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Martin Kenney: Open company UBO registers are not the panacea to financial crime

Predictably, the NGO “transparency” brigade has once again raised its guns and placed its cross-hairs over its preferred target: the offshore service providers in the British Overseas Territories, particularly those in the Caribbean. Only this time, they appear to have coerced and cajoled the support of a split, and apparently hesitant, UK government.

UK Foreign Office minister, Sir Alan Duncan, told the Commons that the government acknowledged “the majority view in this house,” and that it would not resist proposed amendments by Labor MP Margaret Hodge and the Conservative MP Andrew Mitchell to the sanctions and anti-money laundering bill. Consequently, Britain’s overseas territories will have to introduce open public ownership registers by 2020. The UK government had hoped to compromise and mitigate the proposals, but they were rejected by the Speaker because they were tabled late.

The timing of this pre-emptive NGO-led hunt couldn’t be better, as they perceive their prey to be weakened. It is a mere seven months since much of the Caribbean fell victim to Hurricanes Irma and Maria. Many in the region are still struggling to come to terms with the resultant devastation, particularly in the British Virgin Islands (BVI), which fared worse than most.

Make no mistake, the BVI is the trophy the NGO hunters want the most, in particular those at Global Witness and Transparency International. The need to see the BVI’s head mounted above their doorway is just too enticing for many of the chasing pack. No matter how many times their argument is shown to be flawed, they simply cannot extricate themselves from a mob mentality.

The fallout from the horrifying attempted murder of Sergei and Yulia Skripal on UK soil a few weeks ago continues to rumble on and has apparently played its part in this sudden volte-face on the public policy around British overseas territories. The Prime Minister, Theresa May, has stated that there is no place for dubious Russian oligarch’s money in the UK. So, we can read this to include British overseas territories too. In fact, an article in London Times claims that BVI companies hold five times the amount of Russian assets than onshore UK, hence why the BVI is once more in danger of losing its head to the NGO trophy hunters.

The transparency-seeking pack have repeatedly set their sights on an open, publicly available register of Ultimate Beneficial Owners (UBOs); it appears that they have finally succeeded. The problem with this ongoing crusade is that those baying for this model of transparency do not understand the complex issues surrounding what they see as a simple solution to cross-border economic crime.

They cannot help themselves but to offer up the UK’s Companies House register as the all-seeing panacea to the problems of criminals using companies as vehicles for their money laundering. Unhelpfully, they are sufficiently naïve to believe that crooks don’t tell lies. After all, who would dare mislead the Companies’ House regime, as it is a government agency?

It is ironic that the people seeking transparency have little perception of what is going on. Do they honestly believe that a sophisticated global economic criminal (British or otherwise) is going to openly and freely attach their name to a dodgy company in an open company UBO register? Do they envisage simply logging onto the website, typing in the search term “Kleptocratic African Dictator X” (for example) and be faced with a list of companies he or she is using to launder illicit profits from acts of grand public corruption?

The concept of open company UBO registers being proffered by the NGOs is well-intentioned, but misguided. The fact remains that, by their very nature, criminals lie. Not only do they lie, but the good ones are also devious. A criminal would never be knowingly foolish enough to attach their name to anything that would come back to haunt them. They would simply use a man of straw or a “puppet dancing to Dr. Wallersteiner’s every tune,” to borrow from Lord Justice Denning’s judgment in Wallersteiner v Moir.

The innocence of Dame Margaret Hodge typifies the flawed thought process behind the demands for open registers. She said: “If we’re … serious about using our muscle to constrain the Russians then this is a very direct, straightforward way of curtailing some of the worst of their activity.” How? Please explain to me how an open company UBO register will curtail criminality and money laundering where those committing it are critical thinking, “one-step-ahead of the game” crooks?

Campaigners say the British Overseas Territories’ provision of offshore companies enables tax avoidance. Yes, they do. But so what? Tax avoidance by definition is lawful. If you want to address tax avoidance, you simply change the onshore rules to capture the tax currently being “avoided.” The solution is simple, as the majority of tax payers, personal or corporate, play by the rules. If they do not, then they are evading tax and committing a criminal act. If so, then the vicious circle continues, as the “evaders” are inherently dubious by nature, and thereby extremely unlikely to be recorded as the UBO on an open public register.

