Cyprus, Ghana and Kenya join growing list of countries to create beneficial ownership registries

The Panama Papers scan­dal helped cre­ate a “snow­ball effect” of inter­na­tion­al aware­ness on how anony­mous cor­po­rate vehi­cles can enable tax eva­sion, cor­rup­tion, and crime, advo­cates say.

Nairobi, Kenya

An infa­mous tax haven in the heart of Europe and two of Africa’s largest economies will force com­pa­nies to declare their own­ers, join­ing a grow­ing list of coun­tries respond­ing to pub­lic pres­sure over crime and tax avoid­ance enabled by anony­mous cor­po­rate vehicles.

Cyprus, Ghana and Kenya have final­ized so-called “ben­e­fi­cial own­er­ship reg­istries” that require local com­pa­nies to declare own­ers to nation­al author­i­ties. Law enforce­ment, trans­paren­cy activists and tax inspec­tors have long rec­og­nized the val­ue of such dis­clo­sures in deter­ring crim­i­nals and cor­rupt officials.

Spurred in part by scan­dals such as the International Consortium of Investigative Journalists’ 2016 Panama Papers inves­ti­ga­tion, more and more coun­tries have enact­ed laws to cre­ate such reg­istries or sig­nalled an inten­tion to do so.

Progress has been “con­sid­er­able,” accord­ing to a 2020 review by the Tax Justice Network. As of February 2020, 81 coun­tries approved laws requir­ing own­er­ship infor­ma­tion to be reg­is­tered with nation­al gov­ern­ments — more than dou­ble the num­ber two years earlier.

In January, the United States Congress passed the Corporate Transparency Act, which requires com­pa­ny own­ers to iden­ti­fy them­selves to the Department of Treasury. U.S. com­pa­nies, espe­cial­ly lim­it­ed lia­bil­i­ty com­pa­nies, have a long his­to­ry of abuse by fraud­sters and for­eign kleptocrats.

Publications like the Panama Papers or the Paradise Papers have sparked an inter­na­tion­al aware­ness of how indi­vid­u­als take advan­tage and even abuse oppor­tu­ni­ties for tax eva­sion or fraud, through com­plex net­works of off­shore legal struc­tures, but very opaque,” said Idriss Linge, a Cameroonian finance jour­nal­ist and researcher. “The fact that the debate is inter­na­tion­al­iz­ing cre­ates a snow­ball effect.”

Last month, Cyprus announced plans to intro­duce its own­er­ship reg­is­ter, a require­ment of the Mediterranean island’s mem­ber­ship of the European Union.

The move was warm­ly greet­ed by anti-cor­rup­tion cam­paign­ers, espe­cial­ly in Russia and oth­er for­mer Soviet Union nations. Cyprus has long been a favored des­ti­na­tion for Russian mon­ey – dirty and clean – thanks to a gen­er­ous tax treaty between the coun­tries and to weak Cypriot laws and enforce­ment. In 2019, the glob­al anti-mon­ey laun­der­ing watch­dog, the Financial Action Task Force, chas­tised Cyprus for “major short­com­ings,” includ­ing a poor track record of trac­ing crim­i­nal pro­ceeds gen­er­at­ed out­side the island. Authorities did not proac­tive­ly track and freeze cor­rupt for­eign mon­ey, the report said.

As part of ICIJ’s Panama Papers inves­ti­ga­tion, reporters revealed how Cyprus played a cen­tral role in sus­pi­cious mon­ey move­ments tied to a friend of Russian President Vladimir Putin.

I believe this is del­i­cate,” Panama-based attor­ney Jurgen Mossack emailed col­leagues at the time about a $103 mil­lion deal that passed through Cyprus. Mossack was a co-founder of  the law firm Mossack Fonseca, whose leaked files formed the basis of the Panama Papers inves­ti­ga­tion. He wor­ried that “we could be wit­ness­ing pay­ments of ques­tion­able ori­gin and pur­pose,” accord­ing to the email.

