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Reviewing G20 Promises on Ending Anonymous Companies

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Reviewing G20 Promises on Ending Anonymous Companies G20 LEADERS OR LAggARDS? Reviewing G20 promises on ending anonymous companies Transparency International is a global movement with one vision: a world in which government, business, civil society and the daily lives of people are free of corruption. With more than 100 chapters worldwide and an international secretariat in Berlin, we are leading the fight against corruption to turn this vision into reality. www.transparency.org Authors: Maíra Martini, Maggie Murphy Lead Researcher: Maíra Martini Design: Daniela Cristofori Cover photo: ©Istockphoto/Chris Ryan ISBN: 978-3-96076-088-7 Transparency International 2018. Some rights reserved. Except where otherwise noted, this work is licensed under CC BY-ND 4.0. Every effort has been made to verify the accuracy of the information contained in this report. All information was believed to be correct as of December 2017. Nevertheless, Transparency International cannot accept responsibility for the consequences of its use for other purposes or in other contexts. We would like to thank all the individuals who contributed to all stages of the research and preparation of the report. Generous support for this report was provided by the Financial Transparency Coalition. G20 LEADERS OR LAggARDS? Reviewing G20 promises on ending anonymous companies HIghLIghTS Eleven G20 countries have “weak” or “average” beneficial ownership legal frameworks. This has dropped from 15 in 2015, but progress is too slow. ................................................................................................Read more on page 10 Eight G20 countries (Argentina, Australia, Brazil, Germany, India, Saudi Arabia, South Africa and Turkey) have still not conducted an anti-money laundering risk assessment within the last six years. .....................................Read more on page 24 Canada, the United States and China all score zero points on requiring companies to collect and maintain accurate and up-to-date beneficial ownership information. ...................................................................................................Read more on page 28 Six countries now have central beneficial ownership registers: G20 countries Brazil, France, Germany, Italy, the United Kingdom and G20 guest country Spain. Only in the United Kingdom is the register publicly available. In France, public authorities still have to request access to the data ..............................Read more on page 30 No G20 countries require register authorities to verify the information collected in company registers as standard. Only in three countries (Argentina, Italy and guest country Spain) might information be verified in suspicious cases. ......................................................................................Read more on page 32 All 23 countries analysed now require financial institutions to identify the beneficial ownership of customers. All countries, with the exception of Switzerland, also require financial institutions to verify the beneficial owner’s identity, although requirements are limited in Canada, Italy, Germany and the United States. ..................................................................................................Read more on page 41 Only eight G20 countries (Australia, China, France, India, Indonesia, Japan, Mexico and the United Kingdom) require financial institutions to use independent and reliable sources to verify the beneficial owner in cases considered to be high risk. .............................................................................................Read more on page 43 In nine G20 countries (Australia, Brazil, Canada, Germany, Indonesia, Russia, South Korea, Turkey and the United States), financial institutions can still proceed with a transaction even if they cannot identify the beneficial owner. ...........................................................................................................................Read more on page 43 Lawyers are not required to identify the beneficial owner of clients in nine countries, (Argentina, Australia, Brazil, Canada, China, India, Japan, South Korea and the United States). Real estate agents in five G20 countries (Australia, Canada, China, South Korea and the United States) are not required by law to identify the beneficial owners of clients buying and selling property, despite major corruption scandals involving high-end real estate. ................................................Read more on page 44 Eight G20 countries (Australia, Canada, China, Korea, Mexico, South Africa, Saudi Arabia and the United States) still permit people to act as nominee shareholders without any requirement to disclose on whose behalf they are