Wednesday 23 January 2019

Richard Curran: Government's new register of business owners won't unearth any big secrets

Business people with something to hide will use offshore corporate entities to continue to mask their interests. Photo: Stock image
Business people with something to hide will use offshore corporate entities to continue to mask their interests. Photo: Stock image
Richard Curran

Richard Curran

The government is finalising its plans to set up a Register of Beneficial Ownership in the coming weeks. The register will be established following a Statutory Instrument from the Department of Finance and it will be in line with the measures of the EU's fourth anti-money laundering directive.

The basic idea is quite simple. But don't expect it to strike a major blow for corporate transparency, accountability and in combating crime.

The corporate world has lots of tricks up its sleeve to make sure that doesn't happen.

The new register will store the names and details of beneficial owners of corporate entities, such as companies and partnerships.

It is will be put together by the Companies Registration Office (CRO). Discussions are ongoing about providing PPS numbers to make sure the information is verifiable and accurate.

In the UK, a campaigner of transparency deliberately set up companies using bogus information and then told the Companies House about it, in order to highlight weaknesses in their procedures.

They prosecuted him but also admitted it was the first prosecution of this kind they had taken.

The leaking of the Panama Papers in 2015 brought the need for such a register into sharp focus.

Right now lots of people control or own companies but they do not appear on the CRO filings as the beneficial owner. Sometimes they use nominee companies operated by law or accountancy firms to hide their interest in a particular venture.

It isn't always about tax, but is very often about privacy. It can be the case that a businessperson doesn't want everybody to know what they own or they might not even want certain competitors in bidding for assets to know they are behind certain deals. This is where it gets very complicated.

Look how difficult it has been for many receivers, liquidators and administrators since the crash, to establish beneficial ownership of various assets.

Establishing beneficial ownership has been extremely complicated in the case of the bankruptcy of property developer Sean Dunne.

Look at how certain members of Sean Quinn's family were involved in putting assets beyond the reach of IBRC receivers. This resulted in ongoing protracted legal battles literally across the globe and they have cost tens of millions of euro.

The Government's move to form a register looks like a positive step in the right direction. Except for the fact, that those who really want to hide ownership of assets, for whatever reasons, do not operate in a simple way. Twenty years ago we first learned about the existence and use of discretionary trusts when it came to offshore tax evasion. They applied in the Ansbacher case, and in the case of hiding money in Switzerland through Liechtenstein-registered trusts.

Similar offshore arrangements were used at National Irish Bank where clients hid hot money offshore through the Clerical Medical scheme, but had unfettered access to it while at home in Ireland.

One of the extraordinary things about the Panama Papers was how little these very old tricks had changed. Versions of the same scams were in used by the global elite.

There are lots of shortcomings with the register of beneficial ownership as planned. One is in relation to public access to the register. Under the fourth EU anti-money laundering initiative these registers will not be publicly available.

Businesspeople will argue that as long as relevant investigating authorities, such as regulators, law enforcement and tax collectors, have access to it, then why should snooping neighbours or journalists?

All of those authorities have limited resources and must have some reason to request information on a particular corporate entity abroad in the first place. In other words it will help them in a live investigation, rather than give rise to an investigation.

All of the major financial scandals revealed in Ireland, where beneficial ownership was an issue, first appeared in the media. Journalists uncovered the NIB Clerical Medical scam, the bogus offshore accounts racket, Ansbacher and others.

In truth, business people with something to hide will use offshore corporate entities to continue to mask their interests. For example, not only will this register not be available to the public, its ability to identify beneficiaries of offshore trusts is still questionable. The level of compliance and transparency operated by places like Jersey, the Isle of Man, the British Virgin Islands or the Cayman Islands will determine how successful this can be.

Some of these islands already operate registers of beneficial ownership, but there are strict rules around the process by which international authorities can access them. And, of course, they are not available to the public at all.

Then there is the question of keeping the register up to date. Assets can be flipped, moved on, sold on etc by the flick of an electronic switch.

It is one thing to have EU rules on how countries maintain the accuracy of the register, but it is another to ensure the relevant authority in each country has the resources to keep it up to date.

One study by two Trinity College academics found more than €100bn has been 'funnelled' through the Irish IFSC to Russian-linked companies since 2007. The sums of money moving often quickly through special purpose vehicles are enormous and difficult to track.

Irish businesses have found ways of keeping their activities out of the limelight in different ways over the years. Some legitimate, some less so.

I remember spending days searching through the complex corporate structure of a very high-profile multi-millionaire to find the ultimate registered ownership. Eventually, at the top of an enormous corporate tree, I found company A as the owner. When I looked at who owned company A, I found it was a firm called company B. When I looked at who owned company B, I found it was owned by company A. This was a corporate tree without a top but a never-ending circle.

I have found Irish business people who are directors of literally several hundred companies. This makes it impossible to unravel and decipher the financial position of the group, because there is no obvious group structure.

It may be about privacy and not wrongdoing, but the inability to independently verify the financial position of major property developers during the boom years, contributed to the fact that nobody could get a handle of their real level of indebtedness. And we know how that came back to bite us all.

But offshore trusts are not the only obstacle to genuine transparency around who owns what.

The Panama Papers showed us a lot about ownership of wealth. For example, they showed how the net worth of one of Vladimir Putin's closest friends, Sergei Roldugin, was about $130m.

Mr Roldugin plays the cello for a living.

The question of public access to these EU registers of beneficial interest is being dealt with in Brussels and Strasbourg right now. The fifth anti-money laundering directive is expected to allow for public access to the information but only in controlled circumstances.

Member states will have to grant access to the information held by each member state's register of trusts, subject to a "legitimate interest" test.

The conditions of this test will be set by each individual country.

What if the company that owns the asset is in the EU, but the trust that controls the company is in a far-flung Pacific Island? Nobody will have an accessible record of the beneficial ownership of the trust. What if the beneficiary of the trust is whoever the trustees say it is, because it is a discretionary trust?

We will have to wait and see what definition of "legitimate interest" the Government comes up with in relation to allowing public access to the register of trusts, after they have passed into law in Europe.

The French government allowed public access to the register but this was thrown out by the French Supreme Court as unconstitutional.

No doubt somebody will challenge this one all the way to the European Court of Human Rights on the basis of a right to privacy.

And they may even win.

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