Anonymous companies - Frequently Asked Questions
1. What’s an anonymous company?
2. What’s a secrecy jurisdiction?
3. How much of a problem are anonymous companies?
4. How do anonymous companies hurt the world’s poorest people?
5. What’s a beneficial owner?
6. Aren’t there already international standards on this sort of thing?
7. Hasn’t there already been progress on this issue?
8. What does the private sector think about making company ownership transparent?
9. Shouldn’t people be allowed to keep their ownership of companies secret?
10. Wouldn’t revealing who’s behind a company pose a security threat for some people?
11. Wouldn’t creating a registry of the ultimate owners of companies cost too much?
12. Wouldn’t creating a registry of the ultimate owners of companies create lots of red tape for companies?
13. Wouldn’t criminals just lie about who the beneficial owners of their companies are?
14. Surely one country doing this alone isn’t going to make a difference.
15. Will countries that are popular incorporation destinations lose business?
16. Aren’t anonymous trusts also a problem?
17. I’m convinced that there shouldn’t be any such thing as an anonymous company! What can I do to help?
Tax evaders, terrorists, drugs cartels and corrupt politicians don’t want to keep their stolen asset in their own names. So what they typically do is create a company – or a series of companies – and have the company own their assets. The company can open a bank account, it can buy a yacht or a mansion, and it can wire money around the world. And, importantly, it’s immensely difficult – sometimes totally impossible – to link the company back to the person who really owns it. This makes it an attractive method for hiding, moving, and using money or other assets.
It is quick, easy and cheap to create an anonymous company. In many countries, there is no public information available on the shareholders and directors of a company – you just simply can’t find out anything on who’s behind a company. This includes places that people equate with secrecy such as Caribbean islands but also includes places such as the US state of Delaware that are equally secretive.
Even in places that do make shareholder and director information public, it is still easy to create an anonymous company. This can be done either by listing another company as the owner or director (and making sure that company is registered somewhere that doesn’t make such information public), or by registering the company in someone else’s name, even that of a total stranger. Astonishingly, it’s entirely legal to do this in the majority of countries, and there’s an entire profession dedicated to providing such ‘nominee’ services.
A secrecy jurisdiction is a place that keeps the names of the people behind companies out of sight. The most secretive jurisdictions don’t even reveal the names of the directors and shareholders of a company.
Not surprisingly, criminals tend to love secrecy jurisdictions. The five most popular places chosen by the corrupt to incorporate a company are, in order of popularity: the United States, the British Virgin Islands, Panama, Liechtenstein and the Bahamas.[i] The World Bank says that the fact that the US tops this list is “especially concerning given the huge number of legal entities formed each year – around ten times more than in all 41 tax haven jurisdictions combined”.[ii]
Putting the name of directors and legal shareholders in the public domain is an essential first step to transparency. But doing this isn’t sufficient: what’s needed is for the names of the ultimate, ‘beneficial’ owners of companies to be made public.
A big problem! The OECD – the rich countries club – has said that almost every economic crime involves the misuse of companies.[iii] The World Bank reviewed 213 grand cases of corruption that took place between 1980 and 2010 involving US$56 billion. More than 70% of them relied on anonymous companies.[iv] The head of the UK’s Metropolitan Police’s proceeds of corruption unit has stated that anonymous companies are the single biggest obstacle to investigating corruption cases.[v] A Nigerian prosecutor said, ‘it feels like I am on a bicycle whilst the criminals are in a Ferrari’.
The amount of money stolen from poor countries – via tax evasion, corporate profit-shifting, bribery and as a result of being just plain stolen by corrupt politicians – far outstrips the amount of money they receive in aid. Corrupt leaders such as Nigeria’s Abacha, the Philippines’ Marcos and Congo’s Mobutu accumulated staggering fortunes based on the theft of public resources. Such illicit financial flows often depend on the existence of anonymous shell companies.
In 2010, six dollars haemorrhaged out of developing countries for every dollar they received in aid.[vi] There is, rightly, clamour about providing enough aid to end global hunger and poverty, but unless we also stop the flow of illicit money out of developing countries, our fight will be lost.
