The net is closing around individuals who are up to no good but whose ownership of various assets is hidden. But is transparency necessarily a good thing and is it working?
There is wide agreement among the G20 group of leading nations, the Organisation for Economic Cooperation and Development (OECD) and the European Union (EU) that knowing who is behind companies, trusts and property is a useful weapon in the fight against money laundering, economic crime and financing terrorism. Registers of beneficial ownership provide greater transparency and traceability, especially to financial services regulators and law enforcement agencies. But there are some downsides too.
For example, what if such information was to fall into the wrong hands, revealing a person’s business interests that made them a target for kidnap or extortion or placed them in political or actual physical danger? Would you, dear reader, want any member of the public to know about your affairs, innocent though they may be?
In 2016, under the Small Business, Enterprise & Employment Act 2015, the UK Government launched a register of beneficial ownership. It is known as the People with Significant Control (PSC) register. It was hailed by, among others, Global Witness, the non-governmental anti-corruption advocacy group, as the world’s first publicly available register of the beneficial ownership of companies.
However, there are a number of significant countries that do not yet have such registers, including USA, Singapore and China. Global Witness is now saying that the UK measures have been poorly enforced. Although the UK Department of Business, Energy and Industrial Strategy (BEIS) claims that Companies House is doing a great job, the fact of the matter is that, in that curiously English way, the data Companies House collects is provided by business owners themselves. The fraudster, the money launderer or the funder of terrorism is hardly likely to tell truth about their interests. The EU, meanwhile, has also fallen short.
Its Fifth Anti-Money Laundering Directive (5AMLD), which came into force on 9 July 2018, requires that such registers are established in member states and that they be accessible to the public, but it allows member states to decide who they think has a “legitimate interest” to access the data. This means that there won’t be a level playing field. Interestingly, in July 2016, the French Constitutional Court suspended the French publicly accessible register of trusts, because it conflicted with the French Constitution and disproportionately infringed individual’s rights to privacy.
Unearthing wrong doers through their business dealings and asset ownership has a long way go, despite the UK’s fine gesture.
Similar views reign in the USA, where individual states set the beneficial ownership laws. A number of them including Wyoming, Utah, Nevada and Delaware are opposed to transparency, believing in non-disclosure and an individual’s right to privacy. They look highly unlikely to alter what is something of a competitive advantage for their jurisdictions.
Closer to home, two pieces of EU legislation seem to conflict. On the one hand there is 5AMLD. On the other, the General Data Protection Regulation (GDPR), and indeed European Court of Human Rights, wish to protect individuals’ privacy rights and minimise the collection, processing and circulation of personal data.
A middle way, however, could be the so-called “Jersey model.” This has been praised in the World Bank’s 2011 report The Puppet Masters – How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About it, and in 2015 by the Council of Europe’s Moneyval money laundering expert committee. Since 1989 Jersey has kept such a register but shares the information only with authorities such as those involved in law enforcement and tax collection. This is aimed at preserving the privacy of individuals. The second significant difference between the UK and Jersey models is that Jersey requires trust and company service providers, who register companies on behalf of overseas persons and businesses, to carry out independent checks of their own into beneficial ownership and supply their data to the registry, and keep them up to date. The registry itself also uses public and private information sources to carry out its own due diligence. The result, they say, provides a ‘double lock’ against potential wrongdoing.
All in all, unearthing wrong doers through their business dealings and asset ownership has a long way go, despite the UK’s fine gesture. The fight against money laundering, terrorism funding and tax evasion is being fought on a number of fronts but there is a distinct lack of global coordination to win it.