A New BOSS in Town: Changes to BVI Beneficial Owner Information Regime

As the British Virgin Islands (BVI) continue to recover from the devastation of Hurricane Irma, attention is properly focused on humanitarian relief and the repair of the BVI’s physical infrastructure. But there have also been important recent developments associated with the BVI’s legal infrastructure—changes designed to address the BVI’s reputation as one of the world’s premier tax havens, and as a popular destination for money laundered by corrupt public officials, organized crime networks, and others.

Thanks in part by a campaign by former UK Prime Minister David Cameron to remove the “cloak of secrecy” from Britain’s offshore territories, and in part to the embarrassing publication of the Panama Papers, the BVI recently enacted a new Beneficial Ownership Secure Search System (BOSS) Act, which went into effect last June.

The BOSS Act is the latest in a series of steps designed to clean up the BVI’s image. Previous moves have included signing an intergovernmental agreement with the United States on Foreign Account Tax Compliance and becoming a signatory to the OECD’s Common Reporting Standard for the automatic exchange of tax and financial information. In 2016, the BVI changed the law to make it mandatory – for the first time – for companies to report their lists of directors to the government. Overall, it’s not yet clear whether these moves have had any effect on the island’s offshore economy. Indeed, the BVI’s interest in preserving its status as a center of the world’s offshore economy has prevented more drastic steps and weakened those that have been taken. (The 2016 law changes, for instance, did not require the reporting of ownership stakes.) Half-measures are unsurprising given the centrality of secrecy to the BVI’s economic success – after all, you can’t expect turkeys to vote for Thanksgiving. While the BVI points out in its defense that its level of transparency is no worse than that of other UK offshore territories, and is in fact better than that of some US states, the fact remains that most of the BVI’s legal reforms have weighed business interests in secrecy more heavily than public interests in transparency.

The BOSS Act unfortunately seems to suffer from the same problem, though it is a step in the right direction. Continue reading

Guest Post: Encouraging Signs for a Possible U.S. Legislative Crackdown on Anonymous Companies

Gary Kalman, the Executive Director of the FACT Coalition, contributes today’s guest post:

A little over a year ago, the International Consortium of Investigative Journalists (ICIJ) released the Panama Papers, a treasure trove of information and a window into the world of financial secrecy. In some ways, much of what the Panama Papers revealed was already well known. Previous estimates put the amount of money hidden in offshore secrecy havens somewhere between $8 trillion and $32 trillion. In 2015, The New York Times published an impressive five-part series on the use of anonymous shell companies to purchase prime real estate in New York City. Prior to that, the U.S. Justice Department filed a lawsuit (which they just won on June 29th) to force the forfeiture of New York property secretly owned by the government of Iran in direct violation of economic sanctions. And so on. Yet it is hard to deny the captivating intrigue of the specific stories in the Panama Papers involving Russian kleptocrats, world leaders, athletes, movie stars, and others.

The big question is: more than a year later, did anything change? As I recently observed, there are indeed encouraging signs around the world, particularly in Great Britain, several EU member-states, and some developing countries such as Ghana. What about the United States? After all, with U.S. transparency laws ranging from weak to non-existent, there is little need to go to Panama to launder one’s dirty money. While Delaware gets the most notoriety, no state collects information on the true (“beneficial” owners of corporations. In fact, in its recent assessment of the U.S., the Financial Action Task Force, an international anti-money laundering body, noted that for all the progress the U.S. has made, the lack of beneficial ownership transparency remains a glaring weakness. And in the past, when some U.S. legislators – most notably former U.S. Senator Carl Levin (D-MI) – pushed legislation to require states to collect beneficial ownership information, the proposed bills never received so much as a hearing.

That may be about to change, and anticorruption advocates should take note. Continue reading

Guest Post: Beneficial Ownership Secrecy–Not All Offshore Financial Centers Are Part of the Problem, and Public Registries Are Not the Solution

Geoff Cook, Chief Executive Officer of Jersey Finance, contributes the following guest post:

The so-called “Panama Papers”—the documents leaked from the Mossack Fonseca law firm by an anonymous whistleblower—have highlighted how certain corporate service providers (CSPs) are able to set up, in offshore international financial centers (IFCs), shell companies for their clients, with bank accounts and other assets then owned by the shell company, so that the identity of the ultimate beneficial owner is hidden. That secrecy enables corruption, tax evasion, money laundering, and other nefarious activity.

