Sanctions and Anti-Money Laundering Bill

Written evidence submitted by Global Witness (SAMLB04)

Summary:

· New analysis by Global Witness found thousands of companies are either not complying with new rules to identify their Persons of Significant Control (PSCs) or are filing highly suspicious entries, presenting a serious money laundering risk.

· Loopholes in the way companies are able to file their statements of Persons with Significant Control and the lack of verification of the data is undermining the quality of the register.

· Companies House needs more resources and clear responsibility for ensuring companies comply with the register and investigating and prosecuting those that do not.

· Global Witness supports amendments N10-N15 related to UK company incorporation.

· Trusts can be highly effective tools for money laundering, allowing individuals to disguise the ownership of assets while still benefitting from them.

· Global Witness recommends establishing a public register of the beneficial owners of UK-connected trusts, building on the existing register for beneficial owners of trusts with "tax consequences".

· Global Witness also strongly believes and supports related amendment for to require i) public registers of company beneficial owners in the UK’s Overseas Territories; ii) a public register of beneficial owners of UK properties that are owned by overseas companies.

Introduction

1.1. Global Witness is an international advocacy organisation that investigates and seeks to break the links between natural resources, conflict and associated environmental and human rights abuses. Our model is to carry out hard-hitting investigations, expose these abuses, and campaign for policy change. We are independent, not-for-profit, and work with international partners.

1.2. One of our major campaigns seeks an end to anonymous ownership by bringing into the public view the real beneficial owners behind companies and trusts.

UK Companies and Beneficial Ownership Transparency

2.1. Over the past 20 years, Global Witness investigations have shown how anonymously owned companies act as getaway cars for criminals and the corrupt – allowing them to launder their ill-gotten gains and benefit from their crimes. Anonymous companies incorporated in the UK have been at the centre of some of the biggest money laundering and corruption scandals in recent years, including the Panama Papers [1] , and the Russian [2] and Azerbaijani [3] Laundromats. Research from Transparency International UK identified 766 UK corporate vehicles allegedly used in 52 large-scale corruption and money laundering cases amounting to nearly £80billion. [4]

2.2. Set up in 2016, the UK Register of People with Significant Control (PSC) is the world’s first public register of individuals who own or control companies (i.e. beneficial owners) in open data format. Public information on these individuals includes their name, month and year of birth, nationality, and details of their interest in the company. It allows any member of the public, including other businesses, journalists and civil society organisations, to see the information and download it as structured data. As highlighted by David Cameron when announcing the register, "People have a right to know who controls UK companies and greater openness will help tackle tax evasion, money laundering and other crimes." [5]

2.3. In February 2018, Global Witness released initial results from the biggest ever analysis of the UK’s company beneficial ownership data [6] –the PSC register. The UK government led the world in creating the first public register of the true owners of companies, and set the bar in making the data available as open data. Using cloud computing, we have been able to build an unprecedented picture of UK companies and their owners, and found:

· Nearly one in ten UK companies - 350,000 - still haven't named a PSC with the UK registry.

· Four thousand beneficial owners are listed under the age of two, including one who has yet to be born.

· Four in five Scottish Limited Partnerships (SLPs) have not named a PSC.

· Of the SLPs that have named a PSC over 40% list one beneficial owner as either a national of a former-Soviet country or a company incorporated there. This compares to just 0.01% of all Limited Companies (by far the most widely used UK company type).

· Five beneficial owners control more than 6,000 companies, which raises cause for concern that these individuals could be nominees.  

· 7,000 companies declaring that they are controlled by companies registered in secrecy jurisdictions, which is not allowed under the regulations.

· Another 25,000 companies stated that they're ultimately controlled by companies which themselves list no PSC.

Challenges

2.4. Our analysis shows that thousands of companies are either not complying with the rules or are filing highly suspicious entries – meaning that despite the efforts so far, we still do not really know who owns thousands of UK companies.

2.5. Loopholes in the way companies are able to file their PSC statements and lack of verification of these statements enables individuals to continue to hide their true ownership of a UK company. Methods for avoiding disclosure range from simply filing a PSC statement that says the company has no PSC to more sophisticated means such as using a nominee PSC or listing companies in tax havens as a PSC.

2.6. Companies House does not have clear responsibility for carrying out systematic verification of beneficial ownership data. The UK Government confirmed earlier this month that there are no plans to introduce automated verification of beneficial ownership data [7] .

