Criminals and fraudsters need three things to move large sums of money: a bank willing to take the money; a lawyer or other facilitator to set up the laundering scheme; and some way of disguising who really owns the assets.
Anonymously owned companies are a powerful tool for concealing ownership. A World Bank study of more than 200 cases of grand corruption showed that secretive offshore companies were used in 70 per cent of them.
Registering companies offshore allows their holders to own assets, open bank accounts and strike deals, all the while staying in the shadows—a gift to people who want to move dirty money. It’s quick, easy and relatively cheap to create entire networks of anonymous companies spanning multiple jurisdictions, making the ultimate owner and controller almost impossible to pin down.
Global Witness started out in the early 90s investigating corrupt natural resources deals that fuel conflict. Almost every investigation at some point ran up against a wall of offshore secrecy that takes months, sometimes years, of painstaking research to break down. It soon became clear that anonymous companies were a huge part of the problem.
In 2013, Global Witness revealed how commodities giant Glencore used a web of offshore firms to funnel half a billion dollars to a friend of Congo’s president. Another publication the same year unmasked the company set up in a Caribbean tax haven to channel bribe money in one of Africa’s biggest mining scandals. And a 2015 report showed how a Kazakh official accused of money-laundering and murder was linked to companies in the British Virgin Islands used to amass a portfolio of iconic London properties.
All fraudsters need to do to hide their identity is to incorporate a company in a jurisdiction like the British Virgin Islands, Mauritius, or the State of Delaware, where details of shareholders are not made public.
Owners sometimes add a second layer of secrecy by using ‘nominees’—people who front a company in place of the people who really control it: nominees are legal in the vast majority of countries and there is usually no requirement to disclose that the names listed aren’t the company’s true beneficiaries.
Offshore anonymity makes hiding dodgy money simple. It would be a great deal harder if the names of the people who own and control companies were in the public domain for all to see. This doesn’t just mean naming a parent company or trust: it means identifying ‘beneficial owners’—the real human beings who get the cash.
Momentum to tackle anonymous company ownership has been building. In the past three years, the UK, Norway, Netherlands and Ukraine have all committed to create the world’s first public registries of companies’ real owners. All European Union member states must create registers of the beneficial owners of companies and make the information available to anyone who can demonstrate a legitimate interest.
And with the publication of the Panama Papers, the biggest data leak in history, the issue has become impossible to ignore.
But some of the biggest offshore jurisdictions continue to operate within the US and in the UK’s overseas dependencies. Opening them up will be the biggest test in the push for transparency.