The clamor for public access to open or public company registers (sometimes called “UBO” – ultimate beneficial ownership – registers) continues unabated. One of the latest to extoll their virtues as a means of combatting corruption is Joseph Kraus in a recent post on the FCPA Blog.
I share Mr. Kraus’ desire to see corruption eradicated. We disagree on the means of accomplishing this objective. Anyone who has read my previous comments on this topic will know that I have several issues with the notion of public company registers as a panacea.
I believe that calls to roll out these UBO registers are naïve and undermine personal and corporate privacy. The fact that these calls are made, in the main, by those who champion civil liberties also appears to be a little conflicting from my perspective.
For the record, I have spent 30+ years investigating and prosecuting the corrupt through the civil courts, seeking to recover their ill-gotten gains. I make mention of this professional interest simply because I have been criticized as almost “pro-corruption” by “open transparency” campaigners.
One of my main objections to the notion that an open company UBO register will somehow “out” crooks and vagabonds is that the premise itself is unsound.
Quite often those who extoll open UBO registers appear to conflate (or swap) the word “confidential” with “secrecy.” Confidential very rarely gets a mention in their musings. It simply means that information is restricted, but still available. Secrecy, which is used more often, implies something that is clandestine, concealed and mysterious. It is an implied slur made in order to stimulate an emotive response from the public, populist-hunting politicians and the media.
Let me be clear: I have no objection to UBO identification being made available to competent authorities. Law enforcement should be able to access such information as part of any investigation. However, because crooks lie and cheat – and that is very often – the information they provide is often false.
We currently have extremely valuable investigative material housed in “controlled access” UBO transparency systems here in the BVI. This valuable data will be demolished if we open it up for all and sundry to peek at. Assets will fly away and fraud recovery cases – the kind of graft myself and other specialist professionals undertake over many years and across many jurisdictions – will be lost. The remedy will do more harm than good.
Why would any self-respecting fraudster provide bona-fide information that could ultimately see them arrested, prosecuted and stripped of their assets? In order to pin down the few crooks who do operate corporate entities for illicit purposes, many law-abiding citizens will have to have their private and business lives thrown open to anybody wishing to nosey around on the internet. How can that be fair or reasonable? The intentions of those seeking to champion what they promote to be ‘transparency’ are laudable, but flawed.
Many commentators, along with some anti-corruption NGOs, regularly offer up the UK’s Companies House registration process as being the template upon which all should build their public registers, because it is public and available for searching online.
All too often, this register is held up as a beacon of transparency by those advocating it. However, some believe that the comparison is flawed, due to the lack of due diligence inherent in the UK’s company registration process.
The most glaring example of this lack of verification took place as recently as 2018. One of the more vociferous advocates of open public UBO registers was a UK politician, Vince Cable, then-leader of the Liberal Democrats party. He found himself falsely named as the UBO of two UK companies, the brainchild of a British businessman seeking to draw attention to the flawed Companies House verification system. This businessman then found himself subject to the first ever Companies House prosecution, taken to court and fined in excess of £12,000 for his temerity.
There are strong arguments to be made for ensuring that companies can identify their UBO. I can think of very few reasons why this should not be the case. However, we must inject some realism into what has become an ideological debate. The UK’s Companies House register is an excellent place to commence the debate, if you are open to considering the realistic and practical considerations of open UBO registers.
UK Companies House has over four million companies on its books. In 2018-2019, almost 673,000 new companies were registered – an increase of 4.2 percent. Writing in The Guardian last year, journalist and author Oliver Bullough put the situation into perspective when he wrote a piece outlining the abject failure of Companies House in policing company registrations. He conducted random searches on the UBO data (after all it is open access) and came across UBOs such as “Mr Xxx Stalin,” allegedly a Frenchman resident in London.
In turn this led him to “Mr Kwan Xxx,” a Kazakh citizen, resident in Germany; then to “Xxx Raven;” to “Miss Tracy Dean Xxx;” to “Jet Xxx;” and finally, to “Mr Xxxx Xxx” – perhaps their distant cousin? Mr Bullough describes going on humorously to discover company officers called “Mr Mmmmmmm Yyyyyyyyyyyyyyyyyy,” and “Mr Mmmmmm Xxxxxxxxxxx” (correspondence address: Mmmmmmm, Mmmmmm, Mmm, MMM), at which point he decided to stop.
There are simple fiscal reasons why the UK doesn’t properly police its company formation processes. In 2017, Transparency International identified that Companies House employed only six people to police its register.
Clearly, these figures are ridiculous and put the realistic value of the UK’s overhyped open public register into context. In effect, the cost to the UK (and any country which decides to follow its example) to properly verify information provided is prohibitive. Accurate verification of any information and supporting identification is almost impossible, especially when crooks are involved.
Yes, we can improve due diligence procedures and their enforcement, but who is going to pay for it? A simple desktop, open-source search of the internet would see the cost of company formations soar.
UBO registers should be held confidentially in order to protect personal and corporate privacy and to encourage UBOs to disclose who they are. Indeed, if UBO company registers are to be made available to public searching, then it should be at significant cost in the form of an upfront fee. They should not be open to random searching by those with no real interest in the companies concerned, other than satiating their own agenda or inquisitiveness: this will lead to mischief.
Re the debate between closed vs open UBO registers: Joseph Kraus claims public access to company registers can mitigate future wrong-doing and enhance public trust. Martin Kenney argues that approach ignores unintended deleterious consequences and will hamper efforts to combat ongoing wrong-doing.
They’re both fighting for the same cause—against corruption—and alliances in method not just mission would be a positive.
To this, Martin’s insight that ‘confidential’ is being defined synonymously with ‘secret’ is important both psychologically and pragmatically. Privacy, of which confidentiality is a part, is crucial to trust, dignity, and an open society. Deeming all attempts at privacy, or restricted access, as being only in the service of concealment is to base a misunderstanding on a biased presumption.
Further, corrupt actors will continue to lie, dissemble and provide false information disguised as true. That’s the definition of corruption. Blanket UBO transparency will reduce the privacy of law-abiding registrants while negligibly deterring willful malice.
The irony: enforcing open registers, however well-meaning a tool against corruption, will probably yield the opposite result: induce macro-social anxiety and mistrust, precursors to fraud and corruption, without decreasing nefarious abuses.
But how do we help companies who are spending huge amounts of time and effort in trying to determine UBOs?? I understand and can agree with all of the points made above but I would love to read a post about someone who can help us determine UBOs efficiently and effectively in the absence of easily available information.
I’m feeling like a broken record here but your argument couched as “reasonable” is certainly not. You’ve set up quite a straw man here. Who expects perfection from public registries? The examples you cite of false information would clearly help an investigator at least to know that something is amiss. Finally, the current estimates show that likely less than 1% of illicit funds are intercepted. Who exactly is expecting perfection here? The status quo is clearly only reasonably perfect for criminals who suffer at most a rounding error in the enjoyment of their ill-gotten gains. I believe that arguing for the status quo could thus reasonably be said to favor corruption. This is not an ideological argument, but a fairly reasonable point based on the foregoing fact.
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