The UK’s plans for a registry of beneficial owners is still below the standards of existing offshore centres and its value is dubious.
Under the UK’s plans for a register of the beneficial owners of companies, firms registered in the UK will have to supply information on individuals with an interest in more than 25% of the voting rights, or who otherwise control the management of a company, to a central register.
It is crucial that law enforcement agencies and tax agencies have access to information that is relevant to how they discharge their responsibilities on a domestic basis.
Apart from the regulatory issues, individuals have a right to keep their personal financial information private, and there are many valid reasons why an investor or business would wish to do so.
Corporates need to ensure that data which reflects business plans, trade secrets, and strategic decisions remains confidential from its rivals, while wealthy individuals in many parts of the world will understandably want the size and location of their wealth to remain private to avoid exposing them or their families to undue risk or kidnapping and extortion. Recent events in the Middle East have powerfully reinforced this need.
From a practical standpoint, a UK register would provide data of dubious value, as the criminal fraternity and individuals misusing companies to launder money are unlikely to comply with the self-reporting requirements. The data will be unreliable as there are unlikely to be any meaningful checks in place on the quality of information being captured. In addition, those looking to get around the rules, or those who simply wish not to disclose their information, could incorporate non-UK companies which would not be covered.
Making the information public will drive investment away from the UK. Our research indicates that should a public register of beneficial ownership be introduced in Jersey our membership base would expect to see a reduction in business of, on average, 27%. This could reduce the amount being invested in the UK via Jersey by as much as £150bn based on Capital Economics estimates of the total UK inward investment flows intermediated via Jersey.
Jersey has captured beneficial ownership information on a corporate registry since 1999 and this information is available to law enforcement agencies. Its Financial Services Commission (JFSC) regularly undertakes rigorous on-site examinations of businesses to assess compliance.
In addition, Jersey is also expanding its tax agreements with numerous developing countries, including Botswana, Ghana, Kenya and Nigeria.
Where the offshore centre does not have specific information exchange agreements in place, the Joint Financial Crimes Unit participates internationally as a member of the Egmont Group of Financial Intelligence Units (FIUs - an international network of 139 FIUs, supported by the Financial Action Task Force and the World Bank, which uses secure communications systems to exchange information) and the Camden Asset Recovery Inter-Agency Network (CARIN).
Given there is ready access and availability of beneficial ownership information to foreign fiscal and investigative authorities, there appears little further benefit in pursuing a public register.
A study entitled Global Shell Games undertook a comprehensive testing of anti-money-laundering and fighting financial crime. The study involved researchers posing as fictitious consultants representing various criminal risk profiles who, via email, made over 7,400 solicitations for shell companies. These requests were sent to in excess of 3,700 corporate service providers across 182 countries, with the study designed to test how effective international rules were at preventing the set-up of bogus shell corporations, with Jersey (and other international finance centres) achieving 100% compliance (with the UK at 51% compliance and US ranking lower with 25% - see ranking here).
While it is certainly true that there are genuine concerns over tax evasion, money laundering and criminal uses of money, there is no question that financial privacy is a right that has to be balanced against public interest concerns.
In the same way that we entrust criminal investigations to public bodies, we should trust financial crime agencies to appropriately use the increasingly available amount of data provided by existing information exchange agreements.