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The G20 has not delivered on promises to tackle issues of beneficial ownership – this is revealed in a report released on Thursday by Transparency International.
In November 2014 the G20 countries – of which South Africa is one – met in Brisbane. Among the topics up for discussion was the question of beneficial ownership. In other words, the real person who ultimately owns, controls or benefits from a company or trust fund and the income it generates. Because of lax regulation and enforcement, secrecy makes it easy for a corrupt official to withhold this information when the company bids for a government tender, or for a businessman to transfer money from one jurisdiction to another while hiding any connection to the money.
In an open letter to the Group of 20, civil society leaders called for the world’s biggest economies to take concrete action against corruption by making the global financial system more transparent, thereby clamping down on the siphoning of illicit money.
Corruption Watch supported the letter – one of its signatories was our chairperson, Archbishop Njongonkulu Ndungane.
Transparency International, meanwhile, had launched its Unmask the Corrupt campaign two months before and was pushing for G20 leaders to agree on measures to close loopholes allowing an estimated $2-trillion to illegally cross borders every year.
The G20 committed to taking action. In a joint communiqué, the group unveiled its plan, known as the G20 High-Level Principles on Beneficial Ownership Transparency, which laid out the way forward in tackling the problem.
“G20 countries will lead by example by developing G20 High-Level Principles on Beneficial Ownership Transparency that will set out concrete measures G20 countries will take to prevent the misuse of and ensure transparency of legal persons and legal arrangements,” the G20 stated confidently.
So what has happened in the year since, and were the promises kept? Ahead of the upcoming G20 meeting in Antalya, Turkey, a new report by TI investigates.
Titled JUST FOR SHOW? Reviewing G20 promises on beneficial ownership, the report shows that G20 countries, for the most part, have not kept those promises to fight corruption and make it harder for the corrupt to hide their identity and shift money across international borders.
“The world looks to the G20 for leadership on political, economic and other important issues of the day,” said TI’s MD Cobus de Swardt. “To avoid looking little more than a talk shop, they must keep their promises – including on tackling corruption.”
De Swardt added that governments need to supply the tools to make it easier for banks, accountants, lawyers and other businesses to stop corrupt customers. “This means creating a central, public register containing beneficial ownership information, it’s that simple.”
Some progress, but not nearly enough
At the Brisbane summit, the G20 described financial transparency as a “high priority” issue. But for many, said TI, it seems these grand statements may have been just for show.
The report assessed each G20 country on areas of strength and weakness in its current beneficial ownership transparency legal framework, measuring these areas against the beneficial ownership principles adopted in Brisbane.
TI found that in terms of the overall strength of the framework, only one country – the UK – achieved a framework rating of very strong. The country scored 100% on four out of 10 principles, especially on those that require good access to beneficial ownership information.
A high score, according to the report, means that the legal framework of the country is closer in line with the G20 principles, and there are laws and regulations ensuring access to beneficial ownership information. However, this report only assesses national legal frameworks, but it does not analyse how laws and regulations have been implemented and enforced in practice.
Argentina, France and Italy were rated as having strong frameworks, while South Africa, along with Germany, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia and Turkey, was regarded as average.
Australia, Brazil, Canada, China, South Korea and the US were rated as having weak frameworks.
South Africa’s existing rules, TI found, do not provide for a legal, accepted definition of the beneficial owner, and there are no requirements for legal entities to maintain, or financial institutions and non-financial businesses to collect, information on the natural persons who ultimately own legal companies. Consequently, the ability of competent authorities to access beneficial ownership information is seriously restricted.
The country is currently debating amendments to laws, which could close existing loopholes and if adopted, these could enable it to improve its score significantly.
South Africa was not the only G20 country to have overlooked a legal definition of beneficial ownership. Brazil was also guilty of not implementing this fundamental step.
The issue of disclosure of beneficial ownership is of importance to Corruption Watch – it was one of the demands handed over at the end of the anti-corruption march in September, and is also one of the points we are raising as part of our engagement with the Office of the Chief Procurement Officer on the Supply Chain Management Bill that is currently being drafted.
Many ways for the corrupt to operate
Petrobras, Fifa, former Ukrainian president Viktor Yanukovych – these and other major corruption scandals hitting the news often share key commonalities, said TI: the people at the centre of the scandal use a complex web of anonymous companies, trusts and other legal entities situated across multiple jurisdictions to transfer and hide their illicitly sourced funds.
The role of secretly owned and controlled companies and other legal entities in the transfer and laundering of corrupt funds is significant. Corrupt politicians used secret companies to obscure their identity in 70% of over 200 cases of grand corruption surveyed by the World Bank, while illicit money was channelled through shadowy secret companies in a quarter of the 400+ bribery cases across 41 countries reviewed by the Organisation for Economic Co-operation and Development.
With its high-level principles, the G20 has made one of a number of commitments aimed at tackling the misuse of these corporate vehicles and trusts, and to increase transparency around who ultimately owns, controls or is benefiting from them.
But to date, only two countries, India and the UK, require companies to record and keep up-to-date information about the real person who owns or controls them. In eight G20 countries – including the US, Japan and Australia – if a bank can’t find out the identity of the real person behind the money, it is still allowed to proceed with and conclude the transaction. And in seven G20 countries, real estate agents don’t need to identify the real people who are behind the sales and purchases of property – one of the tried and tested ways of laundering money.
