Lifting the veil on beneficial ownership: Exploring the challenges facing the United Kingdom in implementing registers of beneficial owners

Research Institution / Organisation

University of Portsmouth

Principal Researcher

Paul Gilmour BSc

Level of Research

Masters

Project Start Date

May 2018

Research Context

Background and Context

Offshore financial centres (OFCs) are jurisdictions specialising in financial services for non-residents. OFCs provide a safer, more reassuring and private environment for multi-national businesses and wealthy individuals to conduct business, due to having lax banking regulation and little or no taxation compared to where the client resides (International Monetary Fund [IMF]; Yeoh, 2018a). OFCs afford a 'safe haven' for businesses to legitimately hide their activities away from competitors, but can also help clients evade tax obligations of their home country (Unger, 2017). The use of complex company structures and anonymous 'shell companies' can further hide the identity of the natural person who ultimately controls company assets or activities. This natural person is known as the 'beneficial owner' (Financial Action Task Force [FATF], 2004). As Young (2013) posits, OFCs contribute to money laundering, the process whereby illicit transactions are converted and obscured to make them appear lawful. Similarly, Chaikin (2017) considers OFCs ideal vehicles for criminals to launder money without fear of detection by authorities. Arguably, OFCs offer favourable banking services to criminals because of the secrecy they provide. 

Banking secrecy has become a central theme fuelling the debate over whether OFCs and their clients deal ethically (Balakina, D'Andrea & Masciandaro, 2017). Several recent exposés, notably, the leaked 'Panama' and 'Paradise Papers' have provided impetus to this debate (Lord, Wingerade & Campbell, 2018). In 2015, the Panama Papers revealed business activities of over 300,000 offshore clients detailed within 11 million papers from Panama-based law firm, Mossack Fonseca (Harding, 2016; Yeoh, 2018b). Comparable revelations were made through the Paradise Papers in 2017, which involved the Bermudan law firm, Appleby (Sampson, 2017). These papers exposed the involvement of the rich and famous, and political elite in morally-questionable offshore dealings (Unger, 2017). Furthermore, they served to raise concern over the apparent widespread use of OFCs to exploit the financial system and as vehicles for money laundering. The Panama and Paradise Papers revelations have lasting consequences, especially considering the extent and assortment of actors involved (Oei & Ring, 2018). Henceforth, many governments are under increasing pressure to enhance the transparency of offshore banking. 

Seemingly, the preferred step by governments towards enhancing transparency of offshore banking is through the implementation of registers of beneficial owners. The European Commission (EC) recently updated and expanded the scope of their anti-money laundering (AML) regime to require member states to register beneficial ownership information – most notably through the EU 4th and 5th AML directives (Campbell, 2018). In response, the UK government introduced the 'Persons of Significant Control' (PSC) register covering UK-based companies in 2016, and plans to adopt a 'Register of Overseas Entities' by 2021 (Campbell, 2018). Yet, how worthwhile these registers are, is debatable. Moreover, the challenges facing governments in implementing them remain unclear. According to data analysed by campaign organisation, Global Witness, registration requirements appear not to have been met (Lord et al., 2018, p. 12). Young (2013) claims, applying legislation alone cannot curtail money laundering – a more ethical stance by governments and a shift in societal opinion in favour of increased transparency are also required. Besides, according to Heywood (2016), focusing on domestic policy disregards broader concerns. A better assessment of the challenges to enhancing transparency of beneficial ownership, which embraces a more global regulatory regime is necessary (Allridge, 2008; Naheem, 2015). This proposed research will contribute to extant literature to inform policy makers and other professionals implementing the UK's registers of beneficial owners, to enhance future strategies and combat offshore money laundering.

AIMS & OBJECTIVES

The aim of this research is to critically explore the challenges facing the UK in implementing registers of beneficial owners.  The objectives of this research are:

 

  1. To outline the role of beneficial ownership in offshore money laundering
  2. To outline the goal of the EU AML directive in enhancing beneficial ownership transparency and to compare how the beneficial ownership regime in the UK aligns with the EU's
  3. To review the literature surrounding the challenges relating to beneficial ownership transparency
  4. To provide a critical analysis examining the extent to which challenges facing the UK impact the implementation of beneficial ownership registers.

 

Research Methodology

​A systematic literature review is being conducted using both peer-review journals and grey literature sources.

Interim reports and publications

​Not available

Date due for completion

September 2019
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