A Fair Cop

A simple guide to money laundering, confiscation and corruption

A great deal has been written about dirty money, the harms that it causes and the difficulty of addressing a global problem wreathed in secrecy; a lack of transparency that hides powerful interests. To try and understand what is going on, this article examines a piece originally published on the World Bank blog entitled “Hiding in plain sight: Ending the corrupt abuse of anonymous corporate structures is a development imperative”. Pleasingly, it is clearly written and well-constructed by the authors, Alexandra Habershon and Solvej Krause, but is otherwise commonplace; the analysis is not unusual, the identified problems are ones that fill today’s agendas in international conferences, campaigning articles and news reports.

The blog was part of a series of ten which unpacked the main report entitled “Enhancing Government effectiveness and transparency in the fight against corruption”, so the other blogs and the report itself were also examined, for completeness.

The blog tackles four issues which are set out in order below. The opening paragraph describes the key issue of the moment: Covid, and a global response that was riddled with corruption and dirty money. It summarises a key emerging issue of “beneficial ownership transparency”, yet also points out that the problem is not new, ten years previously, the World Bank had articulated the problem in its seminal work, “The Puppet Masters”. This report had highlighted that “nearly all cases of grand corruption … rely on corporate vehicles … to conceal ownership and control of tainted assets”.

The blog explains who is the blame: “individuals” who set up companies and “professional service providers” and “third-party gatekeepers”. It explains that a huge investment in compliance has “not achieved observable reductions in corruption, financial crime, or money laundering”. The scale of the human misery is then set out and a primary cause is identified: “a lack of transparency of beneficial owners of corporate structures”.

The traditional solutions are then proffered. The World Bank is committed to the solving problem within an $82 billion financial package called IDA19. The Bank offers support to governments to access beneficial ownership. The automatic exchange of tax information is promoted. The blog then concludes that the “pandemic has only reinforced the global consensus around the need for greater beneficial ownership transparency”.

In fact, hiding in plain sight, is the established narrative of solutions, which the blog serves to reinforce. Other factors are mentioned but seemingly obvious solutions are never explored. It is as if these other factors are forces of nature that cannot be tamed.

First among these potential solutions is the fact that “companies, foundations and trusts” are legal structures. The laws that allow them to exist are all controlled by governments. Any lack of transparency is created by those governments. The listing, or lack of listing, is all within the gift of governments. Against this background the World Bank’s promise of “providing support to governments to access beneficial ownership” seems, at best, insufficient. Surely all corporate vehicles permitted by governments to exist should have government verification of their information? This is a basic element of competent administration, to know if something on a government list is true. The World bank identified –  ten years before the blog – that these details were vital to the global struggle against corruption, financial crime and money laundering, so the omission of verification on registration looks absurd. Rather than providing support to some governments to chase elusive beneficial ownership allowed by other governments, surely the Bank should be promoting competent administration of company creation by all governments. This is a clear and cheap way to sort out this obvious problem.

Secondly, the human misery identified in the blog: “corruption, fraud, tax evasion, and illegal exploitation of natural resources” is clearly criminal activity. If we agree with this logic, the people behind the legal structures, the “individuals, professional service providers and third-party gatekeepers” are surely criminals. Yet there is no mention at all of the resources normally used to control criminality. There is no mention of support for arrests, prosecutions and confiscation. This omission of the most obvious way to control criminality feels wrong. Instead, the huge investment in compliance, identified as failing to achieve anything “observable”, is simply a repetition of a failing narrative.

Thirdly, the blog correctly describes the impact of this lack of transparency as devastating and notes that, “developing countries tend to pay the heaviest price because of lost public funds”. In the face of this wholesale tax evasion, the World Bank surprisingly, does not call for a diversion of resources towards investment in tax inspectors and enforcers. Instead help is going to be provided to “exchange information to reduce tax evasion”. Is that really it?

Finally, there is a mystery that is glossed over. Apparently, there are jurisdictions which are “safe havens” for “illicit wealth for investment, safekeeping or spending”. The havens are not listed but described as those that offer the “greatest degree of secrecy”. On first reading the term “havens” suggests tropical islands that are also financial centres. This may be what the authors intended. However, a glance at any tropical island compared to London and New York, tells you that whilst there may be some temporary safekeeping in such havens, the investment and spending is taking place in the global north, particularly in rich urban centres. The focus of the global effort is often directed at secrecy jurisdictions based on small islands, but perhaps the global north should examine the mirror to see where these secrecy jurisdictions really are.

Our corporate structures are registered without verification of ownership. This is just a type of secrecy. Those same corporate structures invest in real estate and their owners spend millions on lavish living and exclusive education for their children. Could it be that the dirty money is not actually in “safe havens” but being invested and spent in plain sight, is it just pretending to be in “safe havens”?

The blog does not mention another aspect of investment and spending in the global north. The public purse spends vast sums on corporates that deliver government-funded services, like utilities, health and welfare. Millions of people are housed at the public expense in real estate owned by corporate bodies. The failure of governments to verify corporate information means that there is a substantial hole in the public procurement regime. There are controls of how public money is spent (supposedly) but nothing to ensure who the offshore recipients really are. This means that the controllers of the public purse are handing it over without knowing to whom. They cannot know because there is no verification process.

The blog confirms the global narrative, diverting us towards the rabbit-hole of beneficial ownership, the expense of money laundering compliance and the futility of tilting at offshore havens. This directs our attention away from solutions within the direct control of national governments: the competent registration of corporate structures; the enforcement of criminal laws; the collection of taxes and the easiest of all, the control of money going in and out of the public purse to make sure that it is clean.

In our recent book Nicholas Gilmour and Tristram Hicks explore these solutions and put them in the context of a War on Dirty Money

In 2011, the World Bank called out the ‘Puppet Masters’ and condemned them. Sadly, on this analysis of the current World Bank narrative, they are still pulling the strings.

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