All seeing, all knowing

Just as we are being bombarded by Requests for Permissions to remain on mailing lists to protect our privacy and Facebook is being criticised for selling analytics on what we do and say, institutions dealing with asset owning rich people are being told to kiss and tell.

In July 2015, the then Prime Minister David Cameron announced his commitment to address corruption and the illicit flows of finance, by being the first G20 country to establish a publicly accessible central register showing who really owns and controls UK companies. The reason for this frank openness, he said was to tackle corruption more effectively – really?

The Government paper says ‘enhanced transparency and trust are good for business and good for growth. The Government wants the UK to be one of the most open countries in the world for good, clean investment’. Fascinating!

It also stated that it would consider ways to introduce transparency into foreign companies and would start by compiling a register of beneficial owners of UK properties owned by offshore companies as well as a register of the people who are beneficially entitled to the benefits of public contracting.

The World Bank has estimated that corruption adds up to 10% to business costs globally.

According to the OECD around 5% of global GDP is corrupt. Crime organisations and corrupt individuals frequently use companies to hide the proceeds of bribery, corruption and organised crime, which costs the UK, at least £24 billion each year. Lifting the veil of secrecy of who ultimately owns and controls companies can therefore expose wrongdoing and disrupt a key vehicle for illicit financial flows, including those derived from corruption – But surely won’t such a beneficial ownership register be avoided by criminals, and used by them to increase corruption and criminal behaviour?

The real driver behind creating beneficial ownership registers, I believe is for Governments to have access to information so that they can tax the estimated $7,600 billion offshore. They would appear to care little for those who may innocently be caught by criminals who would not otherwise suffer.

 The UK has put pressure on its Crown Dependencies in the Caribbean namely on the BVI and the Cayman Islands to create and maintain a register of beneficial owners of all their companies. And now, the Bahamas, which is independent, has followed suit.

On April 25th, the Register of Beneficial Ownership Bill was tabled in the House of Assembly in the Bahamas. This will contain beneficial ownership information on ‘all corporate and legal entities’ incorporated in the Bahamas. The register is considered necessary ‘to meet the anti-financial crime strictures of the Financial Action Task Force (FATF) and its affiliates, as well as the Organisation for Economic Co-operation and Development’s (OECD) and European Union’s (EU) fight against tax avoidance/evasion’.

Clearly the Bahamas was being put under pressure from the EU, which recently blacklisted the jurisdiction as well as the OECD to comply with the automatic exchange of tax information.

But there has also been pressure from the US. In 2017 the State Department published an ‘International Narcotics Control Strategy’, in which it said

‘The Bahamas does not disclose in a public registry information about trust and foundations, maintain official records of company beneficial ownership, require company accountants be placed on a public register, or require resident paying agents to tell the domestic tax authorities about payment to non-residents’.

If the US was really committed to stamping out corruption through transparent public register of ownership, it would first clean up its own back yard.

In Delaware, provided you appoint a resident representative in Delaware, you can set up a company without even giving your name and address. This opacity was stamped out in offshore financial centers years ago.

One commentator said ‘The US ought to push for a public beneficial ownership register global standard before seeking to impose it on this nation (the Bahamas) and others’.

The winners of these new double standards are the US States of Delaware, Alaska, and South Dakota, but there are downsides.

Information which is made available to the IRS, by any means, is subject to a myriad of Tax Information Exchange Arrangements. And unlike countries such as Switzerland, Cayman and the Bahamas which have had decades of dealing with international families, the US, by comparison, has not.

I have seen numerous examples where US trust administrators have filed returns on non-US citizens where it is not strictly necessary ‘because that is what we do for all our clients’! And once the information is in the arms of Uncle Sam – he will exchange information as readily as any other country.

There are solutions, for honest, hardworking, international entrepreneurs who want protection from an ever-increasing risk that the collection and collation of beneficial ownership puts them at greater risk personally of attack by the very people from whom they want protection.

GFOS sets up Family Headquarter Structures with good governance at its core. If a disaster were to strike which could just as easily come from within the family than outside, it can be sorted out quickly and efficiently so as not to lead to a catastrophe.

If you have comments or would like to discuss matters relating to restructuring, control, trusts and protection of your assets please contact us direct.

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