While the Panama Papers revelations may have done some good in calling more attention to abuses of the legal and financial system – abuses that can and should be fought – much of the prevailing discussion in the wake of the Panama Papers revelations – much of it driven by moral outrage and salacious headlines about dubious deals – has produced two significant analytical errors, one concerning the diagnosis of the problem, and the other concerning the appropriate prescription. Continue reading

In the Excitement of the New, Let’s Not Neglect the Tried and True

In my two posts last week (here and here), I attempted to go through all of the 41 country statements submitted by the participants in the London Anticorruption Summit held earlier this month, to see what those statements had to say about four specific issue areas highlighted by the Summit’s joint Communique: (1) accessibility (and possibly transparency) of beneficial ownership information for companies and other legal entities, (2) public procurement transparency, (3) independence, effectiveness, and transparency of national audit institutions, and (4) whistleblower protection (and encouragement). I didn’t originally intend to say much more about this, other than putting the information out there for others to examine, but on writing up the summaries, I was struck by the following observation:

Of the four issue areas I picked out–all of which, again, were prominently featured in the Communique–I would characterize two (beneficial ownership and, to a somewhat lesser extent, procurement transparency) as relatively “new” topics that have generated a lot of excitement. (This is clearly the case for beneficial ownership; public procurement transparency has been on the agenda for much longer, though I put it in this category because a lot of the focus of discussion in this area has been on relatively new initiatives like e-procurement and the Open Contracting Data Standard.) The other two issues I chose to highlight–independent and competent audits of government programs, and adequate protection of (and, preferably, affirmative encouragement for) whistleblowers–have been part of the conversation for considerably longer, though that doesn’t mean we’ve yet seen anywhere near as much movement on either of those issues as we’d like. And, compared to the newness and (relative) sexiness of topics like beneficial ownership registries and e-procurement initiatives, whistleblower protection and audits seem a bit humdrum. (Audits especially. Even I get bored when I hear the word “audit,” and I happen to think they’re really important.)

The thing that struck me, when going through the country statements, was the dramatic lopsidedness of the attention lavished on beneficial ownership and procurement transparency (to say nothing of other topics I didn’t cover, like corruption in sports and improved asset recovery mechanisms), compared to the relative neglect of country commitments in the areas of improving national audit institutions and whistleblower protections. Continue reading

London Anticorruption Summit–Country Commitment Scorecard, Part 1

Well, between the ICIJ release of the searchable Panama Papers/Offshore Leaks database, the impeachment of President Rousseff in Brazil, and the London Anticorruption Summit, last week was quite a busy week in the world of anticorruption. There’s far too much to write about, and I’ve barely had time to process it all, but let me try to start off by focusing a bit more on the London Summit. I know a lot of our readers have been following it closely (and many participated), but quickly: The Summit was an initiative by David Cameron’s government, which brought together leaders and senior government representatives from over 40 countries to discuss how to move forward in the fight against global corruption. Some had very high hopes for the Summit, others dismissed it as a feel-good political symbolism, and others were somewhere in between.

Prime Minister Cameron stirred things up a bit right before the Summit started by referring to two of the countries in attendance – Afghanistan and Nigeria – as “fantastically corrupt,” but the kerfuffle surrounding that alleged gaffe has already received more than its fair share of media attention, so I won’t say more about it here, except that it calls to mind the American political commentator Michael Kinsley’s old chestnut about how the definition of a “gaffe” is when a politician accidentally tells the truth.) I’m going to instead focus on the main documents coming out of the Summit: The joint Communique issued by the Summit participants, and the individual country statements. There’s already been a lot of early reaction to the Communique—some fairly upbeat, some quite critical (see, for example, here, here, here, and here). A lot of the Communique employs fairly general language, and a lot of it focuses on things like strengthening enforcement of existing laws, improving international cooperation and information exchange, supporting existing institutions and conventions, and exploring the creation of new mechanisms. All that is fine, and some of it might actually turn out to be consequential, but to my mind the most interesting parts of the Communique are those that explicitly announce that intention of the participating governments to take pro-transparency measures in four specific areas:

  1. Gathering more information on the true beneficial owners of companies (and possibly other legal entities, like trusts), perhaps through a central public registry—which might be available only to law enforcement, or which might be made available to the general public (see Communique paragraph 4).
  2. Increasing transparency in public contracting, including making public procurement open by default, and providing usable and timely open data on public contracting activities (see Communique paragraph 9). (There’s actually a bit of an ambiguity here. When the Communique calls for public procurement to be “open by default,” it could be referring to greater transparency, or it could be calling for the use of open bidding processes to increase competition. Given the surrounding context, it appears that the former meaning was intended. The thrust of the recommendation seems to be increasing procurement transparency rather than increasing procurement competition.)
  3. Increasing budget transparency through the strengthening of genuinely independent supreme audit institutions, and the publication of these institutions’ findings (see Communique paragraph 10).
  4. Strengthening protections for whistleblowers and doing more to ensure that credible whistleblower reports prompt follow-up action from law enforcement (see Communique paragraph 13).

Again, that’s far from all that’s included in the Communique. But these four action areas struck me as (a) consequential, and (b) among the parts of the Communique that called for relatively concrete new substantive action at the domestic level. So, I thought it might be a useful (if somewhat tedious) exercise to go through each of the 41 country statements to see what each of the Summit participants had to say in each of these four areas. This is certainly not a complete “report card,” despite the title of this post, but perhaps it might be a helpful start for others out there who are interested in doing an assessment of the extent of actual country commitments on some of the main action items laid out in the Communique. So, here goes: a country-by-country, topic-by-topic, quick-and-dirty summary of what the Summit participants declared or promised with respect to each of these issues. (Because this is so long, I’m going to break the post into two parts. Today I’ll give the info for Afghanistan–Malta, and Thursday’s post will give the info for Mexico–United States). Continue reading