A beneficial owner is the person (or people) who ultimately own or control a company. It’s the person who pockets the profits and controls the actions of the company. And, critically, it has to be a real, live human being, not another company. Nor can it be a lawyer or other nominee acting on behalf of someone else. The names of the beneficial owners of a company should be public for all to see.
Yes, there is an international standard on company ownership transparency that virtually every country is supposed to meet.[vii] But this standard is so weak that it is effectively useless. For example, it’s currently perfectly acceptable for a company just to know who its ultimate owners are, but not to have to tell anyone else. The theory goes that if ever this company were being investigated for being involved in money laundering (i.e. moving money from a crime) then police could find out the names of the beneficial owners by asking the company itself. But in practice this doesn’t work as the police can’t approach a company they’re investigating without tipping them off. The result is a system that ticks the boxes of the current international standards, but that in reality is riddled with anonymous companies.
Even though the standard is ridiculously low, hardly any countries – particularly those of the world’s largest economies – meet it. Six of the eight G8 countries are deemed to be ‘not compliant’ or only ‘partially compliant’ with the recommendation on company ownership transparency.
“A lack of knowledge about who ultimately controls, owns and profits from companies leads to aggressive tax avoidance, tax evasion and money laundering, undermining tax bases and fuelling corruption across the world.”
UK Prime Minister David Cameron, April 2013[viii]
Over the last two years, there has been a wave of momentum to tackle this problem. The issue of anonymous company ownership was, for the first time, high on the agenda of the G8 in 2013. G8 leaders agreed to take some first steps.
2013 saw a commitment from the UK government to create the world’s first public register of the ultimate owners of companies.[ix] This means that anyone will be able to find out who owns and controls British companies, even if they’re owned by an offshore company or trust.
France has indicated that it also intends to create a public registry of the ultimate owners of French companies.[x]
The European Union is currently considering the issue of anonymous company ownership, via an update to its anti-money laundering directive. The European Parliament supports creating a public register of the ultimate owners of companies and trusts.[xi] The governments of EU member states need to agree before this becomes law.
The US White House has stated that it will push for new legislation requiring information on who owns and receives financial benefits from a company at the time a company is formed.[xii] Note that this stops short of calling for what’s ultimately needed: for information to be in the public domain. It requires Congress to pass relevant legislation before becoming law.
A number of the world’s pre-eminent providers of corporate secrecy are the UK’s Overseas Territories and Crown Dependencies. They are coming under increasing pressure to open up. The British Virgin Islands, Cayman Islands and Jersey have committed to consulting on whether to put beneficial ownership information in the public domain.
All of this amounts to quite a lot of progress for an issue that was barely talked about two years ago. But it's still clearly not enough: so far, only one country, the UK, has actually promised to make company ownership transparent. Unless all countries do this the problem won’t go away but will merely be shifted elsewhere.
In the UK, where the policy debate is most advanced, a growing number of business groups support more transparency. For example the Institute of Directors, the UK’s oldest business association, has said that “‘anonymous companies’ […] have no place in a modern economy and bring the entire business sector into disrepute.”[xiii] The European Banking Federation has called for beneficial ownership information to be made public. The ex-head of Shell, Sir Mark Moody-Stuart, has said “we need full transparency about who owns and controls companies”.[xiv] And several big mining companies, including Rio Tinto, have spoken out in favour of company ownership transparency. Markets work best when there is good information.
It is good for companies to know who owns and controls other companies. When companies contract other companies to do business for or with them, they need to know who they’re doing business with. In some cases, a lack of knowledge of who they’re doing business with can create very real and costly legal risks to a company. For example, if a multinational company partners with a previously unheard of, anonymous company, they can be at risk of violating anti-bribery legislation such as the US Foreign Corrupt Practices Act if it later turns out that their partner company was owned by the public official who offered them a contract. This is a scenario that has happened all too often in the oil industry.
