How effective are beneficial ownership checks?

by J. Sharman, T. Mayne, J. Heathershaw, A. Cooley, D. Lewis and R. Soares de Oliveira

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Money laundering is a serious impediment to the effectiveness of official development assistance in creating a more prosperous, just and democratic world. Someone looking to move illegally obtained money can far too easily hide his or her identity and disguise the origins of dubious funds by using a complex international web of shell companies and bank accounts to wire monies across the globe, investing them in a variety of assets, including high-end real estate. Often, such figures are politically exposed persons (PEPs) – public officials, their family and associates – from a kleptocracy, a nation where state funds are embezzled by the ruling elite. The PEPs that are involved in these practices seek to bolster their reputations to provide cover for both their activities and the kleptocratic regimes they represent. They do this by contracting a powerful network of lawyers, bankers, company service providers and reputation managers who help protect their funds and improve their reputation internationally by, for example, having unflattering coverage removed from the internet, and by making various charitable donations, activities that in effect clean dubious money and its owner’s reputation.

The disclosure of the Panama Papers in 2016 highlighted the need for greater interrogation of beneficial ownership and unexplained wealth by financial services companies, real-estate agents and related figures working in stable democratic countries. Since then, a string of new policies has been adopted, including the EU’s Fourth Anti-Money Laundering (AML) Directive and the UK’s register of Persons of Significant Control – making the UK the first of the G20 countries to introduce a beneficial ownership register for its companies, and the first in the world to extend this to trusts. However, these more stringent requirements and commitments to enforcement must be examined in order to assess compliance to this new AML regime by banks, real-estate agents and other financial service providers.

Our theoretical and empirical focus is not on the regional elites themselves but on those professionals often based in liberal democracies that enable money and reputation laundering.

This project, funded under the DFID-Global Integrity Anti-Corruption Evidence Partnership, aims to assess within its two-year duration the effectiveness of the international AML regime with respect to banking, real-estate purchases and charitable investments via anonymous shell companies. In particular, it will focus on money laundering by the elites of various Central Asian and African states. However, our theoretical and empirical focus is not on the regional elites themselves but on the global service providers or ‘enablers’ – those professionals often based in liberal democracies that enable money and reputation laundering in their exploitation of ‘loop holes’ in anti-money laundering rules and weak adherence to due diligence requirements. Methodologically, the study will combine a field experiment of banking, an analysis of realestate purchases via unexplained wealth, and will use qualitative comparisons to assess due diligence by international institutions and charities of investments via anonymous companies.

The research team includes academics from the Universities of Exeter, Cambridge and Oxford in the UK and Columbia University in the United States, who will be supported by research assistants and an international advisory board composed of academics and civil-society representatives from Africa, Central Asia and beyond. 

The project will provide evidence of relevance to policy with respect to the degree of compliance in the banking sector; practices of (non-)compliance in real estate, philanthropy and (where possible) banking. It also hopes to show the diffusion of and linkage between practices of non-compliance across the three sectors, and the correlation between these practices and money laundering.  We will publish our work through an international think tank or foundation and make it available via Open Access publications, and will present our findings at workshops in London, Africa and Central Asia in 2019/20 to which governmental and non-governmental participants will be invited.

About the author

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Jason Sharman is the Sir Patrick Sheehy Professor of International Relations in the Department of Politics and International Studies at Cambridge. His research interests range from the study of international corruption, money laundering, and tax havens to the global politics of the early modern world.

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