Above a certain amount, cash ceases to be useful. Anyone making serious profits from criminal activity needs the money in a less suspicious, more amenable form—in a bank account to start with, and then perhaps invested in something more exciting: a helicopter (Arnoldo Aléman, corrupt ex-President of Nicaragua), or a $15 million New York apartment (Sun Min and Peter Mok Fung, insider traders on the Hong Kong Exchange). This transformation requires two things. The first is a bank willing to accept the money. The second is some sort of corporate structure, to take ownership of the funds and obscure the identity of the people who own and benefit from them.
There are numerous places in which it is possible to incorporate a company whilst remaining mostly or completely anonymous. These include famous Caribbean tax havens like the British Virgin Islands and the Bahamas, but also destinations which one might have thought more legitimate: Germany, for example, and several US states (most notoriously Delaware). Of course, selling to Ponzi & Co. of the Bahamas is likely to make a law-abiding business uneasy. Moral compunction aside, established business destinations have due diligence regulation, falling foul of which can result in severe penalties. Riggs, once the largest bank operating in Washington DC, was forced to sell up at a huge discount after being convicted of accepting millions of dollars from anonymous companies in the Bahamas during the nineties—which, as officials at Riggs almost certainly knew, were linked to massive corruption under the Pinochet regime in Chile.
But in a large number of countries it is possible to register a company in the name of another company located elsewhere, or to hire a complete stranger as nominee director. So criminal activity making use of corporate anonymity typically involves a chain: profits from official corruption in Russia could pass through a company in the British Virgin Islands, via one in Washington, to a trust in Australia and from there into Australian bank bonds, without causing much suspicion at the receiving end.
I spent July volunteering with Global Witness, an NGO focusing on investigative journalism and advocacy, as part of its campaign to end anonymous companies worldwide. This is an ambitious goal. Anonymous company practices are entrenched in numerous jurisdictions and feature in the corporate structures of some of the world’s largest businesses (in perfectly legal, if occasionally questionable ways). In places like the British Virgin Islands, anonymous companies represent an integral part of the economy.
But the range and number of criminal cases in which such companies appear, and the sums frequently involved, highlight the need for Global Witness’ campaign. At one end of the scale are cases involving collusion, bribery, tax evasion and the like. Alongside their role in laundering the proceeds, anonymous companies often play a direct role in such corruption. For example, during the noughties, James Ibori (a UK national who, before becoming a Nigerian state governor, worked as a cashier at the hardware chain Wickes) created anonymous companies to bid for major contracts from his own government. The bidding process was of course a sham: Ibori’s companies were guaranteed success and so he awarded the money—tens of millions of pounds—to himself. In contrast, despite its vast natural resource wealth, more than 60% of the population in the Nigerian region Ibori governed live on a dollar or less per day.
At the other end of the scale, anonymous companies facilitate the trafficking of drugs, people, and the weaponry which fuels violent conflict across the globe. Liberian companies, for example, which do not even require a registered address within the country, were particularly useful to those fostering and profiting from the 1991-2002 civil war in neighbouring Sierra Leone, which left more than 50,000 dead.
It may seem a generalisation, but large scale crime necessarily involves large sums of money: some sort of illicit or corrupt financial practice almost invariably accompanies major criminal activity. And anonymous companies represent an effective and straightforward way to obscure the identity of its perpetrators and beneficiaries.
Global Witness and their partners have had some success in their campaign to end anonymous companies. In 2013 David Cameron announced that the UK would make information available on the real ownership of most British companies. He commented that: “For too long a small minority have hidden their business dealings behind a complicated web of shell companies, and this cloak of secrecy has fuelled all manners of questionable practice and downright illegality.”
This is a major step, both in the precedent it sets and because British companies have frequently been involved in money laundering and other criminal activity. One of the biggest cases I researched whilst at Global Witness involved two of Vladimir Putin’s associates, who used a British company with nominee owners to inflate the cost of the essential medical equipment they supplied to the Russian state. Around $50 million of their vast profits appear to have been spent on a luxurious estate near the Black Sea.
But whilst the British government is exercising a reasonable amount of power to curb “questionable practice and downright illegality”, it is worth noting that some of the most crooked incorporation locations of all, like Gibraltar and the British Virgin Islands, are attractive precisely because of their British Overseas Territory status, which is seen as a guarantee of financial stability. The Territories are self-governing, but the link means that the UK government cannot be considered to have fully cleaned its hands of the issue.
Despite the clear importance of Global Witness’ campaign, I struggled at points with its intangibility. It was hard to find motivation in the feeling that what I was doing was immediately useful: broadly speaking, it is not possible to go and meet someone who feels they, specifically, are a victim of financial corruption. Of course one could meet with a Russian citizen who felt failed by the country’s health system, or with a victim of the civil war in Sierra Leone. But neither would be likely to pin their suffering on illicit financial structures, even though these are undoubtedly an integral factor in the problem.
But corruption in a sense claims more victims than any other category of crime. The Department for International Development has described corruption as the greatest single threat to its work, and Ban Ki-moon called it a “threat to development, democracy and stability”. The situation of Equatorial Guinea underlines this: despite a per capita GDP of more than $30,000—the twentieth highest in the world—the country is ranked in the bottom third of the UN’s Human Development Index. Notwithstanding, the president’s son recently used a British Virgin Islands company to buy himself a private jet.
It is not only people in developing countries who lose out. The effectiveness of anonymous company structures makes it impossible to calculate the scale of the issue: there is likely to be significantly more money moving illicitly around the globe than one could reasonably account for in an estimate. But the damage done to the global economy each year is significant: the potential growth lost because of lack of competition, the public money lost on inflated government contracts, the portions stolen from aid budgets and the numerous challenges presented to businesses by corruption. The combination of such factors undoubtedly impacts developed national economies which means that, even if only by a little, it lightens our own wallets too.