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Controlled transparency is the way ahead for UBO registers

James Cohen of Transparency International recently published a post on the FCPA Blog extolling the virtues of an open public register of ultimate beneficial ownership (UBO) in my home country of Canada. These ambitions appear genuine and clearly well-intentioned. However, in my view, they are also naïve.  

At the heart of the misunderstanding about UBO registers is, I believe, the fact that the debate has been oversimplified. Instead of styling the discussion as public vs. private UBO registers, we should really be talking about controlled systems of transparency vs. unlimited systems of transparency.

I advocate and argue for the former: a system of controlled transparency, which in my view – based on 30 years experience tackling economic criminals – is far more effective as a tool for battling corruption than a completely unlimited system of transparency.

Transparency campaigners regularly point to the UK Companies House UBO registry as a model of transparency. However, it was Transparency International itself, which in late 2017 launched a paper entitled “Hiding in Plain Sight – How UK Companies are Used to Launder Corrupt Wealth,” criticizing the UK and Companies House on several levels. There were several startling facts in its report, including:

The UK is one of the simplest places to start and run an enterprise in the world, ranking seventh in the world. A key factor behind this is the minimal effort and cost required to set up a company, with the UK coming third in the World Bank’s ratings of this metric. Whilst this is in many ways a good thing and contributes a great deal to the UK economy, there are some significant loopholes which also make it attractive to money launderers.

Perhaps most significant was that, according to TI’s report, there were only six members of staff trying to police and provide oversight to over four million companies.

It is a dubious practice to praise the UK for having an open UBO register system that everyone should copy, then criticize it for being effectively useless for crime prevention because of its lack of due diligence and oversight. 

In his post, Mr. Cohen makes no mention of the significant increase in costs needed to employ additional staff to try and render any open register meaningful. This contradicts the quoted advantages to those setting up a company in the UK, requiring only “minimal” information. It is this selective approach underscoring transparency campaigners’ ambitions, which is one of my core concerns with their arguments.

Such arguments also miss the point when they state that genuine businesses find the information available on open public registers advantageous. Of course they do. But how will the register disclose the possibility that they may be considering doing business with a fraudster, terrorist, or politically exposed person?

If transparency campaigners wish to push for open public UBO registers, then they should do so at least providing answers about the additional due diligence and oversight costs required to make these registers meaningful. They also need to explain who will meet these costs.  

I would encourage campaigning organizations such as Oxfam or Transparency International to look more carefully under the surface of well-regulated financial services jurisdictions such as the British Virgin Islands or the Cayman Islands. Here in the BVI, we have over two decades of accumulated UBO disclosure materials concerning hundreds of thousands of companies, which are housed inside regulated trust companies and (now) a controlled-access UBO register. 

This body of information is regularly accessed by foreign law enforcement authorities. Any attempt at stripping away the confidential nature of this valuable investigative material will paradoxically (and rapidly) destroy its value as a means to right wrongs, to secretly follow and freeze the fructus sceleris (the fruits of fraud) and put fraudsters and corrupt dealers in prison. 

When it comes down to it, there are a handful of key questions relevant to the debate between those who would advocate unrestrained access for all to the private data of companies, and those who argue for a more measured approach:

  1. Who can incorporate companies and are they regulated? Do they comply with the FATF’s recommendations to combat money laundering to know-your-customer, or not? In Canada, there is no regulation of this industry. Absent this, a public UBO registry will be seriously flawed, receiving masses of unverified information. The innocent will comply and the guilty will not. 
  2. How does one go about ensuring that the data concerning the identities of UBOs of companies filed in a companies registry is correct and verified? The UK model is a disaster. Will the Provinces of Canada employ hundreds of analysts to verify the accuracy of public UBO data?  
  3. Who should have access to UBO identification information reposed in companies registries? Law enforcement and victims of fraud armed with a disclosure order are obvious legitimate candidates. But the whole world? What is the cost of that? And what is to be gained by that?

In my professional view and experience, unlimited systems of transparency are seriously flawed when it comes to defeating unlawful activity. Ironically, it requires secrecy to conduct complex fraud and asset recovery cases and criminal inquiries if we’re to defeat organized and sophisticated forms of economic crime. If implemented, public UBO registers will simply make these investigations much more difficult, as the fraudsters bury themselves more deeply behind ever-growing layers of “straw men.”

With thanks to Tony McClements, Senior Investigator at Martin Kenney & Co, for his assistance with this post. He served for 33 years with UK police forces and has specialised in Fraud & Financial Investigation since 1998. He is also a lecturer in these subjects at the University of Central Lancashire (UCLAN).

