Speaking at the Open Government Partnership Summit in London last week, Prime Minister David Cameron announced the creation of a public registry that would show who really owns, and controls, companies.
The announcement comes on the back of Cameron’s pledge to introduce more transparency around beneficial ownership of companies, a pledge that was part of his effort to put ‘tax, trade and transparency’ at the heart of the UK’s presidency of the G8.
Advocacy efforts from civil society organisations such as Global Witness, ONE, Christian Aid and others have been instrumental in achieving this new commitment from the Prime Minister. The challenge now will be to translate this commitment into strong rules in the UK and ensure that the UK takes this issue to the EU level (in the context of the Anti-Money Laundering Directive) and to other international fora such as the G20. While welcoming the Prime Minister’s commitment, beady eyed campaigners were quick to point out that there was no commitment made to revealing the beneficial owners of trusts…
At the moment it’s very simple for someone to hide the identity of who really owns a company. Throw together various subsidiaries, secrecy jurisdictions and nominees and the result is an impenetrable maze no-one can navigate.
So why is this issue so important for the extractive sector?
• Because when a gold company turns out to belong to the daughters of the Azeri President, you can be sure that the company wasn’t awarded the lucrative contract because it offered the most technologically advanced method of mining.*
• Because when thousands of Equatorial Guinea’s citizens live in poverty, the President’s son shouldn’t be spending $2.7 million of oil money on Michael Jackson Paraphernalia. Nor should he be planning to spend three times the country’s health and education budget on a yacht. Or, really, spending any of the money that rightfully belongs to all EquatoGuinean citizens.
• Because citizens from the DRC really can’t afford to lose out on potential revenue. Not when their country languishes at the bottom of the human development index and their underground riches could lift millions out of poverty. Yet that’s what happened when, according to Global Witness, ‘ENRC made large payments to offshore companies to purchase prize mining assets in Congo, which were acquired at significantly undervalued prices.’
These are just a few examples which all relate to corruption in the extractive industry. We haven’t even touched on how secrecy around beneficial ownership enables drug lords and arm dealers to launder money, or supports the work of terrorists and other criminals.
This public register will make it harder for people to hide their identities and true intent. It will be harder for people to create a company destined only as a shell through which to launder money. Transparency will shed a light on a swathe of corrupt practices and is a step in the right direction to change a system currently rigged to favour those who want secrecy.
Some might say there will always be crime and corruption, but surely we shouldn’t be making it quite so easy?
*In 2007 the newly formed consortium AIMROC was awarded a contract for six gold fields in Azerbaijan, despite having no previous experience in gold mining. In 2012, journalists revealed that President Aliyev’s two daughters held important financial stakes in the consortium.
Want to find out more?
Open Society Foundation have a briefing paper - How Shell Companies Aid Terrorism, Crime, and Corruption
Read Global Witness’ press release.