Ghostbusting: phantom firms and dodgy deals

Wherever there’s a dodgy deal, a Phantom Firm is likely lurking in the shadows.

Phantom Firms are what enabled Teodorin Obiang, the son of the President of Equatorial Guinea, to launder more than $100 million into the USA. This financed a playboy lifestyle of fast cars, a $30 million mansion, a $38.5 million gulfstream jet, and various pieces of Michael Jackson memorabilia, including a diamond-encrusted glove from the Bad Tour. Meanwhile, back home in the oil-rich west African state, more than 1 in 7 children under the age of five were dying from a preventable disease.

Phantom Firms are anonymous shell companies that are set up to hide the identity of the people who control them. In addition to facilitating the financing of terrorism, they enable drug-runners, human traffickers, money-launderers, arms traffickers, corrupt politicians and dodgy businessmen to enjoy the fruits of their crimes without being found out. They are the lynchpin of the global underground economy which harms us all. And, the activities that they conceal rob African countries of the resources that they need to invest in health, agriculture, infrastructure and poverty reduction.

Global Financial Integrity estimates that in 2010 African countries lost more ($51 billion) through illicit financial flows that are moved out of Africa illegally than they received in aid ($48 billion). As well as robbing countries of their resources, illicit financial flows foster corruption and damage the prospects for investment and growth. Phantom Firms undermine the fight against poverty and undermine the competitiveness of responsible businesses that have no need to hide their dealings behind a veil of secrecy and that see the wisdom of strengthening, not damaging, the environment in which they do business.

To take another example, in the Democratic Republic of the Congo, Phantom Firms enabled someone – someone with the power to rig the system – to buy mining licenses at a fraction of their value, before then selling them on at their full value. This robbed the country of more than $5 billion. For more examples of the use of Phantom Firms see “Rigged: The scramble for Africa’s oil, gas and minerals”, by Global Witness.

Under the UK’s leadership, the 2013 G8 has a real opportunity to fight Phantom Firms. If the G8 members – the UK, the US, France, Germany, Italy, Japan, Russia and Canada – signalled their commitment to require the public disclosure of information about who owns and controls companies and trusts, this would be a crucial blow against Phantom Firms and a HUGE win for poverty reduction in Africa. If this were followed up by changes to European laws on money laundering, and to laws in other countries, including the US, this would be a MASSIVE win.

The signs are good, with Prime Minister David Cameron talking up the importance of “shining a light on company ownership” at Davos in January and encouraging signs from other G8 countries. There is also a growing coalition, backing the call for an end to Phantom Firms. This includes not only leading civil society organizations and the Publish What You Pay network of 650 grassroots organizations, but also a growing number of law enforcement agencies, business organizations and firms, including companies in the oil, gas and mining, and banking sectors.

We at ONE will be making our voices heard, asking that the G8 commit to making information public about who owns and controls firms.

By tackling Phantom Firms, and requiring that information is made public, the G8 can help citizens in Africa and elsewhere to lift the veil of secrecy, to follow the money and to make sure that much-needed resources are invested in poverty reduction rather than siphoned off in dodgy deals.

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