When browsing websites of transparency groups and organizations that regularly publish leaks, you’ll find that many of them strongly encourage potential leakers and informants to use hyper-secure messaging apps like Signal or Telegram. That’s not very transparent.
There are two likely reasons for this: They want to guard the safety of their sources, and they don’t want their internal communications made public.
Safety of sources is a legitimate concern. Let’s move onto the second reason.
It’s possible that transparency groups (like commercial organizations) don’t want internal communications made public because they can be taken out of context. The public perception of leaks and transparency are often misconstrued and incorrectly used interchangeably. This leads to confusion and an atmosphere where it’s easy to visualize crowds arming themselves with pitchforks.
Documents from the Panama Papers have been frequently taken out of context. A huge amount of information was dumped on the public with little narrative. The vast majority of the individuals named in the Panama Papers were operating completely legally (but not transparently). However, in many headlines the fact that a name appeared in the Panama Papers became a serious condemnation.
Was illegal or suspicious activity happening through some of the shell companies named in the Panama Papers? Absolutely. But there’s usually nothing illegal about owning or controlling anonymous companies if the companies are used for legal purposes.
Not to diminish the impact of the Panama Papers; over $1.2 billion in fines and back taxes have been collected by governments around the world after the leak. It is certainly one of the most influential events in compliance from the last decade.
In our post about #29Leaks, we said anonymous companies “are sometimes used to evade taxes, launder money, and hide assets.” In the Twitter post below, the user changed the “sometimes” to “often.”
This one word reflects the public opinion about leaks: shell companies are used by criminals.
Vera Cherepanova has written about how transparency can actually lead to an increase in corporate crime. “Transparency implies accountability,” she said, yet transparency doesn’t always bring accountability.
Many things are brought to light in a leak. Criminal behavior may be revealed, along with violations of compliance controls on a corporate or national level.
But for transparency to be effective, you need to know what you are looking at. I would be useless performing surgery. I can’t tell the difference between a malignant tumor and a benign tumor. To me, they are all tumors.
Not all shell companies are criminal, and leaks can muddy the waters so much that it becomes hard to see anything. The end goals of leaks and of transparency are, and should be, different from one another.
But what are those goals?
Is it the abolition of shell companies, the advent of a transparent Ultimate Beneficial Ownership (UBO) system, or something else entirely? That’s a debate we welcome and encourage.
3 Comments
What if the surgeon told the patient that 2-5% of a tumor consisted of malignant tissue but the rest of it was benign? And then what if the surgeon indicated out of that 2-5% she could only identify less than 1% of the actual malignant tissue and the rest was merely undetectable, hiding within the benign tissue? One could point out that removing the entire tumor, benign or not, might destroy the host body itself, as seems obvious if the tumor we are discussing is the global financial system. Still, it makes sense that we need a second opinion.
While I understand privacy rights with regard to ‘shell companies’ and beneficial ownership, I also understand financial crime. On balance are we prepared to accept major criminals being able to hide assets to protect the rights of the few?
I think the sooner we close the gap and make all companies that do not have completely transparent structures illegal we will never get close to catching the real criminals. It’s a balance that is too far weighted in the direction of the dishonest.
I would like to be educated about the legal purposes for which anonymous shell companies are used. How often might that involve tax avoidance? Although tax avoidance may not be a crime, it undermines the functioning of countries. Hence, transparency on tax avoidance is a public good.
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