2.7. Companies House also does not have adequate resources to verify of beneficial ownership data. Until recently, Companies House only had six staff responsible for policing 4 million companies. In January, the UK Government confirmed there are now 20 staff employed at Companies House to deal with PSC compliance activities. [8]

2.8. While Companies House has taken some steps to address non-compliance, many gaps remain for ensuring data validation (e.g. standardised multiple-choice fields for countries or nationalities, validated UK addresses, plausible dates of birth) and verification (e.g. proof of identity, crosschecking with other data sets).

2.9. Ensuring that companies provide accurate beneficial ownership data also requires credible and dissuasive sanctions for noncompliance. Failure to provide accurate information to the UK register is a criminal offence and may result in a fine and/or a prison sentence of up to two years, yet so far no fines have been issued, [9] including for SLPs, [10] and there is no evidence of cases being referred for investigation.

Recommendations

2.10. Companies House needs more resources and clear responsibility for ensuring companies comply with the register. This should include having effective systems to validate data that is provided to the register, and verify its accuracy.

2.11. Companies House should proactively identify cases of non-compliance and prosecute individuals that mislead or provide false information to the register. Without this, criminals and the corrupt will still be able to use anonymously owned UK companies to launder their dirty cash unpunished.

2.12. Global Witness supports the following related amendments to the Sanctions and Anti-Money Laundering Bill:

· NC10 (Dodds & Goodman) on ‘Registration of companies: anti-money laundering checks’ which amends the Companies Act 2006 to ensure that the Registrar of Companies does not register a company under that Act unless the required anti-money laundering checks have taken place.

· NC11 (Dodds & Goodman) on ‘Due Diligence’ which would ensure that when a company is formed in the UK, the relevant formation services must identify the beneficial owners of the company. It will also treat Companies House as a "company formation agent", ensuring that the data on the public register of beneficial ownership for companies is accurate.

· NC12 (Dodds & Goodman) on ‘Companies House: due diligence and resources’ which would amend the duties of Companies House to ensure that any person wishing to register a company must be checked for due diligence by Companies House, in line with the measures included in the Money Laundering Regulations 2017. It also ensures that the Secretary of State can charge fees for due diligence checks to cover costs incurred by Companies House.

· NC13 (Dodds & Goodman) on ‘Bank Accounts’ which would ensure that all companies wishing to be created in the UK must provide evidence of a UK bank account to ensure it has gone through proper money laundering checks by a UK supervising body. If a company is unable to provide proof then they are liable to a fee which will cover the cost of such checks.

· NC14 (Dodds & Goodman) on ‘Trust and Company Service Providers’ which would ensure that Trust or company service providers that do not conduct business in the UK may not incorporate UK companies without oversight from a UK supervisor.

· NC15 (Dodds & Goodman) on ‘Disqualification’ which would require the Minister to ask the courts to investigate whether directors of a company are fit and proper, if it was found that proper procedures against money laundering were not in place.

UK Trusts and Beneficial Ownership Transparency

3.1. Trusts allow individuals to retain control over assets while disguising their origin or ownership. The OECD [11] and World Bank [12] both emphasise that this secrecy makes trusts highly effective tools for money launderers, terrorist financiers and corrupt persons. EUROPOL [13] representatives echoed these concerns when identifying trusts among "the main schemes used to launder money".

3.2. While the role of companies in facilitating financial secrecy is well documented, often because of action by law enforcement or other authorities, the secrecy around trusts is so strong that law enforcement authorities admit to stopping investigations when they encounter trusts. This is because trusts prove too elusive to track down and prosecute, and means that the extent of their use is critically underreported. [14]

3.3. One rationale provided for the secrecy that trusts enjoy is that they exist to hold and distribute assets to third parties, such as children or vulnerable people. Yet all too often trusts can simply be elaborate structures for the benefit of the individuals establishing them. [15]

3.4. Some recent example of trusts being for suspected nefarious purposes include:

· A Lichtenstein trust linked to Victor Yanukovych hid who benefitted from the controversial privatisation and secretive multi-million dollar renovation of Ukraine’s presidential palace. [16]

· A Brunei prince who stole billions from his country may have prevented an exclusive London property, in the heart of Mayfair, from being rightfully returned to Brunei using a Jersey trust to hide his ownership. [17]

· The Paradise Papers included many new examples of the abuse of trusts, including in cases connected to tax evasion. [18]

Recommendations

3.5. Global Witness recommends the establishment of a public register of beneficial owners of trusts, as is now the case for companies. The rationale for this includes:

· To support law enforcement. Making information available to the public can support the detection and prosecution of money laundering and financial crime. Numerous high profile criminal investigations have been launched as a result of investigations by journalists and civil society organisations.

