Walk the talk and fight illicit flows

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Credit: Images_of_Money, Flickr Creative Commons

A hornet’s nest has been stirred up by the leak of millions of financial files by the International Consortium of Investigative Journalists (ICIJ) in collaboration with journalists around the world. The ICIJ says that its work reveals more than 120,000 offshore companies and trusts, exposing the hidden dealings involving politicians, businessmen and others. While authorities around the world are assessing the validity of these documents, the extent of the information emanating from the British Virgin Islands, the Cook Islands and elsewhere is revealing in many ways. Importantly it is a rebuff to those who claim that there is no problem with the workings and transparency of the international financial system. Whatever the veracity of the allegations contained in the ICIJ report, they reveal the extent of highly complex and secret financial and corporate structures, and their cross-border nature.  These revelations have already spurred some to call for more regulation by governments.

The problem is not a lack of international standards or regulations, but as noted in our 2011 Puppet Masters report the issue is rooted in, ‘the substantial gap between the rules on paper and the rules as applied in practice when it comes to corporate vehicles’.   We call for a closer examination of how legal structures, such as shell companies, trusts and foundations are misused to conceal corruption, hiding the true control of assets and where these funds originate. The Puppet Masters report and its database of actual cases set out in unprecedented detail how corporate legal structures were being misused, the effectiveness (or not) of existing laws and standards, and the institutional and operational shortcomings which allow corrupt officials to launder illicit funds. 

It is worthwhile recalling that over 165 countries have ratified the UN Convention against Corruption and in excess of 170 jurisdictions have also endorsed the recommendations of the Financial Action Task Force (FATF).  Earlier this year FATF unveiled newly revised standards on combating money laundering and the financing of terrorism that would be even more effective, ensuring continued vigilance while also making sure that legitimate businesses are not excluded from the financial system. Transparency, and notably the key issue of beneficial ownership, is central to FATF work and to effective ‘follow the money’ regimes, but meaningful action by all countries remains elusive. Time has come to crack that nut – at the risk otherwise of undermining national and international efforts to tackle illicit financial flows.

As recommended in Puppet Masters, the tools clearly exist to ensure transparency and integrity without getting in the way of good business and legitimate privacy. Many governments and authorities speak out about their determination to fight corruption and illicit financial flows, the challenge now is to see them walk the talk.



Jean Pesme

Global Director of Finance

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