A joint report by the World Bank and UNODC urges governments to devote more resources to training investigators in fighting financial crime.
A joint report by the World Bank and the United Nations Office on Drugs and Crime (UNODC) published this week urges governments to devote more resources to training investigators in fighting financial crime, including large-scale corruption, money laundering and terrorist financing.
According to the stolen asset recovery (Star) initiative of the World Bank and the UNODC, most large-scale corruption cases involve using legal entities to conceal ownership and control of corrupt proceeds, hence the need for greater transparency to reduce opportunities for wrongdoing.
“We need to put corporate transparency back on the national and international agenda,” says Emile van der Does de Willebois, a World Bank financial expert and leader of the Star research team behind the report on the corrupt use of legal structures. “It is important for governments to increase the transparency of their legal entities and arrangements, and at the same time improve the capacity of law enforcement.”
The report, titled “The Puppet Masters”, examines how bribes, embezzled state assets and other criminal proceeds are being hidden using legal structures—shell companies, foundations, trusts and others. The study’s release coincided with a UN conference on corruption in Marrakesh, Morocco, bringing together anti-corruption advocates and representatives from 154 states.
With the Arab Spring in mind, Transparency International and other civil-society organisations attending the fourth session of the conference of states party to the UN convention against corruption are calling for action to step up the recovery of stolen assets. Under the banner “Return stolen public assets now”, they are also demanding more robust anti-money laundering measures.
The report illustrated the use of shell companies by referring to a case in 2002, when Kenya invited bids to replace its passport printing system. Despite a €6-million bid from a French firm, a €31.89-million contract was awarded to Anglo Leasing and Finance, an unknown shell company, whose registered address was a post office box in Liverpool, despite the fact that Anglo Leasing proposed to sub-contract the actual work to the French company.
The report says whistle-blowers suggested that corrupt senior politicians planned to pocket the excess funds from the deal. Attempts to investigate the allegations were frustrated when it proved impossible to find out who really controlled Anglo Leasing. The scandal nearly brought down the Kenyan government at the time.
The report says that, although laws and regulations are important, they are insufficient in themselves. “In any complex corruption investigation involving the use of corporate vehicles, an imaginative, tenacious and expert investigator is indispensable,” it says. And a company registry is no panacea for the misuse of legal entities either.
Although other vital sources of information are banks and trust company service providers (TCSPs), the review shows that banks and TCSPs “still do not adequately identify the beneficial owner [where specific property rights in equity belong to a person even though legal title of the property belongs to another] when establishing a business relationship”.
American banks, for example, are not generally obliged to collect beneficial ownership information when conducting business. “At the very least, an official declaration by the customer as to beneficial ownership could be useful in improving the situation,” the report says.—