· To act as a deterrent. The aim of new money laundering regulations should be to not only detect and investigate money laundering, but also to prevent it from occurring. Organisations such as the Open Government Partnership [19] and PwC [20] have recognized that publishing beneficial ownership information is a powerful deterrent.

· To support other countries in tackling corruption. Making beneficial ownership information publicly available is the simplest, fastest and most effective way of allowing access to authorities and civil society groups outside the UK.

· To improve data quality. Making the data publicly available can greatly enhance accuracy by allowing members of the public and civil society to review and report errors in the data.

· To ensure public trust. Making the data publicly available will allow members of the public themselves to check the registers are comprehensive and accurate.

3.6. Effective safeguards should be put in place before publication of the UK register of trusts. In a small number of cases, an individual may face a serious risk of violence or intimidation, for which the Government should provide limited case-by-case exemptions from having personal details disclosed. This should be tightly defined, as is the case for UK company owners, rather than blanket exemptions.

3.7. Global Witness supports the following related amendment to the Bill:

· NC18 on ‘Public register of beneficial ownership of trusts and similar legal arrangements’ which would require the Government to publish the register of beneficial ownership of trusts and similar legal arrangements on the day this Act is passed.

UK Overseas Territories

4.1. Global Witness strongly believes that public registers of company beneficial owners are necessary in the British Overseas Territories. Our recent analysis has shown how companies in the Overseas Territories have been at the heart of a number of corruption scandals during the past year. [21] Global Witness supports the following amendment:

· NC1 (Dodds & Goodman) on "Public registers of beneficial ownership of companies in the British Overseas Territories" which would require the Secretary of State to take steps to ensure the governments of specified British overseas territories introduce public registers of beneficial ownership of companies.

UK Property Transparency

5.1. Global Witness strongly believes that public registers of beneficial owners of UK property owned by overseas companies is necessary. Please see our analysis for further information on how to prevent corrupt funds from entering the UK property market. [22] Global Witness supports the following amendment:

· NC2 (Dodds & Goodman) on "Public register of beneficial ownership of UK property by companies and other legal entities registered outside the UK" which would require the Secretary of State to create a public register of beneficial

28 February 2018


[1] https://www.icij.org/investigations/panama-papers/

[2] https://www.reportingproject.net/therussianlaundromat/

[3] https://www.occrp.org/en/azerbaijanilaundromat/

[4] http://www.transparency.org.uk/press-releases/revealed-britains-own-applebys/

[5] https://www.gov.uk/government/news/public-register-to-boost-company-transparency

[6] https://www.globalwitness.org/en/blog/pursuit-hidden-owners-behind-uk-companies/

[7] http://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Commons/2018-02-08/127851/

[8] http://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Commons/2018-01-16/123021/

[9] http://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Commons/2017-09-14/105316/

[10] http://www.parliament.uk/business/publications/written-questions-answers-statements/written-question/Commons/2017-10-24/109251/

[11] http://www.oecd.org/corporate/ca/43703185.pdf

[12] http://star.worldbank.org/star/publication/puppet-masters

[13] http://www.europarl.europa.eu/committees/en/pana/events-hearings.html?id=20161026CHE00121

[14] http://star.worldbank.org/star/publication/puppet-masters

[15] https://www.globalwitness.org/en/campaigns/corruption-and-money-laundering/anonymous-company-owners/dont-take-it-trust/

[16] https://www.globalwitness.org/en/campaigns/corruption-and-money-laundering/anonymous-company-owners/dont-take-it-trust/

[17] https://www.globalwitness.org/en/campaigns/corruption-and-money-laundering/anonymous-company-owners/dont-take-it-trust/

[18] https://www.globalwitness.org/documents/19285/GW_Briefing_-_EU_Trusts_Transparency.pdf

[19] http://www.opengovpartnership.org/sites/default/files/FIN%20OGP%20Issue%20Brief%20BO%20Disc.pdf%20&

[20] https://www.pwc.co.uk/forensic-services/assets/navigating-a-path-to-trust-and-transparency.pdf

[21] https://www.globalwitness.org/en/blog/spring-here-time-uk-clean-its-backyard/

[22] https://www.globalwitness.org/fr/blog/how-stop-dirty-money-coming-london-properties/

 

Prepared 1st March 2018