A global corruption watchdog, Transparency International says that many G20 members have failed to create strong frameworks to stop financial crimes.
Most major nations have not made significant advances toward their stated goals of creating strong frameworks to stop financial crimes, particularly financial crimes committed by companies with anonymous or otherwise hidden ownership.
That is the contention of a new study, entitled “G20 Leaders or Laggards? Reviewing G20 Promises on Ending Anonymous Companies,” issued by the Transparency International organization, which calls itself a “global movement with one vision: a world in which government, business, civil society and the daily lives of people are free of corruption.”
The Berlin-based organization, created in 1993, currently tallies chapters in 100 countries worldwide.
Transparency International’s study asserts that “governments in the world’s largest economies are still moving too slowly to ensure that citizens and law enforcement can find out who really owns companies operating within their borders.”
Eleven G20 countries still have “‘weak’ or ‘average’ legal frameworks for beneficial ownership transparency, despite adopting the G20 High-Level Principles on Beneficial Ownership Transparency in 2014,” Transparency International says.
Though “some progress has been made since a similar assessment was conducted in 2015,” particularly in France, Germany, Italy and Brazil, the report emphasizes that “all G20 countries have significant room for improvement.”
“In particular, ten G20 countries and two G20 guest countries have ‘very weak’ legal frameworks when it comes to providing law enforcement, tax authorities and financial intelligence units with access to any beneficial ownership information,” according to the report, which identifies the “guest” countries as the Netherlands, Norway, Spain and Switzerland.
Those weak legal frameworks have been factors in recent major financial scandals, according to Transparency International. Those scandals include:
- Brazilian engineering company Odebrecht was accused of paying around $788 million in bribes, some of which flowed through United States banks to 12 countries between 2001 and 2016, including fellow G20 members Argentina and Mexico, T.I. says. In 2017, Odebrecht was fined $2.6 billion for bribery.
- In the so-called Russian Laundromat scandal, which T.I says was “exposed” in 2017, a group of individuals in G20 member Russia “allegedly created 21 shell companies, which then moved and laundered ill-gotten money out of the country, making more than 26,000 payments to 96 different countries including every G20 country aside from Brazil.”
“We increasingly see how anonymous companies that hide the identity of the person at the source of the funds have been used either to launder and transfer stolen money, or to operationalise corrupt deals — using the companies and offshore accounts to pay bribes or buy influence,” according to a T.I statement, which also points out that it’s been “over two years since the Panama Papers revealed widespread use of anonymous shell companies to facilitate corruption and financial crime.”
The only G20 country that has a publicly available central register of beneficial ownership information is the United Kingdom, according to the Transparency International report, which declares that “[a]ll other governments should follow suit.”
According to Black’s Law Dictionary’s widely accepted definition, “beneficial ownership” is a legal term for “specific property rights (‘use and title’) [that] in equity belong to a person even though legal title of the property belongs to another person.”
“Argentina, India, Russia, Saudi Arabia, South Africa and Turkey have not significantly improved their framework since 2015,” according to the T.I. report. “Canada and South Korea lag especially far behind as the only two countries of the 23 analysed that have a ‘weak’ beneficial ownership transparency framework overall.”
Currently, Canada is “at the bottom of the pack in terms of meeting G20 commitments to beneficial ownership transparency,” Alesia Nahirny, executive director of Transparency International Canada, says in a statement. “The glacial pace of progress by the federal, provincial and territorial governments is an invitation to the corrupt, tax evaders and money launderers to continue ‘snow washing’ their dirty money in Canada. Meanwhile, Canada’s reputation deteriorates further with only words to show and no concrete accomplishments.”
“Since the G20 Principles were adopted, we’ve seen more and more examples of how financial secrecy facilitates cross-border corruption. G20 countries should be leading the way to put a stop to this. While they drag their feet, countries such as Afghanistan, Ghana and Nigeria have been moving forward with plans for important mechanisms like public registers of beneficial ownership,” according to Maggie Murphy, senior global advocacy manager at T.I.
The report specifies “issues” for “many of the countries assessed” that include: an “absence of processes for verifying registered company information; overdue money-laundering risk assessments; and insufficient regulation of lawyers, accountants and nominee shareholders.”
The report points out that real estate agents in five G20 countries (Australia, Canada, China, South Korea and the United States) are “not required by law to identify the beneficial owners of clients buying and selling property, despite recent major corruption scandals involving high-end real estate.”
The report’s key findings include the following:
- G20 Countries are starting to tackle anonymous company ownership — but progress is slow;
- The majority of countries still do not know who owns and controls companies in their territories and do not keep up-to-date information on them;
- Verification of information is weak across the board. This undermines the ability of competent authorities to investigate suspicious cases, and the ability of banks and businesses to carry out proper due diligence;
- Rhetoric does not always translate into action. Governments are frequently aware of the weaknesses in their systems, but in many cases fail to implement key measures they know will help mitigate those problems;
- Gatekeepers (such as lawyers, accountants, real estate agents), and trusts and company service providers remain money-laundering weak spots.
The report’s key recommendations include the following:
- Governments should establish a central register of beneficial ownership information and make it publicly available in open data format.
- Financial institutions or DNFBPs should not be allowed to proceed with transactions if the beneficial owner of their customer cannot be identified.
- Governments should undertake national money laundering risk assessments on a regular basis.
- Governments should consider prohibiting nominee shareholders. If they are allowed, they should be required to disclose their status upon the registration of the company and registered as nominees. Nominees should be licensed and subject to strict anti-money laundering obligations.
- Governments should require the registration of both domestic and foreign trusts operating in their country. Information on all parties to the trust (trustee, settlor and beneficiaries), and the real individuals behind them should be recorded.
FTF News contacted FINRA, the Financial Industry Regulatory Authority, and asked if the self-regulatory organization disputed any of the T.I. conclusions or recommendations. There was no reply.
To read “G20 Leaders or Laggards?,” the latest T.I. report on the subject of G20 financial crime and regulation, go to this link.
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