Today’s guest post is from Louise Russell-Prywata, Program Manager at OpenOwnership, a global non-governmental organization that promotes greater corporate transparency by making it easier to publish and access data on company ownership.
Danske Bank’s Estonian branch appears to have enabled international money laundering on an enormous scale, with Danske Bank currently investigating about $236 billion in suspicious transactions (including, but not limited to, the notorious “Azerbaijani Laundromat” in operation from 2012-2014). Yet while money laundering on this scale may be unusual, the mechanisms that allowed funds to flow undetected from countries such as Russia, through Danske Bank Estonia, and into jurisdictions including the UK, are quite familiar. One of the most important of these techniques is the use (and abuse) of anonymously-owned companies.
If we want to stem the tide of money laundering through corporate vehicles, then public registers of the every company’s “ultimate beneficial owners” (UBOs) are an important part of the solution. Publicly available information would decrease reliance on whistleblower allegations to uncover money laundering, and companies themselves would benefit by reducing the costs of due diligence. There has been significant progress to implement public UBO registers in some countries, including the UK and Ukraine, and several other countries have committed to adopting UBO registers in future. There is already some evidence that these registers can make a difference. For example, following the requirement for UBO disclosure for Scottish Limited Partnerships (SLPs), the number of new incorporations fell dramatically; this is encouraging, as SLPs have featured prominently in several grand corruption cases. However, the Danske Bank revelations highlight that the power of national registers in isolation is limited.
To effectively deter and detect corruption and money laundering, public UBO data from different countries needs to be linked in a manner that is useful for law enforcement, investigative journalists, and others. The data from different registers must be compatible, so that it would be possible, for example, to ascertain whether the Ms. Doe owning Doe Holdings Ltd. registered in the UK, is the same Ms. Doe owning Doe’s Ltd. in Cayman Islands. This is important because a money-laundering trail rarely leads neatly from source jurisdiction straight to a company whose UBO is listed in a public register. Criminals and their associates tend to create a complex chain of legal entities to hide the illicit origin of their funds. This was the case in the Azerbaijani Laundromat, for example. Linking together UBO information from different jurisdictions would make it far easier to “follow the money” in grand corruption and money laundering cases. While law enforcement in some cases have powers to do this now, in practice the process can be complex and expensive, and it is not easily possible to link information at scale.
This is no simple task, but it is both technically and practically possible. Since 2016, OpenOwnership has been curating a group of technical and data experts to develop a Beneficial Ownership Data Standard (BODS). BODS is a template for describing UBO information, somewhat similar in spirit to the Open Contracting Data Standard. Data in BODS format from country A can automatically be linked with data in BODS format from countries B, C, and D. BODS can be used by governments, and also by the private sector as a data management tool, reducing the costs of complying with anti-money laundering regulations.
The OpenOwnership Pilot Program is working with governments implementing UBO registers, including Ukraine and the Kyrgyz Republic, to refine BODS and adapt it to meet the needs of people and entities wanting to use UBO data. The resulting data is added to OpenOwnership Register, a repository of linkable UBO information from countries across the world, which currently includes data on over 5 million companies from over 20 countries. Our aim is to prove that linking public UBO information is both possible and useful, and catalyze the adoption of BODS as an anti-money laundering tool.
The opportunities for change are huge. For example, as EU member states implement the UBO requirements of the 5th Anti-Money Laundering Directive, instead of having a patchwork of national company registers that are difficult to link, use of the BODS could substantially increase the utility of UBO registers and strengthen money laundering defenses across the EU.
Technical solutions to link UBO information exist, and continue to be refined and improved. What is needed now is greater political will to work towards internationally linked data. Money laundering and grand corruption are transnational problems and require transnational solutions. As stories from Danske Bank Estonia continue to unroll over the coming weeks and months, I hope this will refocus minds on the need for public, linked beneficial ownership information.