Cyprus, Ghana and Kenya are joining a growing list of countries to compile beneficial ownership registers
A notorious tax haven in the heart of Europe and two of Africa’s largest economies will force companies to declare their owners and join a growing list of countries responding to public pressures on crime and tax avoidance made possible by anonymous corporate vehicles.
Cyprus, Ghana and Kenya have completed so-called “beneficial ownership registers”, in which local companies are obliged to declare owners to the national authorities. Law enforcement agencies, transparency activists, and tax inspectors have long recognized the value of such disclosures in deterring criminals and corrupt officials.
Triggered in part by scandals such as the 2016 Panama Papers Inquiry by the International Consortium of Investigative Journalists, more and more countries have enacted laws to create such registers or have indicated their intention to do so.
According to a 2020 review by the Tax Justice Network, progress has been “substantial”. As of February 2020, 81 countries had passed laws requiring property information to be registered with national governments – more than twice as many as two years ago.
In January, the United States Congress passed the Corporate Transparency Act, which requires business owners to identify themselves to the Treasury Department. US companies, particularly limited liability companies, have a long history of abuse by fraudsters and foreign kleptocrats.
“Publications such as the Panama Papers or the Paradise Papers have raised an international awareness of how individuals exploit and even abuse opportunities for tax evasion or tax fraud through complex networks of offshore legal structures that are, however, very opaque,” said Idriss Linge, one Cameroonian finance minister journalist and researcher. “The fact that the debate is being internationalized creates a snowball effect.”
Last month, Cyprus announced plans to introduce its property register, a requirement for the Mediterranean island to join the European Union.
The move was warmly welcomed by anti-corruption fighters, especially in Russia and other countries of the former Soviet Union. Cyprus has long been a preferred destination for Russian money – dirty and clean – thanks to a generous tax treaty between countries and weak Cypriot laws and enforcement measures. In 2019, the global money laundering watchdog, the Financial Action Task Force, punished Cyprus for “serious deficiencies” including a poor track record of tracing criminal proceeds from outside the island. Authorities have not proactively prosecuted and frozen corrupt foreign money, the report said.
As part of the ICIJ’s Panama Papers investigation, reporters revealed that Cyprus is central to suspicious money movements tied to a friend of Russian President Vladimir Putin’s.
“I think this is tricky,” Panama-based lawyer Jürgen Mossack emailed his then-colleagues about a $ 103 million deal that went through Cyprus. Mossack co-founded the law firm Mossack Fonseca, whose leaked files formed the basis for the investigation into the Panama Papers. He feared that “we might witness payments of questionable origins and purposes,” the email said.
Experts told Reuters in January that the new register could potentially encourage business owners to flee Cyprus and start businesses in countries that do not have owner reporting requirements.
However, the contents of the register will not be publicly available, frustrating proponents who argue that public information helps banks, researchers, policymakers, and journalists.
In Ghana officials completed a property register earlier this month. Under the new rules in the West African nation, every company must provide the Department of the Chancellor General with the verified identities of every person behind every company.
“Following the publication of the Panama Papers and global efforts to tackle anti-corruption and tax evasion problems, the Ghanaian government has come under pressure to react to the disclosure of beneficial ownership,” said Chancellor General Jemima Oware, explaining the impetus behind the law.
Ghana is rich in gold, oil, wood, and other natural resources and loses more than $ 1 billion to shady trade deals every year, according to an analysis by Global Financial Integrity.
“The beneficial ownership register is important because it has the potential to expose the interdependence of companies and their shareholders, reducing opacity and more transparency,” Accra-based tax attorney Abdallah Ali-Nakyea told ICIJ. “Once the flow of money can be tracked and tracked, illicit financial flows will be reduced if not completely eliminated.”
Across the continent, public and private companies in Kenya have until July to disclose details of individuals who own more than 10% of the locally registered companies. Details are being shared with the Kenyan tax office and other government agencies to aid in the prosecution of illegal wealth. The Kenyan parliament also ordered the country’s tax office to hire more than 2,000 new employees to track down tax fraud, according to news reports.
Francis Kairu, a Nairobi-based lawyer and researcher on illicit financial flows, told ICIJ that Kenya’s new registry will help the country’s tax and asset recovery agency “keep track of the key players behind the companies that are operate aggressive tax avoidance systems “. The register will also help link individuals suspected of the crime to assets acquired through anonymous limited companies, he said.
The Kenya register, like the one in Cyprus and Ghana, is not published despite pressure from transparency fighters.
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 run this will have a major negative impact on the use of Kenya-registered companies for tax evasion to hide illegal wealth and money laundering.”
Last week Canada signaled that it may be the next to join the club and released a long-awaited report on the possibility of a centralized and publicly accessible registry.
Loopholes in Canadian law make it easy to start shell businesses and hide the identity of the owners. This emerges from a series of reports that coined the term “snow washing” to describe the combination of Canada’s cool weather and its sloppy approach to combating money laundering.
Transparency International welcomed the government’s report but expressed concern that fears about what data were being released “are too cautious and threaten Canada’s chances of deterring dirty money.”