Cleaning Up the World: End Dirty Money

The Panama Papers make one thing plain and undeniable: the most commonly used money laundering route runs right through the heart of our societies.

For their money-laundering efforts to succeed, crooks seek the assistance of lawyers, accountants and consultants – often based in London, New York, Zurich and Geneva.

The game is first to establish offshore holding companies and then invest their cash in properties and other assets, always in ways that hide the real ownership of the holding companies.

That makes it plain that any attempt by a political leader to end the money laundering business will be staunchly opposed by influential vested interests. These include:

• armies of well-placed agents who enable the laundering of dirty cash
• property firms, auction houses, investment institutions who count the offshore holding companies among their major clients
• government authorities in countries whose financial institutions have long profited in this area
• government authorities in so many havens whose major business is catering to the needs of the international wealthy without ever asking any questions.

To make much-needed progress in the battle against these forces, British Prime Minister David Cameron plans to hold an international summit conference in May.

This event, which is likely to bring as many as 40 national leaders together, is an opportunity to take meaningful action to clean the world of dirty money.

Likely items on the agenda are:

• corruption in sports (think, for example, of world soccer/FIFA)
• tax evasion, given that wealthy people across the world hide their incomes in secret bank accounts in Luxembourg, Liechtenstein and Switzerland, as well as in offshore holding companies registered in the British Virgin Islands and similar sunny places
• complex networks of illicit finance that support terrorist organizations, such as ISIS

Each of these areas of corruption operate with dirty money. The sports’ match-fixers and the tax evaders and the terrorist financiers all succeed because they can steal cash and launder it through holding companies whose real ownership is incredibly difficult to trace.

The UK government published its first “National Risk Assessment of Money Laundering and Terrorist Financing” which details many aspects of the impact of dirty money on the UK itself.

The report concluded: “Money laundering represents a significant threat to the U.K.’s national security.”

Recently, an unprecedented session of the United Nations Security Council was held with finance ministers, not foreign ministers, at the table.

The session, chaired by U.S. Treasury Secretary Jack Lew, aimed to strengthen global action to counter terrorist financing.

Typically, summits of the kind end with long and detailed communiqués full of pledges to act on all manner of matters.

Steps to be taken

What is needed to make real progress on this pivotal issue is to pick one issue as a focus. I suggest to focus exclusively on beneficial ownership.

All governments participating in the summit should agree on a timetable to end holding company secrecy.

No asset, be it in Miami or in Monte Carlo, should be allowed to be purchased by a holding company whose real owners are not publicly visible.

Holding companies, be they registered in the U.S. state of Delaware or in Cyprus, should be obliged to provide full ownership details in public registers.

Some will say that this is an unacceptable affront to personal privacy. I disagree. The only people who use holding companies that make true ownership a secret are people who have something to hide.

It is not a stretch to say that they may well be acting against the public interest.

Criminal prosecution

To give this some teeth, banks, art dealers, property companies and international financial advisors should be subjected to criminal prosecution if they strive to circumvent these beneficial ownership rules.

I think it is more practical to go after the companies themselves and those who represent them than to go after the national authorities in many countries that enable the establishment of secret holding companies. The obligation to comply needs to rest with all the institutions and their agents.

Consider, just by way of example, that the real owners of many of the most luxurious apartments in Manhattan cannot be traced because the property titles are in the names of offshore holding companies.

If in future all such firms were forced to reveal their real owners in order to own a New York property, then my guess is that the world would start to become a cleaner place.

Editor’s note: This feature was condensed slightly on April 7, 2016.