Last week, British NGO Global Witness published Grave Secrecy , a report on how U.K. registered companies were allegedly used to launder the profits of corruption. Hundreds of millions of dollars passed through the corporate accounts of dozens of shell companies that held bank accounts at Asia Universal Bank (AUB), the largest bank in Kyrgyzstan. Although the report is based on one concrete case of alleged corruption and money laundering in that country, its relevance goes beyond that single example.
It is just one illustration of how money launderers and those involved in large-scale corruption use companies to hold criminal assets whilst ensuring that information on the control of those companies is virtually inaccessible. The essence of those schemes is to parcel out different bits of information on the company to different jurisdictions from which such information can only be obtained with difficulty (so-called secrecy jurisdictions ). Indeed, how does one find relevant information on a U.K. company owned by a company registered in the British Virgin Islands with a company secretary in the Marshall Islands and a director in Panama? Criminal creativity knows no bounds.
And the problem is not just limited to secrecy jurisdictions – also known as offshore financial centers  (OFCs). The company at the beginning of the trail described above is a U.K. company- typically considered an “onshore” jurisdiction. As we demonstrated in our research for The Puppet Masters , on the use of corporate structures in grand corruption cases, this issue is a global problem, involving both offshore and onshore jurisdictions. Offshore jurisdictions typically collect relevant information but may throw up barriers to its access. Meanwhile, onshore jurisdictions (besides the UK, the report also mentions New Zealand) may not collect any information to begin with.
Like all Global Witness reports, Grave Secrecy is a great read in many respects. I especially welcome that it shines a bright light on the professional facilitators of corruption, those who do not directly play a role in the perpetration of corrupt acts but are very much involved in setting up the structures to cover them up and facilitate the laundering of the proceeds. These company service providers (be they lawyers, accountants, notaries or trustee companies) are typically involved in establishing the chains of companies involved in grand corruption (or any other large-scale financial crimes for that matter) and often act as nominee directors or fulfill an administrative role in the structure. Although the international standards on money laundering- as laid out in the 40 Recommendations Against Money Laundering of the Financial Action Task Force  – oblige countries to ensure that these categories of professionals are subject to Anti-Money Laundering (AML) obligations, the reality is that few countries have put these obligations into legislation. Even fewer are actually enforcing them in practice. In fact, the OFCs are doing a lot better than the onshore world, at least as far as adopting the legislation is concerned.
Part of the reason this issue has so far received relatively little attention is that there has been very little enforcement action against corporate service providers in cases where they were found to have facilitated grand corruption in one way or another (“another” in this case also refers to the acquisition of real estate for a corrupt official).
When we asked investigators about this in our research for “The Puppet Masters”, we were given a twofold answer: Resources are spent going after the big fish, the corrupt former minister or official who ultimately controlled and benefitted from all the assets, the so called “beneficial owners”. The facilitators were a side issue. Secondly, a credible case against a facilitator requires evidence that he knew or should have known that the assets in question derived from corruption. Establishing that knowledge can be very difficult.
That is where AML-obligations come in. They oblige a corporate service provider to ask the types of questions he might not like to know the answer to. For example, the corrupt official will never get in touch with the service provider himself but will always have a close associate act on his behalf so- who exactly is the beneficial owner of these assets? What is the provenance of these funds? How can the beneficial owner justify having such sums at his disposal if the ministerial salary in country X is only a few thousand dollars a month? So far, most service providers involved in large-scale corruption typically put forward the excuse that they were merely neutral outsiders offering a service. They didn’t know and they didn’t have to know. And this is usually the end of story for the prosecution. But that fallacy of the neutral service provider should be pierced. It is a crime to be willingly blind to the blindingly obvious- and it should be dealt with as such.
Grave Secrecy does a very good job of showing the damage done when professionals are allowed to look the other way. I hope governments, policy makers and law enforcement will take note.