Will 2019 Be the Year the US Finally Passes Anonymous Company Reform? Not If the ABA Gets Its Way

It’s a new year, a new US Congress, and a new opportunity for the United States to take action to close some of the most glaring loopholes in its anticorruption and anti-money laundering (AML) framework. So far, Washington has been consumed with the government shutdown fight, along with early chatter about who might seek the Democratic nomination to challenge Trump for the presidency in 2020, such that there hasn’t yet been much coverage of what new legislation we might see emerging from this new Congress over the next two years. And to the extent there has been such discussion, it has tended to focus on initiatives—such as the Democrat-sponsored “anticorruption” bills that focus on lobbying, voting rights, and conflict-of-interest law reform—that, whatever their usefulness in shaping the debate and setting an agenda for the future, have virtually no chance of passing in the current Congress, given Republican control of the Senate and the White House. Indeed, many commenters assume that on a wide range of issues, political gridlock and polarization means that the new Congress is unlikely to accomplish much in the way of new legislation.

That may be true as a general matter, but there are a few areas—including some of particular interest to the anticorruption community—where the opportunity for genuine legislative reform may be quite high. Perhaps the most promising such opportunity is so-called anonymous company reform. Anonymous companies are corporations and other legal entities whose true “beneficial owners” are unknown and often hard to trace. (The registered owner is often another anonymous legal entity registered in another jurisdiction.) It’s no secret that anonymous companies are used to funnel bribes to public officials, to hide stolen assets, and to facilitate a whole range of other crimes, including tax evasion, fraud, drug trafficking, and human trafficking. And although in the popular imagination shady anonymous shell companies are associated (with some justification) with “offshore” jurisdictions, in fact the United States has one of the most lax regulatory regimes in this area, making it ridiculously easy for kleptocrats and others to use anonymous companies registered in the US to shield their assets and their activities from scrutiny.

Of course it’s possible for law enforcement agencies, armed with subpoena power and with the assistance—one hopes—with cooperative foreign partners and sympathetic courts can eventually figure out who really owns a company involved in illicit activity, doing so is arduous, time-consuming, and sometimes simply impossible. It would be much better if there were a central register of beneficial ownership information, with verification of the information the responsibility of those registering the companies and stiff penalties for filing inaccurate information. Indeed, one of the striking things about the debate over anonymous company reform is how little disagreement there seems to be among experts about the benefits of a centralized company ownership register. There’s still significant controversy over whether these ownership registers should be public (see, for example, the extended exchange on this blog here, here, here, here, and here). But even those who object to public registers of the sort the UK has created acknowledge, indeed emphasize, the importance of creating a confidential register that’s accessible to law enforcement agencies and financial institutions conducting due diligence. But the US doesn’t even have that.

There’s a chance this might finally change. Continue reading

Guest Post: To Be Effective, Public Company Ownership Registries Must Be Linked

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. Continue reading

What, Besides Creating a New Court, Could the International Community Do To Fight Grand Corruption? A Partial List

Last week, Richard Goldstone and Robert Rotberg posted a response to Professor Alex Whiting’s critique of the proposal to create an International Anti-Corruption Court (IACC). Early in their response, Goldstone and Rotberg–both advocates for an IACC–remarked, a bit snarkily, that “[n]otably absent from [Professor Whiting’s] post is a description of what the other effective responses to combating grand corruption might be.”

That struck me as a bit of a cheap shot. Professor Whiting’s post offered a careful, thoughtful argument based on his experience and knowledge of the International Criminal Court (ICC) and similar tribunals, and not every such critical commentary on a given proposal must include a full-blown discussion of alternatives. Still, Goldstone and Rotberg’s implicit challenge to IACC skeptics to articulate alternative responses to grand corruption is worth taking seriously, for two reasons:

  • First, this seems to be a common rhetorical gambit by advocates for an IACC, or for other radical measures that critics deem impractical: Rather than answering and attempting to refute the critics’ specific objections directly, the move is to say, “Well, but this is a huge problem, and there’s no other way to solve it, so poking holes in this proposal is really just an excuse for inaction. This may seem like a long shot, but it’s the only option on the table.”
  • Second, and more charitably to those who make this point, grand corruption is indeed an enormous problem that needs to be addressed. And so even though not every critical commentary on a particular proposal needs to include a full-blown discussion of alternatives, those of us who (like me) are skeptical of deus-ex-machina-style responses to the grand corruption problem ought to make a more concerted effort to lay out an alternative vision for what can be done.

In this post I want to (briefly and incompletely) take up the implicit challenge posed by Goldstone and Rotbert (and, in other writings, by other IACC proponents). If the international community is serious about fighting corruption, what else could it do, besides creating a new international court and compelling all countries to join it and submit to its jurisdiction? When people like Professor Whiting (and I) suggest that lavishing time and attention on the IACC proposal might be a distraction from other, more effective approaches, what do we have in mind? What else could international civil society mobilize behind, besides something like an IACC, to address the problem of grand corruption?

