As The Walls of The Old Ukraine Come Down, Anonymous Companies Keep Popping Up

June 11th, 2014

8436826724_7e2b377e93_zIt’s been months since the ousting of Ukrainian President Viktor Yanukovych. As the walls of the old regime come down, more and more stories of anonymous companies, often those with no walls at all, continue to come to light.

A new report from the AP has highlighted the massive extent that anonymous companies—fake companies set up to funnel money undetected—were, and still are, a part of Ukraine’s rampant corruption problem.

Investigations by Ukrainian journalists are still piecing together documents uncovered at Yanukovych’s palace after he fled to Russia. We also know that the presidential palace itself was owned, in part, by an anonymous company based in the UK.

The AP looks into the use of anonymous companies, also known as phantom firms, and how they were used to shift money from businesses to corrupt politicians.

From the report:

As Ukraine’s tax chief tells it, the billion-dollar theft was planned at a see-through plastic table in a vault of sound-proof steel.

The table and six matching transparent chairs sit in a secret chamber on an upper story of the Tax Ministry in Kiev. It was the epicenter, he and other tax officials say, of a massive fraud suspected of squeezing 130 billion hryvnias ($11 billion) from Kiev’s coffers over the past three years — an amount equal to more than half a year’s tax revenue for the entire country.

It’s alleged that businesses routed illegal payments to politicians through anonymous companies that only exist on paper. These phantom firms provide no information on who actually owns them, making investigations complex and time consuming.

Exhibit B is a massive hole in the ground on Saperne Pole Street, on the other side of town. The pit, foundation work for an apartment complex to be completed next year, is where the headquarters of a trading firm named Mistral are supposed to be.

On paper, Mistral was a management consulting and research company that did millions of dollars’ worth of deals before going bust early this year, after Yanukovych was chased out of office. But when police recently tried to visit its offices at 12 Saperne Pole, there was no trace of Mistral, whose name refers to a type of wind.

The numbers on Saperne Pole jump from 9 to 22.

Unfortunately, the problem of anonymous companies isn’t limited to places in crisis, like Ukraine. One of the biggest providers of financial secrecy in the world is the US state of Delaware, where you have to provide more information to get a driver’s license than you do to start a company.

It is a global problem that needs a global solution.

Pressure is growing on the international level to address anonymous companies. Public registers that identify beneficial owners—the person(s) ultimately controlling a company—would help curb the illicit movement of money.

The UK is moving to set up publicly available registers of beneficial ownership information. In March, the European Parliament overwhelmingly voted to create public registers of beneficial ownership. But as more cases of corruption continue to surface, it’s important that momentum worldwide is not lost.

Image used under Creative Commons License / Some rights retained by Flickr User CentralNiak

Written by Christian Freymeyer

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