Cracking down on ‘phantom firms’: the case for public registries

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Anonymous shell companies – so-called “phantom firms” – enable corrupt politicians and irresponsible businesses to rob African countries and their people of the resources that they need to retain and invest in poverty reduction.

To crack down on phantom firms, the UK government has stated that it wants to see information about who owns and controls companies included in central registries. The Prime Minister’s clearly stated personal preference – set out in a letter to EU leaders in April and repeated at the Open for Growth event on Saturday 15th June – is to see all G8 members opt for public registries. A consultation to confirm that decision is planned, but at a minimum the UK will look to implement a private registry.

The G8 must deliver a deal on registries of beneficial ownership that works for developing countries. The best way of doing this is by committing to establish public registries. The case for public registries is clear. As well as being the most cost effective option, public registries:

  • Help with law enforcement by crowdsourcing new leads

  • Enable the market to function effectively, by making sure that people know who they are dealing with

  • Ensure that financial institutions can perform their due diligence more effectively

  • Provide developing countries with access to the information they need to stem illicit financial flows

  • Enable citizens’ organisations and the media to access the information they need to follow the money

  • Ensure that tax havens can’t put legal and administrative blocks in the way of investigators to get access to the information.

Privacy is sometimes raised as a reason for not implementing public registries. Such concerns can be addressed by putting in place a process so that exemptions can be applied for. Certain personal identification information, such as personal identification numbers, passport, or telephone numbers, emails, or records of bank accounts or financial transactions, could and should be withheld to protect privacy.

A G8 deal on tax transparency must work for developing countries. This means two things: first, a system for automatically exchanging information between tax authorities, including, right from the start, those from developing countries; and second, public registries of beneficial ownership.

Today, Thabo Mbeki, Chair of the African High Level Panel on Illicit Financial Flows made a clarion call for public registries of beneficial ownership – as a crucial step in cracking down on resource outflows from the continent. Anything less than this will be seen as a failure by Africa, its leaders and its people.

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