Murray Worthy, senior campaigner for Global Witness, describes the islands providing the offshore services as “shady.” This is not only offensive to the people of these islands, but wholly inaccurate. I am certain that somebody who reaches the heady-heights of Senior Campaigner for Global Witness knows full well that throwing in the “S” word (secret) is misleading, and they are simply offering it up for effect in order to foment a pre-emptive imperial legislative attack on one of the last vestiges of the British empire.

The fact is that the BVI already has its house in order. The island’s systems now include the Beneficial Ownership Secure Search system (BOSS System). A database that is searchable, with the information being available to UK law enforcement agencies within 24 hours. In addition, the BVI has signed up to no fewer than 28 Tax Information Exchange Agreements, with countries that include the UK, USA, Canada, Germany, France, Australia, Japan, Netherlands, etc. So what part of this is secret?

The problem that NGOs like Global Witness and Transparency International have is that because they can’t access the information simply by visiting an open website, it must be secret and therefore it must also be crooked. The simple fact is that the information is quite rightly deemed to be confidential and is thereby only available to the competent authorities. If the NGOs see this as a slight upon them, then they need to object to the existence of all modern data protection legislation.

Why should a businessperson conducting perfectly legitimate business be denied the right to privacy in order to do so? The argument that “if its legitimate then why try and keep it confidential” doesn’t fly. We are all entitled to protection of private data unless we are doing something wrong. Privacy is closely aligned to human dignity.  The legitimate right to privacy is analogous to privacy of bank account and other financial data (expected, but not unqualified) and medical records.

I have commented previously on the issue of UBO open registers, as has Global Witness’s Murray Worthy. He inadvertently vindicated my perspective on the worthlessness of open public registers, when he told the BBC as recently as February this year 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 then said: “The vast majority of those companies will not meet the requirements of the register and are hiding who really owns and controls those companies.”

In the BVI, valuable anti-fraud and anti-money laundering investigative material is now collected about the identities of UBOs, precisely because it is not placed into the open. Even when the NGOs admit that open company UBO registers are not working as expected, they simply cannot let go of their firm grip on the futile.

A spokesperson from the Department for Business, Energy and Industrial Strategy said: “The UK has one of the most transparent and accessible company registers in the world – viewed two billion times last year — meaning company information is under constant scrutiny.”

What the spokesperson did not say was that Companies House has records listed that are not only inaccurate, but that are deliberately misleading. In fact, it is so bad at policing its open register that it enjoys an almost zero-prosecution rate arising out of the checks that it “systematically” undertakes. Transparency International states Companies House has just six people policing four million firms’ compliance with company law, without proactive checks being made on the accuracy of the information provided.

According to the London Evening Standard, one company had an address which translated as “Street of the 40 Thieves” in “Ali Babba”, with another applicant describing their occupation as ‘fraudster’. Unsurprisingly, no action was taken against those responsible. The single Companies House prosecution success is shrouded in controversy, being a whistleblower seeking to illustrate how easy it was to mislead those compiling the register. This whole situation is shrouded in hypocrisy. If the UK and its vast resources cannot bring the true UBOs to book, what chance for the hard-pressed territories?

The NGOs’ insistence on open, readily-accessed transparency is simply an attempt at appeasing those who support them. The argument is so flawed that it beggars belief. For example, if open registers were adopted in these small territories, who would police them? The rebel MPs and NGOs seeking to throw their weight behind the open register ambition can continue to do so. The fact remains they are ineffective and will never work, because the crooks will simply continue to bypass the system.

And the law of unintended consequences will apply, so as to destroy the protected UBO identification data that is now being collected offshore. This valuable data is now being produced by local court disclosure orders and requests for cross border criminal investigative assistance to right wrongs; locate and recover the concealed proceeds of fraud; and to bring the ethically-challenged to book. What will replace this valuable investigative material once it runs to ground by reason of the introduction of an open UBO register? The cottage industry of nominee UBOs will explode in growth. How are we, as anti-fraud investigators, to deal with that?

