforcement: only recently Jersey revoked a license for a failure in compliance.

It may be that public registers will work effectively and can be an alternative. But they remain unproven, and there are law enforcement agencies and regulators who have voiced concerns that it will be more difficult to detect criminals through such a system. It should be noted that FATF does not advocate public registers as the best or only way forward for effective compliance. I’ve heard comment also by criminal intelligence officials who say public registers make it harder to track criminals. Professor Jason Sharman, a leading academic who has produced papers on the effectiveness of ownership registers, has stated that it is entirely wrong to assume that centralized public registers work better than the leading alternatives and certainly wrong to suggest that they are the only solution. It is questionable whether a self-reporting system guarantees that the ownership information is accurate and there is a risk that the introduction of public registers will increase crimes such as identity theft, cybercrime, and blackmail. Unscrupulous people would appreciate an easy way of finding out details of many extremely wealth company owners around the world.

It is not that Jersey is secretive or thwarting efforts to tackle financial crime; it’s just that Jersey believes compliant confidentiality is worth defending and that there are risks to complete public transparency. Every citizen has a right to confidentiality, and that includes investors. In a world increasingly concerned about the availability of personal data online and in a year when new regulations are being put in place across the EU so that individuals have more control on the data kept by companies, it could easily be argued that public registers are disproportionately intrusive and unnecessary when other verifiable tried and trusted systems are available.

Rather than the ongoing demand for public registers, the focus should be on some of the structures operating within the international financial community and the failure of some locations to ensure robust, verified, and validated systems are in place. Shell companies, described by Sharman as major mechanisms for serious transnational crime, are a vehicle of choice for many with criminal intent. There are business models that rely on high volume, ready formed companies, off the shelf, at low cost and therein lies a weakness. This must change, and Jersey would join calls for united action to do so. There are other models that have had to rely on third-party introducers, agents who are not based in the location, to provide company information second hand. There are other jurisdictions, inside the United States, for example, that don’t even collect beneficial company ownership information; this cannot continue if there is to be an effective global clampdown on money laundering and corruption.

But instead of crediting those jurisdictions that have introduced effective systems, endorsed by global standard setters, critics of International Finance Centres choose to dwell only on the fact that such systems are not public. There is also an apparent unwillingness by politicians and NGOs to in any way differentiate between the credentials of different jurisdictions. For instance, no mention is made that some locations such as Jersey do not permit the formation of shell companies. Instead locations are lumped together and sweeping claims are made that all such locations are secretive. The evidence shows this not to be the case.

Advocates of public registers are ignoring where the real weaknesses in the global system are, take no account of the measures that have been put in place or the cooperation that already exists between countries, regulators, and law enforcement agencies, and fail to make comparisons between the capabilities of individual jurisdictions in tackling corruption in their regulatory frameworks. They should look again at the facts and the reasons why public registers may be a risk. They should appreciate how some jurisdictions have responded to demands for greater transparency and take more notice of the opinions of the global standard setters who are tasked with countering money laundering and criminal activity.

As far as beneficial ownership goes, all jurisdictions should have an active company registry staffed by regulatory experts who can also run information through independent checks, providers that are licensed and supervised to ensure the information they have is accurate and current, strict limitations on who can apply to incorporate a company and legislation to ensure that the information is supplied to the people who need to see it – the law enforcement agencies and tax authorities. Such an approach is effective and follows FATF guidelines—there is no need to completely abandon the right to at least some privacy for individuals.

2 thoughts on “Guest Post: Just Because UBO Data Isn’t Available for Everyone to See, It Doesn’t Make It Secret

  1. Pingback: Guest Post: Just Because UBO Data Isn’t Available for Everyone to See, It Doesn’t Make It Secret | Matthews' Blog

  2. Jersey has a system that prevents the misuse of companies? Shareholders in Q Resources and New World Oil and Gas, as examples,might find that assertion impossible to agree with. In fact the Jersey Financial Services Commission only last year announced that they had detected historic misuse of the companies that made use of the Exchange Traded Unregulated Fund status. Worse, they did nothing about it, which is entirely consistent with the Jersey Way.

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