WB Reports Most Corruption is Concealed Using Shell Companies
The Stolen Asset Recovery (StAR) Initiative of the World Bank and the United Nations Office on Drugs and Crime have issued a study that finds that most large-scale corruption cases use legal entities to conceal ownership and control of corrupt proceeds. The study examines the links between large-scale corruption by high-level public officials and the concealment of stolen assets through opaque shell companies, foundations, and trusts. It also lists obstacles to investigating and establishing the origin and ownership of stolen assets.
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Examples of Misuse of Shell Companies
Examples of the misuse of shell companies include the government of Kenya's 2002 invitation for bids to replace its passport printing system. Despite receiving a bid for €6 million from a French firm, the Kenyan government signed a contract for five times that amount with Anglo-Leasing and Finance Ltd., an unknown U.K. shell company with a post office box in Liverpool that proposed to subcontract the actual work to the French company.
Another example involves DaimlerChrysler Automotive Russia, which pleaded guilty March 2010 to the conspiracy to bribe and bribing of foreign officials. The Statement of Facts agreed to by Daimler details 25 sets of improper payments to bank accounts held in the name of companies registered or having addresses in 7 different jurisdictions: the Bahamas; Costa Rica; Cyprus; Ireland; Seychelles; United Kingdom; as well as in California, Delaware and Florida.
Recommendations for Policymakers
The study provides the following recommendations for policymakers:
- Governments should adopt a strategy to combat the misuse of companies and foundations to conceal ill-gotten funds. The strategy should determine what types of companies are being used within the jurisdiction to hide proceeds of crime and how to make such entities and structures more transparent.
- All providers of financial and corporate services to companies should collect beneficial ownership information about the company and continue to monitor whether this information is accurate.
- All corporate registries should provide a certain minimum standard of information on registered entities and allow for easy (on-line) searches of this information. At a minimum this should include information on shareholders, members and directors, as well as historical background.
- Strengthen investigative skills and capacity.
StAR fact sheet on this study is available here.