Here are a few items on that agenda: Continue reading

Guest Post: More on the Hazards of Public Beneficial Ownership Registries–What Stephenson and Others Miss

Today’s guest post, from Geoff Cook (the CEO of Jersey Finance), continues an ongoing debate an exchange we’ve been hosting here at GAB regarding the desirability of public (as opposed to confidential) registries of the ultimate beneficial owners (UBOs) of companies and other legal entities. This exchange was prompted by a piece that Martin Kenney, a lawyer specializing in asset recovery in the British Virgin Islands, published on the FCPA Blog, which criticized the UK’s decision to mandate that the 14 British Overseas Territories create public UBO registries. Mr. Kenney’s post prompted reactions from Rick Messick and from me. Our critical reactions stimulated another round of elaboration on the critique of the UK’s decision, with a new post from Mr. Kenney and another from Mr. Cook. I subsequently replied, explaining why I did not find Mr. Kenney’s or Mr. Cook’s criticisms fully persuasive. Mr. Kenney responded to that post earlier this month, and in today’s post Mr. Cook contributes his critical reactions to my response: Continue reading

Guest Post: Are Public UBO Registers a Good or a Bad Proposition? A Further Reply to Professor Stephenson

Today’s guest post, from Martin Kenney, the Managing Partner of Martin Kenney & Co., a law firm based in the British Virgin Islands (BVI), continues an ongoing debate/discussion we’ve been hosting here at GAB on the costs and benefits of public registries of the ultimate beneficial owners (UBOs) of companies and other legal entities. That debate was prompted by the UK’s decision to mandate that the 14 British Overseas Territories create such public registries, and Mr. Kenney’s sharp criticism of that decision in a post he published on the FCPA Blog. That post prompted reactions from Rick Messick and from me. Our pushback against Mr. Kenney’s criticisms stimulated another round of elaboration on the critique of the UK’s decision, with a new post from Mr. Kenney and another from Geoff Cook (the CEO of Jersey Finance). I subsequently replied, explaining why I did not find Mr. Kenney’s or Mr. Cook’s criticisms fully persuasive. Today’s post from Mr. Kenney continues that exchange:

Public [UBO] registers are rather cheap political playing to the gallery, saying “Aren’t we wonderful to have done this?” – ignoring the fact that what we have established in the UK does not work properly….  It seems to me outrageous that the UK Government, who lack a lot in the area of anti-money laundering, should thus seek to impose on their overseas territories measures – often, where they cannot be afforded economically, that go far beyond what the UK has.

Lord Flight (Conservative), Member of the House of Lords, Speech to the House of 21 May, 2018, Debate on the Sanctions and Anti-Money Laundering Bill [HL] 

The fact that Professor Stephenson welcomes a good discussion and has opened the doors to his blog once again, means it would be impolite of me to not provide a response to his latest observations.

From the outset, I will stress that I will not seek to address every point Professor Stephenson makes. However, having addressed those below, if there are others he wishes me to respond to, I will endeavor to do so. Continue reading

The Debate Over Public UBO Registries Continues: A Response to Kenney and Cook

As our regular readers know, over the past few weeks GAB has had the opportunity to host on what is shaping up to be a lively and interesting debate over the advantages and disadvantages of creating public registries of the ultimate beneficial owners (UBOs) of companies and other legal entities. A UBO, for those not familiar with the lingo, is the real-live flesh-and-blood human being who has a sufficiently strong direct or indirect ownership interest in a company to be considered the “true” owner. Increasing UBO transparency is a top priority for many civil society activists, who argue that anonymous company ownership facilitates grand corruption, as well as money laundering, tax evasion, and other harmful activities. In many jurisdictions, UBO information is not available, and even law enforcement may have difficulty determining a company’s true owners. In other jurisdictions, companies must submit and update validated UBO information to the authorities, but that information is confidential, available only to law enforcement or other regulatory agencies in the context of an investigation, or perhaps to others in a limited set of circumstances (for example, banks performing customer due diligence). Most anticorruption advocates, as well as law enforcement agencies and most experts, agree that a confidential UBO registry is far superior to having no registry at all. The harder question, and the one we’ve been debating here at GAB, concerns whether the UBO registry should be public, so that anyone—not just law enforcement agencies acting pursuant to an investigation—can examine the registry to see who owns what.

The most recent round of discussion and debate was triggered when the UK—one of the few major economies that has implemented a public UBO registry—decided to require the 14 British Overseas Territories, such as the British Virgin Islands (BVI)—to create and maintain public UBO registries. Many in the civil society community celebrated this as a huge triumph, but others denounced the UK’s decision. The denunciation that got the debate going over here at GAB was a provocative piece by Martin Kenney, a BVI asset recovery lawyer, on the FCPA Blog. Mr. Kenney’s piece prompted replies from GAB Senior Contributor Rick Messick (here) and from me (here). Then last week, we were able to publish two more pieces, one from Mr. Kenney and another from Geoff Cook (the CEO of Jersey Finance). Both Mr. Kenney and Mr. Cook took issue with some or all of the arguments that Rick and I advanced, and pressed the claim that the UK’s imposition of public UBO registries on the Overseas Territories was a bad mistake.

Both of their pieces raise important points that deserve a reply. For that reason, and because I think that this issue is important enough that continuing this exchange on GAB for another round or two may be worthwhile for our readership, in this post I’m going to offer a response to Mr. Kenney’s and Mr. Cook’s posts. To lead with the conclusion: While I respect their experience and expertise in these matters, I found most of their arguments unconvincing, or at the very least in need of further explanation before I’m ready to reconsider my (admittedly tentative) view that public UBO registries have sufficient advantages over confidential UBO registries that moving from the latter to the former is desirable. Continue reading

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. Continue reading