Utopia Unleashed for Money Launderers, But Now Their Secrets Are Revealed

A new discovery of documents coined “The Paradise Papers” reveals the secrets of two offshore firms, 19 secrecy jurisdictions, and 13.4 million files.  These files were obtained by the German newspaper, Süddeutsche Zeitung, and were released by the International Consortium of Investigative Journalists (ICIJ), along with 95 other media partners.

The largest finding in the documents was the hidden information of Appleby, a paramount offshore law firm based in Bermuda.  In its discovery, nearly 7 million loan agreements, financial statements, emails, and trust deeds from the past 50 years were found.  Although this may already sound like a lot, it does not end here.  ICIJ says that Asiaciti, another smaller, family-owned trust company, was hiding advanced 100-page corporate transaction sheets and dollar-by-dollar payment ledgers.

The major key findings found within the Paradise Papers include many components from revealing offshore interests and activities to exposing tax avoidance activity, and uncovering the secrets of Glencore, the world’s largest commodity trader.  The significance of these findings is the reaction they caused in EU leaders and their actions towards addressing the illegal schemes and preventing future ones.  Unfortunately, some do not see this tax haven as a saving grace, but more so a distraction to the real problem of corruption and anti-money laundering (AML).

The Anti-Money Laundering Directive (AMLD) is still in negotiation and, the amount of time these debates are taking is causing more harm than good.  There have already been eight negotiation rounds which are highly unusual according to Rachel Owens, head of EU Advocacy at Global Witness.  Nations opposing the amendment have given little reason other than “economic uncertainty”, leaving little room for new arguments to be made.  However, progressive nations such as Germany are also blocking AMLD on the defense that their privacy laws are very complicated and are concerned with how the new provisions will affect these legal entities, such as trusts.

On top of large countries opposing the bill, the UK’s laws in accordance with money laundering and tax avoidance are being scrutinized as enabling these activities by being too lenient.  Many attribute this issue to Brexit and until this issue is settled, many believe that the UK does not want to seem tough on business, but rather, ready to help build the economy through building businesses.  This has clearly backfired considering the top five jurisdictions for hidden deals are all U.K. Overseas Territories or Crown Dependencies.

Criticism of the UK includes their insufficient controls on company formation leading to companies easily formed either legitimately or illegitimately.   This allows an immense amount of money laundering to occur and anonymous offshore vehicles to be used.

The U.K. branch of Transparency International (TI) has published 10 recommendations to combat these issues.  First, TI suggests limiting only UK registered agents to set up UK companies, which will allow for the prohibition of the incorporation of companies by TCSPs to not carry on business in the UK.  Further, it will make it possible to trace who is setting-up and administering U.K. companies.  Second, TI recommends that the UK encourages registered companies to create UK bank accounts allowing for proper tracking of money and due diligence procedures.  To combat the risk of Companies House incorporating legal entities, TI believes that knowing who is incorporating and selling to UK companies will empower Companies House to proceed with due diligence procedures.

On top of these suggestions, TI also says that identifying and implementing measures to verify beneficial ownership information should be accounted for to guarantee that UK companies are not being used as shells for money laundering.  Additionally, it is important for transparency and accountability of TCSP supervisors actions.  The last recommendation TI has is to monitor patterns in the use of UK legal entities by proactively identifying money laundering risks.

Hopefully, the UK takes the advice of TI and uses it to combat money laundering, tax avoidance, and more discoveries similar to the Paradise Papers.  This ongoing issue must be solved, otherwise, the corruption will persist and worsen, causing havoc on UK businesses and their overall economy.


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