Experts told Reuters in January that the new reg­is­ter may prompt com­pa­ny own­ers to flee Cyprus and estab­lish com­pa­nies in coun­tries that do not have own­er­ship report­ing requirements.

The register’s con­tents will not be pub­licly avail­able, how­ev­er, frus­trat­ing advo­cates who argue that pub­lic infor­ma­tion helps banks, researchers, pol­i­cy mak­ers and journalists.

In Ghana, offi­cials ear­li­er this month final­ized an own­er­ship reg­istry. Under new rules in the West African nation, every com­pa­ny must pro­vide the Registrar General’s Department with the ver­i­fied iden­ti­ties of every per­son behind each company.

Following the release of the Panama Papers and the glob­al efforts to address issues relat­ed to anti-cor­rup­tion and tax eva­sion, the Ghanaian gov­ern­ment has come under pres­sure to act on ben­e­fi­cial own­er­ship dis­clo­sure,” said Registrar-General Jemima Oware in explain­ing the impe­tus behind the law.

Rich in gold, oil, tim­ber and oth­er nat­ur­al resources, Ghana los­es more than $1 bil­lion every year in shad­owy trade deals, accord­ing to an analy­sis by Global Financial Integrity.

The ben­e­fi­cial own­er­ship reg­is­ter is sig­nif­i­cant because it has the poten­tial of unearthing the inter­twin­ing rela­tion­ship of busi­ness enti­ties and their share­hold­ers thus reduc­ing opaque­ness and rather ensur­ing trans­paren­cy,” Accra-based tax attor­ney Abdallah Ali-Nakyea told ICIJ. “Once funds flow can be traced and tracked, illic­it finan­cial flows will be reduced if not elim­i­nat­ed completely.”

On the oth­er side of the con­ti­nent, pub­lic and pri­vate com­pa­nies in Kenya have until July to pro­vide details of peo­ple who own more than 10% of local­ly-reg­is­tered com­pa­nies. Details will be shared with Kenya’s tax office and oth­er gov­ern­ment depart­ments to help track illic­it wealth. Kenya’s par­lia­ment also direct­ed the country’s tax office to hire more than 2,000 new employ­ees to track down tax cheats, accord­ing to news reports.

Francis Kairu, a Nairobi-based lawyer and researcher on illic­it finan­cial flows, told ICIJ that Kenya’s new reg­is­ter will help the country’s tax office and asset recov­ery agency “keep track of the major play­ers behind the com­pa­nies that engage in aggres­sive tax avoid­ance schemes.” The reg­istry will also help link peo­ple sus­pect­ed of crimes with assets pur­chased through anony­mous lim­it­ed lia­bil­i­ty com­pa­nies, he said.

The Kenya reg­istry, like those in Cyprus and Ghana, will not be made pub­lic despite pres­sure from trans­paren­cy campaigners.

In gen­er­al, Kairu said, “reg­is­ters cre­ate an envi­ron­ment of greater trans­paren­cy and sup­press opac­i­ty.” In Kenya’s case, Kairu said, “I think in the long term it will be a major dis­in­cen­tive for the use of Kenya reg­is­tered cor­po­ra­tions for tax eva­sion, hid­ing illic­it wealth and mon­ey laundering.”

Last week, Canada sig­nalled that it may be next to join the club, issu­ing a long-await­ed report on the pos­si­bil­i­ty of a cen­tral­ized and pub­licly acces­si­ble register.

Loopholes in Canadian laws make it sim­ple to cre­ate shell com­pa­nies and hide own­ers’ iden­ti­ties, accord­ing to a string of reports that coined the term “snow wash­ing” to describe the com­bi­na­tion of Canada’s cool weath­er and its lax approach to stop­ping mon­ey laundering.

Transparency International wel­comed the government’s report but expressed con­cern that fears over what data became pub­lic were “too cau­tious and jeop­ar­dize chances for Canada to deter dirty money.”

Will Fitzgibbon, ICIJ

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