The Turks & Caicos Islands’ Michael Miscick even described the UK government’s move as “racist,” stating: “The decision by the British Government and British Parliament to impose legislation on the predominantly black remain colonies in the Caribbean while exempting the predominantly white crown dependencies of Jersey, Guernsey  and the Isle of Man is oppressive and racist.”

The territory was joined by Bermuda, whose Premier David Burt said that parliament’s action was a retrograde step after 50 years of “constitutionally sanctioned self-government.” He added that the island territory would take necessary steps to ensure its constitution was respected.

The fact that the public register amendment does not apply to the crown dependencies (the Isle of Man, Jersey and Guernsey) because parliament does not have the legal right to impose its will on them, only serves to rub salt into the wounds of those who are affected.

Although Mr. Mitchell did add that there would be an expectation that the government would “make the point persuasively, that we hope that the crown dependencies embrace the same ethical position and equal transparency,” one can understand the Caribbean perspective that there is a degree of hypocrisy inherent in these decisions.

The situation clouds even further, when one considers the fact that the USA continues to demand transparency change from everybody else, but persists to cultivate black regulatory holes like the State of Delaware. This irritates further those whose ability to self-rule is being impinged. Surely the UK and the EU should be just as keen to take on the United States, but we can all guess what President Trump’s response is likely to be.

When interviewed by the BBC, Lorna Smith OBE (Executive Director of BVI Finance) argued that the UK’s efforts to force the BVI to create a public register of UBOs was undemocratic, undermining the BVI people’s right to self-determination. Mrs. Smith said: “It is simply not right,” adding: “This smacks of colonialism. It is wrong.” Mrs. Smith questioned Dame Margaret’s view that public registers were a silver bullet to solve the problem of financial crime, outlining (as I have above) that the UK’s public register is riddled with inaccuracies due to the fact that the information on it is not verified. In contrast, the BVI’s register of beneficial ownership is validated, and therefore accurate and useful for law enforcement agencies responsible for fighting economic crime.

It is a sad day for democracy in the British Overseas Territories where responsibly-elected legislative assemblies are being ignored by the imperial parliament. The British constitutional convention to avail the citizens of Her Majesty’s Overseas Territories the right to self-determination is being trounced. The islands’ right to self-governance is in tatters. One can only hope that those at the NGOs behind this single-minded thirst for public registers can reflect on the consequences. They have chosen to hypocritically turn a blind eye to the failings of the UK’s Companies House. They only had to look closer to home and that zero-prosecution rate to see how ineffective their much-vaunted public registers are, but they chose to ignore it.

Most importantly, this pre-emptive imperial attack against the local democratic right of self-determination will not go unnoticed in the British Overseas Territories. The Cayman Islands has said it is considering a legal challenge, while the Bahamas has said “no” full stop to making its registers public.


Martin Kenney, pictured above, 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 |@MKSolicitors. In 2014 he was the recipient of the ACFE’s highest honor: the Cressey Award for life-time achievement in the detection and deterrence of fraud. 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.

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1 Comment

  1. Great to see you following my work with such interest.

    I won't repeat the strong rebuttal to your arguments already made by Rick Messick this morning on the Global Anticorruption Blog only just to add that it appears the Financial Times is now a member of the "Transparency Brigade".

    In their recent FT Opinion on the passage of this amendment they argue that:
    "If the finance industries of overseas territories are built solely on anonymity, then the disappearance of those industries is to be welcomed. It is legitimate for jurisdictions to compete for business by promising low tax rates or limited regulation. Not so the promise of freedom from all scrutiny."

    It goes on to make the same points that Global Witness has repeatedly made in relation to the public beneficial ownership registers; that enforcement efforts will be essential in the UK and the Overseas Territories to ensure these registers are effective, and that "the fight against dirty money will not be won in a single go. Patiently and systematically plugging the leaks, big and small, is the only option."

    As we have said many times before – simply having a public register isn't a panacea – loopholes need to be closed and rules need to be enforced. That's why we're campaigning to improve the UK register and why it's vital that the Overseas Territories build on the lessons already learnt in the UK.

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