The irony of revelations from the Global Laundromat scandal landing almost exactly a year on from the Panama Paper leaks is not lost on many readers.
Clearly the lip-service to greater transparency that followed the financial leak has come to nought. The Laundromat scandal has exposed billions of dollars being moved out of Russia through anonymously owned UK companies and Britain’s high street banks. Anonymous companies – the common link between tax fraud, corruption and money laundering – are still yet to be dealt with.
While most companies are created for legitimate economic activity, a small percentage are formed to facilitate crime and obscure those committing it. By using nominee directors, layers upon layers of company ownership and offshore structures, the corrupt hide the trail of dirty money.
The $20bn Laundromat scheme used a series of anonymous companies to pay invoices, acquire loans and create a complex web of corporate structures that obscured the people behind them. It meant that $740m was processed by 17 of Britain’s high street banks including the state-owned Bank of Scotland.
Despite Operation Laundromat involving US banks, anonymous companies are a very British problem. Over 50 per cent of the anonymous companies revealed in the Panama Papers were registered in the British Virgin Islands. British Anguilla and the UK were also among the top ten jurisdictions for anonymous companies mentioned in the Papers, while the UK and the Isle of Man were among the most popular places for intermediaries (such as banks and law firms) to operate.
This year, the UK published the world’s first open and public beneficial ownership register, an important step forward. A preliminary study of this data by OpenCorporates, Global Witness and DataKind showed that almost 3,000 companies listed their beneficial owner as a company with a tax haven address and 76 beneficial owners shared the same name and birthday as people on the US sanctions list.
However, there are gaping holes in UK’s anti-corruption strategy. Companies can still avoid reporting the “true” beneficial owners by using tactics such as nominees, offshore structures or by having multiple beneficial owners who come below the 25 per cent ownership threshold. There is still no register of trusts (notorious for their secrecy) and the UK government has not required the British overseas territories to publish a beneficial ownership register.
Meanwhile the European Union has hardened its stance on corporate transparency in its anti-money laundering initiative. The EU is currently entering the final stages of negotiations to decide whether anonymous trusts and shell companies should be banned.
The UK has a strong record on open company data and commitment to beneficial ownership transparency, but there is still a long way to go. As part of the EU, the UK has to adhere to the Anti-Money Laundering Directive which is looking at the transparency of trusts, an area on which UK has yet to take action.
Though it is too early to tell how Brexit will impact anti-corruption efforts, the resentment against EU regulation is a warning sign. We should not have to rely on leaks such as the Panama Papers or Global Laundromat scandal to catch corruption. Data on who runs, controls and benefits from company profits needs to be in the public sphere so we all can play the role of watch dog.
Hera Hussain is the community and advocacy manager at OpenCorporates.com, the world’s largest open database of company information