As if to prove my point that open/public company ownership registers are only as good as the information declared and recorded, news broke last month that a UK office block was home to more than 100 potentially shady companies listed there.
The building holding all these companies is a small office block located in the town of Potters Bar (pop. 21,640). A BBC investigation by journalists Simon Maybin and Tim Whewell suggested that these companies were linked to international money laundering.
The BBC claimed to have found evidence that the inner circle of the disgraced former president of the Ukraine, President Viktor Yanukovych, used a UK company to profit from the Eurovision Song Contest held there last year. The song contest is effectively made up of contestants, one from each participating European country, who perform live during a TV show that lasts several hours, with each participating country voting for a winner.
The BBC investigation suggests that some £1.2 billion ($1.6 billion) has been filtered through these companies. One look at the dishevelled commercial building would indicate that all is not well with the volume of money passing through the resident companies. Turnover of this magnitude would surely justify some nice office space… unless, of course, your intention is to keep your activities flying under the regulatory radar.
The tale takes us back to last year’s competition, with the Parkovy Congress & Exhibition Center hosting the event. The center is owned by a Ukrainian firm, which in turn is owned by one of the UK companies “based” in Potters Bar. Eventually the chain of ownership shows that the British company is in partnership with two less-than-transparent Caribbean companies registered on the island of Nevis.
An anti-corruption investigation that included enquiries into the origins of the funds used to build the Parkovy Centre, concluded last year that it had likely been built and paid for by monies stolen from the Ukrainian state. The plot to syphon off profitability was a simple one, and one all too familiar for those of us plying our trade in the investigative world of international fraud and cross-border asset recovery.
In simple terms, the state broadcaster paid the center’s owners for hosting the event. In turn this money made its inevitable way to the UK company, likely then onto bank accounts held by the Nevis parent companies.
The state prosecutor estimates that ex-President Yanukovych and his cronies stole upwards of £29 billion ($40 billion) during their stint in power. He fled the country four years ago following anti-corruption protests on the streets of Kyiv.
Transparency International (TI) believes that the Potters Bar companies have been used to launder billions of pounds, predominantly from Russia and ex-Soviet republics. TI’s Duncan Hames reported that the UK companies are “…providing the role of facilitators of global corruption.”
There is no surprise either that Global Witness has revealed that 10 percent of UK companies, some 350,000 or thereabouts, have still to comply with the regulation that they must nominate and disclose a person with significant control. The BBC states that the vast majority of the Potters Bar companies list their offices or officers offshore, in the Seychelles or Belize, for example.
I have long advocated that public registers mean nothing to crooks. Those who are dishonest can circumvent the rules very easily, simply by providing false information or using men-of-straw as front men. They are not a deterrent, they simply permit the crooks to muddy the water even further.
Vindication of my perspective surprisingly came from Global Witness. Its spokesperson, Murray Worthy, told the BBC that he was shocked by the worryingly large number of companies still to declare a person with significant control. He concluded that others were submitting data “that’s just clearly inaccurate,” and that: “This is exactly what the register was supposed to end.”
Furthermore, he added: “The vast majority of those companies will not meet the requirements of the register and are hiding who really owns and controls those companies.”
Companies House, which holds the UK public company ownership register, told the BBC that it systematically “checks” the information it receives. However, so far no-one has been prosecuted for failing to meet the requirements.
So, what does all this mean? Well to my mind it supports my case against the use of public UBO registers on a number of levels:
First, that public UBO identification registers are not the panacea to the problem of companies being used as money laundering vehicles.
Second, the UK’s Companies House, the beacon of self-righteousness held up by those who shouted loudly for public UBO registers across the globe, holds not only records that are inaccurate, but records that are deliberately misleading.
Third, Companies House has failed to spot the skulduggery afoot, with a zero-prosecution rate arising out of the checks that it “systematically” undertakes.
Finally, the AML/KYC compliance material collected by regulated offshore company formation agents is a store of real investigative value. Because many malefactors will reveal themselves as UBOs in a confidential setting – but not an open one. This is a better model for fighting fraud than open UBO registers which collect a lot of rubbish.
This isn’t rocket science. Many professionals with experience in investigating fraud, corruption and asset recovery share my view. The problem is that well-intentioned NGOs are banging their drums, only to see governments pay them lip service.
What is the answer? Well, more meaningful due diligence by Companies House and its peers across the globe would help. Public registers are meaningless unless there are serious consequences for those who would lie their way to owning a corporate entity for their illicit means. At this time, this is an excellent example of how the deceitful manipulate these systems to their own ends, whilst those who are honest end up with even more paperwork to complete; paperwork designed to prevent the abuse of companies in this fashion.
Ultimately, I refer back to my earlier observation: that public company ownership registers and their ilk are only as accurate as the information inputted into their systems. It is both ironic and helpful that Global Witness and Transparency International agree with at least one part of my overall perspective.
Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery practice based in the BVI and focused on multi-jurisdictional fraud and grand corruption cases www.martinkenney.com |@MKSolicitors. He was selected as one of the Top 40 Thought Leaders of the Legal Profession in 2017 by Who’s Who Legal International and as the number one offshore lawyer for asset recovery.
This is an excellent case study in support of independent verification by company registries. It is not a convincing argument against making UBO information public. Organizations such as Transparency International and Global Witness have long advocated for giving company registries the power to verify information, and to investigate and sanction those providing false information. Rather than taking a combative stance, perhaps there is an opportunity here to advocate for the same goal: for more detailed, reliable data on beneficial owners.
It would be very interesting to look at the sufficiency of the AML checks undertaken by the professional service providers to the companies registered at this small office block in Potters Bar. There is a requirement, for example, for them to have verified the identities of the beneficial owners of the companies and any 3rd parties for whom these companies are acting. Given the existence of PEPs the relationships should inevitably have been considered high risk requiring extra caution and enhanced due diligence.
I would hazard a wild guess that there will be numerous cases where AML requirements have not been adhered to.
It is these service providers that facilitate and enable these crimes to take place surely, in an ideal world, more checks of their AML checks should take place.
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