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  1. My first thoughts on reading this blog were that it was intended to be ironic; but my wry smile turned to outright laughter when I realised it was both intended to be serious and was written by a lawyer connected to the BVI. Having picked myself up from the floor, I could not help being surprised that it had passed the distinguished FCPA blog’s editorial scrutiny process. Having aired one side of the debate from a self-interested party, I assume the FCPA Blog will invite the ‘naive’ Mr Cohen to reply. Were I Mr Cohen, I would be bemused as to where to start a rebuttal: almost every sentence seems to indicate a lack of familiarity with the decade-long global debate about BOT. There are indeed some very valid questions to be asked about how to make UBO registers work in the best way to tackle fraud and corruption, drawing on the decade of experience. A blog on this important subject by a well-informed writer which captures the nuance would be an interesting read.

  2. I think Martin makes a pretty serious point myself. He’s a veteran economic crime fighter, incredibly knowledgable about dealing with corruption, and interested in what “works”. (He’s also been voted the word’s number one asset recovery lawyer offshore for four years in a row.) As a journalist, I’m a fan of Transparency and other NGOs, but clearly “toothless” transparency doesn’t help anyone: any country using these UBO registers needs to invest heavily in policing and verifying them, and then working out who has access, why, and ensuring it’s paid for. I think Martin’s bigger point is that crooks just lie on these register forms, as they’ve often done in the UK’s Companies House (sadly).

  3. I’ve practiced in claimant civil fraud recovery offshore, mainly in BVI, since 2005, much of it at Martin Kenney’ firm. I’ve done lots and lots of disclosure orders; I think in every case but one or two we identified the UBO, backed up by objective documentation. That’s a fact. It’s also a fact that the BVI has executed 25 Tax Information Exchange Agreements. These work because the information is there. Responses are however dependent on requests. Actually doing asset recovery work offshore, supervised by courts, can give one some surprisingly useful insights about the field. It also avoids unfortunate broad brush strokes as seem to have occurred in NCA v Baker, and perhaps in Professor Barrington’s comment.

  4. I welcome the additional – and clearly entirely objective – input from the communications department and the former Partner at the author’s law firm. And it is always useful to have practical insights into ‘what works’. But at the same time, it is legitimate to ask why, if it works so well, the BVI is so regularly connected with cases of corruption. That really does suggest something needs to change. ‘Ah!’ – you may say ‘But we are changing.’ Well…that’s only after years of lobbying and threats by the Overseas Territories that nothing should change, and then the change only happened under some considerable international pressure. So show the world proof that the BVI and OTs are effective in tackling corruption, and the world will back off. Until then, all the facts point in the opposite direction. It is not my role to refute the author’s many and varied contentions, but one point I will address: that crooks will lie on the forms. Of course they will – whether the forms are public or secret, or in the BVI or the UK. But there are two advantages to a public BOT register. The first is that when the crook lies, he/she has committed an offence, and the jurisdiction for this switches from that where the original corruption occurred – giving us the Al Capone tax scenario. Secondly, when a register is public, it is instantly open to scrutiny from citizens, journalists, business partners, civil society and law enforcment agencies the world over. That’s lots of people able to spot something amiss, many with language skils and local knowledge that even the best asset recovery firms won’t have. As mentioned, this is an incredibly nuanced debate, perhaps not best pursued by blogs or comment sections. But at the same time, I would welcome some examples of where ‘unlimited systems of transparency’ have proven ‘seriously flawed when it comes to defeating unlawful activity.’ A debate as important as this should certainly be based on fact and not assertion.

  5. An interesting contrarian perspective by Mr Kenney. However, like Professor Barrington, I don’t quite follow the argument that a poorly-policed openly-accessible UBO register is worse than not having an openly-accessible UBO register. At least such a register provides the opportunity for journalists, due diligence investigators, business partners and others to identify potentially valuable information.

    Of course, the UBO register (and other information on directors etc) would be of much greater value if jurisdictions like the UK implemented checks on the information submitted by companies. However, in the meantime, and speaking from experience, in most cases the information available in the UBO register in the UK is in fact helpful for due diligence checks. Naturally, crooks will be crooks and – as such – the information should not be relied on exclusively, but – together with other sources of information – it can help paint a picture.

    I also don’t quite follow why if – as the author contends – the UBO register in the BVI is policed properly, it should only be accessible through court order or the authorities. In particular, what arguments support the assertion that “stripping away the confidential nature of this valuable investigative material will paradoxically (and rapidly) destroy its value as a means to right wrongs”?

    I also don’t see any “costs” associated with making available to the public the UBO register, other than perhaps to offshore jurisdictions themselves that formerly thrived at least in part due to the appeal of confidentiality.

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