actually working. ............................................................................................................Read more on page 52 4 G20 Leaders or Laggards? | Reviewing G20 Promises on Anonymous Companies CONTENTS Abbreviations 6 Glossary 7 Executive Summary 8 Country Results 12 Key findings 12 Recommendations 15 Introduction 16 Methodology 20 G20 Principle 1: Beneficial Ownership Definition 22 Scores 22 Findings 22 G20 Principle 2: Identifying and mitigating risk 24 Scores 24 Findings 25 G20 Principle 3: Acquiring beneficial ownership information 28 Scores 28 Findings 29 G20 Principle 4: Access to Beneficial Ownership Information 30 Scores 30 Findings 31 G20 Principle 5: Beneficial Ownership Information of Trusts 35 Scores 35 Findings 36 G20 Principle 6: Access to Beneficial Ownership Information of Trusts 38 Scores 38 Findings 38 G20 Principle 7: Financial Institutions and DNFBPs 40 Scores 41 Findings – Financial Institutions 43 Findings – DNFBPs 46 G20 Principle 8: Domestic and International Cooperation 48 Scores 48 Findings 49 G20 Principle 9: Beneficial Ownership Information and Tax Evasion 50 Scores 50 Findings 51 G20 Principle 10: Bearer Shares and Nominees 52 Scores 52 Findings 53 5 Summary of Scores 56 Conclusion 57 Annex 1: Country overview 58 Annex 2: Methodology 60 Data collection and verification 60 Questionnaire structure and scoring 60 Changes to the questionnaire 61 Limitations 61 Annex 3: Questionnaire and scoring criteria 62 Notes 69 Acknowledgements 73 Country research 73 Additional thanks 74 BOXES 1. The fifth EU AMLD 21 2. Businesses back call for full beneficial ownership transparency 23 3. Good rules - But what about effectiveness and enforcement? 26 4. OpenOwnership: civic tech initiative scaling up access to beneficial ownership information 29 5. Do obliged entities know their customer? 32 6. Beneficial owner or front? 34 7. Who are Politically Exposed Persons? 40 8. Real estate sector in check Case study: The UK Overseas Territories and Crown Dependencies: still a problem 47 CASE STUDIES The UK Overseas Territories and Crown Dependencies: still a problem 19 Nigeria oil block OPL 245 27 Legitimate Interest: How easy is it to access Germany’s Transparency Register? 33 Odebrecht: If you can’t beat them, buy them 42 Use of G20 Country banks in the Malaysia 1MDB corruption case 45 Foreign companies: a loophole in the beneficial ownership transparency framework? 54 ABBREVIATIONS DNFBPs Designated non-financial businesses and professions EU AMLD EU Anti-Money Laundering Directive FATF Financial Action Task Force G20 Group of 20 OCCRP Organized Crime and Corruption Reporting Project OECD Organisation for Economic Cooperation and Development TCSP Trust or Company Service Provider 6 G20 Leaders or Laggards? | Reviewing G20 Promises on Anonymous Companies GLOSSARY Beneficial owner: the natural, living person who There are two broad categories of nominees: ultimately owns, benefits from or controls (directly or professionals, such as lawyers or corporate service indirectly) a company or legal arrangement providers offering nominee services; and informal nominees, such as family members, friends or Bearer share: a stock certificate that is the property of associates who play the role of front men for the whoever happens to be in possession of it at any given beneficial owner. time. Obliged entity: a professional subject to customer Competent authority: public authorities with designated due diligence obligations when entering into business responsibilities for combating money laundering and/ with a customer or carrying out a transaction, that is or terrorist financing, such as the Financial Intelligence making the necessary verifications on the identity of Unity, law enforcement that investigate and/or prosecute their customer and the origins of the funds. Those money laundering and related offences, and supervisory include financial institutions and DNFBPs, as per FATF bodies that have anti-money laundering responsibilities terminology. to ensure compliance by financial institutions and Designated Non-Financial Businesses and Professions Politically exposed persons: individuals who hold (DNFBPs) with anti-money laundering/CFT requirements, or held a prominent public function, such as the as well as tax authorities. head of state or government; senior politicians; senior government, judicial or military officials; senior DNFBPs: DNFBPs subject to customer due diligence executives of state-owned corporations; or important obligations, as per the Financial Action Task Force (FATF) political party officials. The term often includes their terminology. They include trust and corporate service relatives and close associates. providers (TCSPs), real estate agents, notaries, dealers in precious metals, lawyers and accountants when Trust: a relationship whereby the assets
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