In other cases, a lack of knowledge about who a company is dealing with leads them to get a bad deal. For example, a big well-known brand may way to purchase some land to build a new store, or to explore for oil or gas. They may choose to purchase the land via an anonymous company as if they purchased the land in their usual name the price of the land would be higher. In cases like this the company with something to sell gets a bad deal. Markets work best when information is open for all to see.
Limited liability companies were created in order to encourage entrepreneurship – to enable people to invest in a company and, if the company goes bust, to only stand to lose the money that they put in, not their entire wealth. Such companies are the creation of governments: they offer investors large benefits but come with responsibilities too. One of those responsibilities should be the requirement to put the names of the ultimate owners and controllers of the company in the public domain in order to help prevent financial crime, and it’s devastating human cost, as well as creating the open flow of information on which markets are supposed to thrive.
It depends what kind of security threat. The idea that wealth can be identified through ownership of companies and therefore people become kidnap targets in some countries makes sense on the surface; except that those wealthy enough to be at risk of kidnap tend to advertise their riches through the size of their properties, the neighbourhoods they live in, and the cars that they drive. In short, kidnappers don’t need to rely on beneficial ownership registers in order to work out who might be able to pay a big ransom.
Other kinds of security threat might come from owning a company engaged in a controversial activity such as animal testing; this would affect a tiny proportion of individuals. People that can demonstrate a potential security threat could be exempted from having to make their ownership of a company public, providing that the requirements for obtaining an exemption are very tightly defined, there is an appeals process, and the fact that someone’s name is missing is noted in the registry for all to see.
No. There have been two cost/benefit analyses that have looked at beneficial ownership registries, one for the UK[xv] and one for the EU.[xvi] Both compared the status quo with creating a public registry of beneficial ownership information. And both concluded that making company ownership transparent would be more cost effective than what’s currently in place. This is because any increase in the cost to companies of reporting their beneficial ownership to a registry would be offset by a number of other costs, such as the police finding it quicker and easier to investigate financial crimes, and banks finding it quicker and easier to do carry out the required due diligence on their customers.
Wouldn’t creating a registry of the ultimate owners of companies create lots of red tape for companies?
No. Most companies have a straightforward corporate structure. With your average mom and pop high street company, what you see is what you get: the owners who are already listed on the corporate register as the shareholders or legal owners are also the ultimate owners. In fact the UK government estimated that 99% of UK companies already have the name of their ultimate, beneficial owner in the public domain.[xvii] This was based on data from Companies House and credit reference agencies.
Those who set up the complex multi-jurisdictional structures in which beneficial ownership is separated from legal shareholding tend to be big companies, or wealthy individuals, seeking to avoid tax in the places they live or do business. They pay large fees to lawyers to set up such structures, and so it would not be difficult to instruct the lawyers to make the information available in the jurisdiction where each element of the structure is incorporated. And of course, the other sort of person who sets up a complex multi-jurisdictional corporate structure is a criminal looking to evade tax. Or steal money from poor countries. Or ship weapons to both sides of a conflict. Or traffic children.
Yes, they probably would. We’re never going to come up with a system that makes it totally impossible for criminals to hide behind companies. But we can make it much, much harder for them to do so. There should be criminal penalties placed on people who front a company for someone else in order to deter people from doing this. And, similarly, there should be criminal penalties placed on people who lie about the ultimate owners of their companies.
No it won’t. What’s ultimately needed is for there to be no such thing as an anonymous company permitted anywhere in the world. But in order to achieve that you have to start somewhere, and getting the world’s most important economies, and world’s most popular places to incorporate, to sign up to transparency is a good place to start. The world’s criminals don’t really want to have their anonymous companies incorporated somewhere no-one’s ever heard of; they want the air of respectability that comes with having a company incorporated somewhere popular.
We hear this argument from secrecy jurisdictions a lot: ‘but if we open up, all that will happen is that the problem will go elsewhere’. You’ve got to start somewhere. The TED Wish is a clarion call to start a global movement which over time ignites public opinion, leading to real pressure for governments around the world to tackle the problem of anonymous companies.
