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Thursday
Jul182019

Offshore shell companies reveal the hypocrisy of U.S. service providers

It may be perceived that Transparency International (TI), and its now-rebranded former U.S. branch, the Coalition for Integrity (CI), and I do not get along. In fact, we all want the same thing. However, we do not agree on the means to achieve the shared ambition of reducing global corruption.

The excellent post published in May by Shruti Shah and Michael Hershman, in which they called for the U.S. government to act by involving the Financial Crimes Enforcement Network (FinCEN) in the overseeing of U.S. shell companies drew my attention for several reasons, not least of which is that I have been expressing the same opinion for several years on the FCPA Blog, too.

The authors make a number of excellent points, including the link between grand corruption and the violation of human rights, accurately concluding that the recent developments and unrest in Venezuela are indicative of what happens when the corrupt oversee a state. I have long-advocated that grand corruption should be considered a crime against humanity under Article 7(1)(k) of the Rome Statute establishing the International Criminal Court. I have written articles on the subject and discussed its implications.

The issue of anonymous shell companies being vehicles for grand corruption, and resultant money laundering, is already well established. What I am pleased to see is that TI and CI are at last targeting the U.S. over the regulatory failings of company ownership. I have previously drawn attention to the U.S. and its "offshore" service providers in Nevada and Delaware, for example, as being regulatory blackholes.

The U.S. often portrays herself as the world’s police force. In many respects she is, but not where offshore services are concerned. The U.S. bangs on relentlessly about the problems of money laundering and targeting the rest of the globe to change their ways or face sanctions -- when, in actual fact, she needs to get her own house in order. The U.S. stance is hypocritical. It is right that the authors take it to task. 

When the Panama/Paradise Papers broke, there were few Americans implicated. Why? Because Americans had no need to seek offshore services elsewhere: they were readily available on their own doorstep.

One of the core advocacy objectives of TI and CI is to achieve greater transparency: something I also advocate, but with the rider that this does not necessarily involve a need for breaching an individual’s private life or destroying valuable investigative material by the blunt instrument of public company registers. My adopted home of the British Virgin Islands (BVI) has been a regular target for criticism by both TI and CI, especially since the Panama/Paradise Papers hit the news.

The fact remains that the BVI is well regulated. Ultimate Beneficial Ownership (UBO) details of BVI companies are not only readily available, but they have been verified. The UBO information is available to competent foreign authorities/law enforcement/tax agencies within seven days if it is a normal Egmont Group/FIU request, or within 24-hours in the case of an emergency, via the BVI’s Beneficial Ownership Secure Search System Act 2017. Add to this the Tax Information Exchange Agreements already in place, and it is clear that the BVI has upped its game and is now a leading light where offshore services are concerned.

Where the authors and I are likely to part ways on agreement is that I believe that privacy is a right worth defending; and that the unintended consequence of moving away from a system of controlled transparency (like the BVI’s), to a purely open one (as advocated by TI/CI) is that large pools of valuable UBO investigative material linking wrongdoers to offshore companies will be destroyed. Why? Because crooks will not opt to openly link their names to their asset-holding vehicles for all the world to see at the click of a mouse.  The answer to all our problems is not an open public register of UBO information. 

Conversely, the U.S. offshore world is decidedly shady and reeks of corruption. As the authors quite rightly pointed out in their piece, there is a total lack of transparency in these areas of the U.S., where UBO information isn’t collected, and even where it is, it appears not to have been verified.

Where the TI/CI proposals will fail is under the current U.S. regime. There is absolutely no appetite for transparency where U.S. shell companies are concerned. Far too many of them are owned by those in powerful positions. It would be tantamount to a turkey voting for Thanksgiving.

This said, I wish the authors well with their endeavors. There may well be a gentle and encouraging swing towards their position as they have highlighted. But I struggle to believe that ultimately the powerful Delaware and Nevada caucuses to Congress will embrace their ambitions. There are far too many politically-connected individuals who have been using the inherent secrecy of the U.S. offshore services. 

I suspect that FinCEN may well consider that taking on the collection of the UBO data falls within its remit. Sadly, I don’t believe that those in Congress who are in a position to make the changes by legislation will share that perspective. But kudos to Ms. Shah and Mr. Hershman for at least drawing attention to what is an American problem that never gets the negative publicity it so richly deserves.

With thanks to Tony McClements, Senior Investigator at Martin Kenney & Co, for his assistance with this post. He served for 33 years with UK police forces and has specialized in Fraud & Financial Investigation since 1998. He is also a lecturer in these subjects at the University of Central Lancashire (UCLAN).

_____

Martin Kenney, pictured above, is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery practice based in the BVI, focused on multi-jurisdictional fraud and grand corruption cases www.martinkenney.com |@MKSolicitors. In 2014 he was the recipient of the ACFE’s highest honour: the Cressey Award for life-time achievement in the detection and deterrence of fraud. He was selected as one of the Top Thought Leaders of the Legal Profession in 2018 by Who's Who Legal International and as the number one offshore lawyer for asset recovery in 2018.

Reader Comments (1)

Martin,
Well said. I recently testified to the US Senate Judiciary about this issue and have written in several other places about the strategic importance of keeping UBO information strictly private.

Testimony: https://www.judiciary.senate.gov/meetings/combating-kleptocracy-beneficial-ownership-money-laundering-and-other-reforms

Long form oped in The National Interest: https://nationalinterest.org/feature/business-funding-terrorism-threats-60882

Best,
Clay
July 18, 2019 | Unregistered CommenterClay R Fuller

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