Beneficial Ownership

The problem

It’s usually pretty easy to find the name of a company, a listed address, and maybe even the names of some of the staff. But finding the name of the real owner?

That’s a different story.

While many business owners proudly put their names on their office doors and on the paperwork they fill out to create their companies, putting their name on those forms isn’t actually required in most countries around the world. This means that embezzlers, arms traffickers, and drug dealers can be business owners too—the only difference is that they choose to leave their names off the forms they fill out, allowing them to create “anonymous companies” that are perfect for hiding illicit cash.

And right now, it’s perfectly legal.

Anonymous companies (also called shell companies, although not all shell companies are anonymous) are entities that are used to disguise the identity of their true owner—the person (or people) who ultimately control or profit from the company. These people are also known as the “beneficial owners.” Anonymous companies often have very few or no employees at all, and most don’t conduct any real business. They can be used to hide illegal businesses or to facilitate illegal activity, like tax evasion and Ponzi schemes that can rob billions from unsuspecting citizens.

It’s usually pretty easy to find the name of a company, a listed address, and maybe even the names of some of the staff. But finding the name of the real owner?

That’s a different story.

Right now, you can open a company in most countries around the world without providing any information on the beneficial owner. For years in the U.S., you needed to provide more identification to obtain a library card than you did to create a company. Being able to set up a company—which has the ability to move money, open subsidiaries and act as a legal front—without providing any information about who ultimately owns it is a recipe for the perfect crime. With this curtain to hide behind, governments that are responsible for creating companies, banks, accountants, and lawyers become complicit in giving criminals a gassed-up getaway car that’s parked at the front of the crime scene.

Matters are made worse when another anonymous company is listed as an owner. The result mimics a spider web, branching out in tens or hundreds of different ways, creating a nearly indecipherable puzzle for investigators.

Hidden company ownership is a big contributor to the nearly $1 trillion that leaves developing countries illicitly every year. It allows tax evaders, criminals, and corrupt officials to move money undetected, often into banks in the U.S. and Europe.

This outflow of cash deprives developing country economies of much needed capital while denying governments of tax revenue, threatening to wipe out any potential benefit gained from foreign investment. Although billions of dollars of foreign investment and development aid flow in every year, almost double that amount moves out by way of illicit financial flows.

The fix

To address the problem, countries should collect beneficial ownership information on companies, trusts, and other legal entities that are registered within their borders, and make information about companies publicly available in central registers. If ownership information was available, investigators around the world, journalists, and civil society could peel back the layers of ambiguous ownership that anonymous companies create.

Though much of the world still remains shrouded in secrecy when it comes to beneficial ownership information, there has been some movement towards transparency. The U.K. recently became the first government in the world to commit to creating fully public beneficial ownership registers of companies incorporated there. Other countries like Ukraine, Denmark, Argentina, France, and the U.S. have also signaled their support for beneficial ownership registries. In 2020, the European Union also launched its 5th Anti-Money Laundering Directive, requiring all member-states to set up a centralized, public registry of beneficial owners for companies.

Making anonymous companies a relic of the past will help create a global financial system that’s transparent and accountable, and that works for everyone.