Yes, there will be a small amount of business that will be lost: the business of incorporating anonymous companies for tax evaders and drugs cartels and corrupt dictators. But you can’t have a legitimate business model whose unique selling point is how brilliant criminals find it to be.
Secrecy jurisdictions claim that the reason that they’re popular places to incorporate are because they have a sound business environment; because they have well-functioning courts with a lot of corporate case law; and because they’re a neutral place to set up international joint ventures for legitimate companies. We can’t vouch for the accuracy of all this, but it’s what they claim and, if true, there is no reason why legitimate companies will not continue to want to incorporate in such places were they to make company ownership transparent.
Yes, they are. Not only does there need to be information in the public domain as to who ultimately owns and controls companies, but there also needs to be the equivalent information available for trusts. The European Parliament has recently voted in favour of putting information about trusts in the public domain.
I’m convinced that there shouldn’t be any such thing as an anonymous company! What can I do to help?
See our TED Wish Plan, available from www.globalwitness.org/ted, where we ask you to:
- Join the movement for global change
- Mobilize your communities
- Contribute to the public registry
- Convene the business community
Tell the story
[i] Puppet Masters, a report by the Stolen Asset Recovery Initiative (of the World Bank) and UNODC, https://star.worldbank.org/star/publication/puppet-masters.
[ii] Puppet Masters, a report by the Stolen Asset Recovery Initiative (of the World Bank) and UNODC, https://star.worldbank.org/star/publication/puppet-masters. The report reviewed 213 grand cases of corruption that took place between 1980 and 2010. The cases involved a total of 817 corporate vehicles of which 102 were incorporated in the US, 91 in the BVI, 50 in Panama, 28 in Liechtenstein and 27 in the Bahamas.
[iii] OECD, Behind the corporate veil: using corporate entities for illicit purposes. 2001. http://www.oecd.org/document/19/0,3343,en_2649_34795_43731027_1_1_1_1,00.html
[iv] Puppet Masters, a report by the Stolen Asset Recovery Initiative (of the World Bank) and UNODC, https://star.worldbank.org/star/publication/puppet-masters
[v] Speech by DCI Jonathan Benton at the Open Government Partnership summit, London 1 November 2014
[vii] The international anti-money laundering standards are set by the Financial Action Task Force, whose members are roughly the same as those of the OECD. http://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF_Recommendations.pdf
[viii] Letter from David Cameron to Herman Van Rompuy, 24 April 2013 https://www.gov.uk/government/news/pm-letter-to-the-eu-on-taxevasion
[ix] Speech by David Cameron at the Open Government Partnership summit, London, 31 October 2013, https://www.gov.uk/government/speeches/pm-speech-at-open-government-partnership-2013
[x] France’s Minister of Economy and Finance, Pierre Moscovici, has said that his country supports public registries [Speech by Pierre Moscovici, 11 October 2013. http://www.cfr.org/france/conversation-pierre-moscovici/p31546]
[xi] European Parliament, Prevention of the use of the financial system for the purpose of money laundering and terrorist financing, http://www.europarl.europa.eu/oeil/popups/ficheprocedure.do?lang=en&reference=2013/0025%28COD%29#keyEvents
[xii] US government Open Government Partnership action plan, 2013, http://www.opengovpartnership.org/country/united-states/action-plan
[xiii] Institute of Directors, IoD welcomes consultation on trust and transparency , 15 July 2013, http://www.iod.com/influencing/press-office/press-releases/iod-welcomes-consultation-on-trust-and-transparency
[xiv] Mark Moody Stuart, A commonsense solution for money laundering, 12 February 2014, http://www.euractiv.com/development-policy/commonsense-solution-money-laund-analysis-533479
[xv] HM Treasury/DTI, Regulatory impact analysis, Disclosure of beneficial ownership of unlisted companies, July 2002
[xvi] Cost benefit analysis of transparency requirements in the company/corporate field and banking sector relevant for the fight against money laundering and other financial crime. A study financed by the European Commission – DG JLS. 27 February 2007
[xvii] HM Treasury/DTI, Regulatory impact analysis, Disclosure of beneficial ownership of unlisted companies, July 2002
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