What is the problem?
The ‘Panama Papers´ revealed in April 2016 were a widely discussed phenomenon. But, what did they actually tell us that we didn’t already know? That the global financial system is plagued by shady practices and secrecy? This is a well-known tale.
What is striking is the magnitude and scale of the scandal which rocked the worldwide political and economic elite. High-level politicians from around the world, including twelve national leaders, as well as football players, banks and law firms were implicated for using or facilitating these offshore shell companies.
This is only one tiny piece of the puzzle, Mossack Fonseca being one of many of these facilitating companies. According to the IMF and the UN, between 2 to 5 per cent of the world GDP may be laundered every year much of it by hiding company ownership and less than 1 per cent of this illicit money is being detected. The reasons accounting for such a low detection rate can be found in the safe harbors offered by the global financial system whereby corrupt individuals and money launderers can easily distance themselves away from the crime through the use of anonymous shell companies or trusts. Pick any major corruption scandal in recent history – alleged bribery among representatives of football’s world governing body, FIFA; allegations of political kickbacks involving the Brazilian energy giant Petrobras, embezzlement charges against Viktor Yanukovych – and you will find a secret company was used to pay a bribe, shift and hide stolen money, or buy luxury real estate in places like London and New York. And this was also the case in 70% of the 200 grand corruption cases analysed by the World Bank in their Puppet Masters’ report.
Under current rules, the person really owning or controlling the assets, also known as the “beneficial owner” can easily remain behind the scene by setting up companies or trusts in jurisdictions that do not require to register the beneficial owner of the company or by hiring nominees or proxies to sign the papers.
While significant progress has been made at the global level in the last few years to open up transparency around beneficial ownership, there are still major challenges ahead of us. The current international standards such as the FATF Recommendations, the G8 principles on beneficial ownership transparency and the G20 High Level Principles adopted in the past 4 years only partly address the issue.
More recently, the Panama Papers catalyzed a number of initiatives at both national and global levels starting with the high level commitments made at the London Anti-Corruption Summit of 12 May 2016 to create public registers of beneficial owners. At the European level, the European Commission has announced further improvement to beneficial ownership provisions of the 4th Anti-Money Laundering Directive that was adopted last year and is currently being transposed by EU Member States into national law. At the national level, some countries, like the UK are leading the way, but much more needs to be done to ensure that those promises are followed through and translate into effective implementation.
What are we doing?
Transparency International is committed to making this happen. Our first contribution has been to collect evidence from the ground on what is working and what is not working, on the gaps left in legislation and enforcement, on the technical or political challenges and best practices in different national contexts.
In this respect; Transparency International carried out a pilot research project on Enhancing Beneficial Ownership Transparency in six EU countries, namely Czech Republic, Italy, Luxembourg, Netherlands, Portugal and Slovenia. The objective of the project was to assess beneficial ownership transparency looking both at the adequacy and effectiveness of the overall legislative and regulatory framework. The national risk assessments were assorted with concrete case studies identified in particularly high-risk areas.
The results of the project were summarised in a synthesis report published in April 2017 Under the Shell: Ending Money Laundering in Europe which can be downloaded here. The results were used to push for a legislative and behavioral change towards greater transparency around beneficial ownership. Because we should not have to rely on leaks for the kind of information that was revealed in the Panama Papers.