Away with anonymous shell companies for good?

On 24 February 2021, Transparency International submitted a global petition to the UN General Assembly preparing for the United Nation’s first ever Special Session against Corruption, UNGASS 2021, which will take place in June 2021.

The Petition

The petition calls for UNGASS 2021 to put an end to anonymous shell companies facilitating cross border corruption and other crimes, by committing all countries to set up national, public registers of companies, and in turn, create a new ‘global standard’ for beneficial ownership transparency.

As Transparency International explains:

“Transparency in company ownership is more than a technical solution to a problem. It is a matter of social justice.”

The petition is signed by over 700 organisations and individuals from 120 countries, including well known multi-national companies and distinguished diplomats.

Anonymous shell companies are recognised as one of the most widely used  methods for diverting public funds, channelling bribes, evading tax and concealing ill-gotten gains, as part of cross-border corruption and money laundering schemes.  This should not be viewed as an issue that exists only in those jurisdictions who have traditionally been recognised as tax havens and the home of shell companies.  In Australia, our own corporate watchdog, Australian Securities & Investments Commission (ASIC), has acknowledged the issue.  In 2019, ASIC’s then Commissioner, John Price, recognised that ASIC’s companies databases:

“do not verify the identity of directors [and] we generally take information given to us at face value … There is limited transparency of relationships between directors and multiple companies”.

More recently, in 2020, John Price told a joint parliamentary committee that “[t]he system in Australia for registration of directors is just that — it's a registration system, it's not a checking system”.

The proposed public registers of companies would include beneficial ownership information on the natural persons who ultimately own, control or benefit from a legal vehicle, and would also include information on directors and shareholders. The  hope is that this will:

• enable more effective cross-border enforcement and the tracing of ill-gotten assets for confiscation and return;
• allow companies to more easily carry out due diligence on their partners and customers, the need for which has never been more important in an era where corporates have ever increasing legislative obligations to self-regulate and to properly understand who they are doing business with; and
• allow companies to better meet their own reporting obligations under the magnitude of ESG and corporate social responsibility laws including in relation to anti-bribery and corruption, money laundering and human rights and modern slavery regulation globally.

Of course, an internationally enforced public register of companies would also act as a deterrent to the establishment of shell companies for improper or criminal purposes, in the first instance.

Other global groups considering beneficial ownership transparency

Transparency International is not the only group considering this issue.  On the 25^th of February 2021, a day after Transparency International submitted its petition to the UN General Assembly,  the high level UN Financial Accountability, Transparency & Integrity (FACTI) Panel unveiled its 2021 Report containing its recommendations on ways to stop corruption, tax abuse and money laundering.

Recommendation 3 of that Report identified anonymous companies as the root cause of many of the world’s corruption problems and suggested that:

“International anti-money-laundering standards should require that all countries create a centralised registry for holding beneficial ownership information on all legal vehicles. The standards should encourage countries to make the information public.”

The Report goes on to further suggest that “[t]his transparency tool can be made more effective by tying public contracts to compliance with the regulations, holding directors liable, and applying penalties such as deregistration for deliberate wrongdoing.”

Globally, the international standards governing anonymous shell companies are set by the Financial Action Task Force (FATF). Notably, delegates representing the members of the Global Network and observer organisations, such as the IMF, the United Nations and the World Bank, met in the same week starting Monday 21 February 2021 for the FATF 2021 Plenary, where beneficial ownership transparency was on the agenda.

Through their own mutual evaluations, as well as high profile examples of abuse, they noted that criminals are still able to hide their illicit assets behind anonymous or complex legal structures. They discussed how to improve transparency and ensure that up-to-date beneficial ownership information is available to authorities. Ultimately, they are considering whether a review of the global standard on beneficial ownership is needed – a decision which would need to be unanimously approved by its 39 member jurisdictions and organisations.

So, is this the beginning of the end for anonymous shell companies?

Of course, some FATF member countries and organisations may still resist progress, even if measures are implemented.

However, what we do know for certain, is that beneficial ownership transparency is at the forefront of the most prominent anti-bribery and corruption global leaders’ and policy makers’ minds, and that global efforts to eliminate and prevent cross-border corruption are rapidly evolving. This can be seen by the activity of Transparency International, FACTI and FATF in one week alone.

DLA Piper is committed to working with businesses to ensure they are aware of the processes they can implement to counter risks of corruption in business. If you have any questions or would like to know how we can assist, please phone or email our key contacts below.

DLA Piper will provide a further update following UNGASS 2021, scheduled for June 2021.

For any queries you have in relation to white collar crime, please reach out to our core team contacts: Natalie Caton, Jonathon Ellis, Gowri Kangeson, Matthew Spain and John Fogarty.