13 November 2013, by Christine Clough.
A lack of information on the true owners of financial accounts plays a pivotal role in facilitating corruption and blocking investigations and asset recovery efforts. The UN Convention against Corruption (UNCAC) calls on States Parties to collect and record beneficial ownership information on corporate entities for anti-money laundering purposes. States are also supposed to require financial institutions to verify such information, particularly for high-value accounts and transactions.
Bankers and financial intermediaries channel ill-gotten gains to accounts that list anonymous shell companies as the “owners.” The paperwork on these entities, if a record exists, lists nominee directors or shareholders, masking the name of the ultimate controller of the company. Anonymous trusts provide similar hideouts, and money launderers frequently use both to multiply the layers of secrecy. Those engaging in corruption can then launder their money and reinvest it or go on luxury spending sprees.
These opaque identities nullify regulations that require banks and other financial institutions to apply due diligence to transactions that may involve the proceeds of corruption, such as those for politically exposed persons (PEPs). Financial institutions cannot apply these rules or adequately flag suspicious transactions if they lack accurate information on the true controller of the funds. The missing documentation can also prevent investigators from proving corruption charges and returning stolen assets.
Article 12 (2) (c) of the UNCAC calls on states to “Promot[e] transparency among private entities, including, where appropriate, measures regarding the identity of legal and natural persons involved in the establishment and management of corporate entities.”
Article 14 (1) (a) extends this requirement to include keeping a record of beneficial ownership information and applying these rules to service providers. Article 52 (1) states that government should require financial institutions to verify the beneficial ownership information for high-risk accounts, including PEPs and their close associates and family members and high-value accounts.
Follow-through on these articles has been lacking. The British government is establishing public registries of beneficial owners for corporations; other G8 members have committed to create their own registries. Delegates at the 5th COSP should agree to promote compliance with the UNCAC articles.
About Christine Clough
Christine Clough is a senior program officer for Global Financial Integrity.