3 steps to stop secret companies

The Panama Papers investigation – an analysis by a network of news organisations led by the International Consortium of Investigative Journalists of 11.5 million leaked documents -- shows just how many rich, famous and politically connected people, from heads of state to crime bosses and business owners, hide their wealth behind the façade of secret companies.

They often do this explicitly to evade taxes and launder money from illicit activity. This can and must be stopped by comprehensive global agreements to end the use of secret companies. The investigations focussed on Mossack Fonseca, a law firm in Panama, a country known globally as a secrecy jurisdiction.

But Panama is not alone. The world is dotted with states and territories that make a specialty of providing services whose purpose is to facilitate ways to hide assets. Top secrecy jurisdictions include everywhere from British crown dependencies to US states like Delaware and Nevada, and many more in between from Andorra to Vanuatu.

Not all of what they do is illegal but so much of it is that the whole system needs changing.

Transparency International has three key asks:

1. All countries should require much higher levels of transparency around who owns and controls companies registered in their territories.

• Governments should establish central, registries that publicly disclose beneficial ownership information. This will help law enforcement, journalists, and governments to do their job and help investors and citizens know who is behind the companies they invest in or buy from.
• Governments should support the initiative of Transparency International and other partners in creating a Global Public Beneficial Ownership Registry, which can be populated by individual government-held beneficial ownership information.

​2. Professional enablers that are found to be complicit in corruption must be sanctioned.

• Governments should fully comply with international standards to require professionals in law and accountancy, real estate, as well as company formation agents and bankers to have in place anti-money laundering procedures and report suspicions of money laundering.
• Governments should establish more effective oversight and sanctions for these sectors. Professional bodies should withdraw professional licenses from those implicated in wrongdoing.

​3. All countries should require any company bidding for public contracts or purchasing property to disclose on whose behalf they are operating.

• Governments should require any company, whether incorporated domestically or in a foreign jurisdiction to be transparent about who is ultimately in control of the company. This would help to put additional pressure on companies to be more transparent in order to qualify for lucrative government contracts

In May the UK will host a global anti-corruption summit with world leaders. This presents an important opportunity to get global agreement on ending secrecy in the financial system. Now is the time to take decisive actions to close the loopholes that the corrupt use.

The Panama Papers show an array of people and banks using the services of Panamanian law firm Mossack Fonseca to register secret companies.

These include:

• A member of FIFA’s ethics committee Juan Pedro Damiani, who had business relationships with three men indicted in the FIFA scandal
• A cellist friend of Russian president Vladimir Putin who shifted more than $200 million through Panama
• The wife of the prime minister of Iceland
• Two kings, from Morocco and Saudi Arabia
• 500 banks including HSBC, Credit Suisse and Société Générale, who between them set up more than 15,000 corporate entities
• 29 billionaires featured in Forbes Magazine’s list of the world’s 500 richest people
• Lionel Messi, the world’s most famous footballer

Mossack Fonseca denies any wrongdoing. It says “the company is no more culpable than an automobile factory that built a car later used in a robbery”.

But such excuses are wearing thin and lack logic. The law firm is more like a company that sells high speed cars with tinted windows and no number plates that then acts surprised when the cars are used by criminals.

Instead of facilitating potentially corrupt acts, all law firms and other professionals should carry out the due diligence that is needed to prevent corruption when they take on clients. While many note that their actions are not illegal, the focus should be on acting with integrity to stop corruption worldwide.