Financial Transparency Coalition

This article originally appeared on the blog of Global Witness, a coordinating member of the FTC.

Late last year, David Cameron announced that the UK would put the names of the people who own and control British companies into the public domain – something that we at Global Witness have long been campaigning for, alongside other NGOs such as ONE and Christian Aid. Such transparency is important because it’s well known that people who want to hide dirty money use the anonymity provided by companies to do so. There are plenty of examples of British companies being abused in this way. For example:

• The palace compound of Ukraine’s ex-president, Viktor Yanukovych, was until recently part-owned by an anonymous UK shell company.[1] The Yanukovich Info website claims that other assets belonging to the ex-Ukraine president, such as the presidential plane, hunting forests and villas in Crimea, were owned by anonymous UK companies.[2]
• According to the UN, Ukrainian arms licences have been given to UK shell companies involved in supplying helicopter parts to Syria, military kit to Gaddafi’s Libya and nuclear technology to Lithuania.[4]

• A Global Witness investigation found multiple UK-registered companies appear to have helped facilitate a major money laundering scandal centred on a bank in Central Asia.[3]

• The British arms firm BAE Systems paid $400m to settle charges that it bribed Saudi officials responsible for approving a massive arms purchase, including by using UK shell companies.[5]

Tomorrow will be the first chance that UK MPs get to debate the government’s plans on how to implement this promise: the Small Business, Enterprise and Employment Bill will go for its second reading in parliament.

So how has the government done? Does the detail of what they propose live up to the promise that was made? Does it go far enough to counter the ‘questionable practices and downright illegality’ that the Prime Minister pointed to when announcing the register?

The new legislation is very welcome. In particular, we have repeatedly applauded the UK government for showing the leadership required to be the first in the world to propose putting the names of the people behind companies out into the open. Doing so will be a big step forward in preventing people hiding criminal activities such as tax evasion behind anonymous companies. It is also strongly supported by the public: in polling only 9% of the British public said that company ownership should be allowed to be secret.[6]

However, there are ways that the legislation could be improved. In particular, the following things need tightening up, and we call upon MPs tomorrow to raise these points in the debate:

• Verification. We need to ensure that people who lie about who owns and controls companies stand a reasonable chance of being caught. To do this, there needs to be some degree of verification of the information collected. The government should present a clear plan on how verification will be undertaken, especially in the case of high risk companies.
• Updating. We need to ensure the data is not too old. In the proposed legislation there is only a requirement to update the central register once a year; this provides the potential for the information to become significantly out of date. There should be a requirement to ensure that the register is updated within 14 days of beneficial ownership changing, as is the case for changes in directors.
• Sanctions. The amount of money that can be made through tax evasion or other forms of money laundering is potentially high and therefore any sanctions need to be correspondingly high. At present, the proposed sanctions for not providing information on who owns a company to the public register are too low (a maximum of £250 a day).
• Exemptions. Who is to be allowed to keep information on the ownership of a company out of view of the public? Any exemptions granted should be only made in exceptional circumstances; the reasons for the exemption should be given on the register, and should be able to be challenged by others.

Without these improvements, it’s not too difficult to imagine a wannabe tax evader or corrupt government official finding loopholes that still enable them to misuse UK companies to hide their dirty money. For example, they could lie about who owns their company, safe in the knowledge that there’s not a big chance of them being found out, and if worst comes to worst, not too big a penalty to pay. Let’s tighten up these loopholes and show the world how the UK is leading the way in being open for good, well-regulated business (and closed to the dodgy, money-laundering, criminal sort). And then let’s make sure the UK’s Crown Dependencies, like Jersey and Guernsey, and its Overseas Territories, like the British Virgin Islands, do the same thing.

[1] Rosie Sharpe, Anonymous UK company owned Viktor Yanukovych’s presidential palace compound, 1 March 2014, http://www.globalwitness.org/blog/anonymous-uk-company-owned-viktor-yanukovychs-presidential-palace-compound/

[2] http://yanukovich.info/dr-reinhard-proksch/ The website is produced by Ukrainian journalists investigating the wealth of the former regime.

[3] Global Witness, Grave Secrecy, June 2012. http://www.globalwitness.org/library/grave-secrecy.

[4] Business News Europe, ‘Ukraine defence exporters under fire for UN arms embargo breach’, 18 July 2012, quoting a list provided by Ukrainian diplomats to the UK’s arms export licenses parliamentary committee. http://www.bne.eu/storyf3813/Ukraine_defence_exporters_under_fire_for_UN_arms_embargo_breach.

[5] Jason Sharman, The Money Laundry: Regulating Criminal Finance in the Global Economy, 2011, p. 76.

[6] http://www.comres.co.uk/polls/Christian_Aid___Beneficial_Ownership.pdf

Image used under Creative Commons license / Flickr User: UK Department for Culture, Media, and Sport