Financial Transparency Coalition

Cross posted from Transparency International’s Space for Transparency blog.

flickr / kallu

Last week the massive “Offshore Leaks investigation by the International Consortium of Investigative Journalistsreported the uncovering of the beneficial owners of thousands of offshore companies.

Among the owners of offshore shell companies disclosed so far are several senior politicians and their close families in various countries.

‘We especially recommend the Seychelles’

With an internet connection, a credit card, and as little as 690 euros, it can take under 10 minutes to set up a shell company.  Let’s take a quick tour of two online providers of offshore services, randomly selected out of the hundreds of companies selling secrecy.

Our first stop is at the website www.offshorecompanyexperts.com, owned by a law firm called Coldwell, based in London. The homepage already makes clear what they are offering:

“Benefit from going offshore. Privacy, limited liability, asset protection, tax exemption”.

And in highlighted text:  “We especially recommend the Seychelles“.

What comes next is a simple series of steps, similar to buying a plane ticket online.

• €690 – the cost of the basic services needed to incorporate a company in the Seychelles, including a certificate of incorporation, minutes of board meetings, the resolution to rent an office, and a register of directors.
• €390 – the extra fee for a “Privacy Protection Shield”, which in practice means a nominee service through a law firm.
• €390 – the cost of opening a bank account for an offshore company.
• €49 – just to make things look respectable, a small fee to get a logo, rubber stamp, seal and name plate.
• €2000 – the total fee, together with a couple of other recommended items (apostille, virtual offices, etc)./li>

All I would have had to do to become the proud owner of an offshore company was to complete the last step and provide my personal and credit card details.

And what kind of business can the owners of shell companies get into?

The company ocra.com has a series of useful “operational case studies” to help us explore our alternatives. This one involves a hypothetical businessman named Mr Dokic who sets up a company in Cyprus, in order to import goods from Taiwan into the EU and “mitigate his tax exposure on his profits”. In the meantime the enterprising Mr Khan uses a British Virgin Islands company to pay no capital gains tax when cashing in on a property investment in London.

When will governments take action?

Despite promises by international organizations and G20 governments to crack down on tax havens following the financial crisis which started in 2008, the services described in this blogpost are perfectly legal under the laws of the jurisdictions offering them. And thanks to the large number of companies offering company incorporation services online, it is now easier than ever to take advantage of these laws.

Although shell company providers may be ticking all the necessary boxes in order to be compliant with anti-money laundering legislation, it is hard to see how they – or any offshore regulatory authority – could in practice distinguish between “tax mitigation” activities and clients who are taking advantage of anonymous ownership to engage in corrupt or criminal activities.

This is why a group of civil society organizations gathered under the Financial Task Force are calling for the beneficial ownership of companies in every jurisdiction to be readily available on public record, and for financial institutions to be required to identify the ultimate beneficial owners of any company seeking to open an account.

In the medium term, I am optimistic that with growing pressure from citizens and the media, change will come and offshore activities will be properly regulated. Many things which were once legal are today unthinkable. Maybe future generations will look back at the early 21^st century and wonder how it was ever possible to set up an offshore company that easily.