Cracking down on Phantom Firms: Beneficial Ownership Transparency

“Personally, I would hope that the whole world will move towards public registers of beneficial ownership” (Prime Minister David Cameron, 15th June 2013).[1]

 1. Anonymous shell companies and trusts – so-called “Phantom Firms” – play a central role in laundering and channelling funds, concealing behind a veil of secrecy the identity of corrupt individuals and irresponsible businesses involved in activities including tax evasion and avoidance, terrorist financing, and the trafficking of drugs and people. This robs governments, in both developed and developing countries, of resources that might otherwise be invested in improving public services and stimulating inclusive economic growth.

2. The rationale for tackling Phantom Firms is clear. Evidence from the World Bank demonstrates the role that such elusive entities play in facilitating corruption and money laundering, with more than 70% of corruption cases analysed found to involve anonymous shell companies.[2] At a country level, by way of example, the Africa Progress Panel found that the Democratic Republic of Congo lost over $1.3bn – the equivalent of almost twice its combined health and education budgets – between 2010 and 2012 as a result of five dodgy deals in the mining sector, with those deals facilitated by Phantom Firms incorporated in the British Virgin Islands, along with other companies based in Bermuda, Jersey, Gibraltar and the UK.[3] Preventing the abuse of anonymous shell companies and trusts can play an important role in stemming the huge volumes of illicit financial flows that rob Africa of the resources that are needed if the continent and its people are to make sustainable progress in the fight against poverty.

3. The UK Government has led the way in cracking down on Phantom Firms, placing the issue at the top of the G8 agenda and securing commitment from a number of G8 partners to enhance transparency about who owns and controls companies. We have been strongly supportive of the UK’s leadership in this area. The UK Government should now deliver on the Prime Minister’s ambition, committing to make public information about who owns and controls companies, trusts and similar legal vehicles established in the UK, its Crown Dependencies and Overseas Territories. This information should be available as open, machine-readable data, available free of charge, in line with the G8 Open Data Charter, in a public register, maintained by Companies House.

4. The UK Government has already committed to require companies to provide information about who owns and controls companies to a central private register maintained by Companies House. More ambition is needed on trusts, where the UK is isolated in Europe in its lack of ambition, a lack of ambition that would leave a huge loophole for money laundering. But on companies, taking the next step by making information about beneficial ownership publicly accessible would have very few costs and very considerable benefits, particularly for developing countries. With the Institute of Directors supportive of a move to public registers and the Confederation of British Industry signalling its support for a Europe-wide agreement, it should be an easy decision.

5. Making public information about who owns and controls companies and trusts will:

  • Give citizens and journalists in developing countries access to the data they need to follow the money and root out corruption;
  • Help to improve data quality by enabling more people to scrutinise the data, identify, check and correct inaccuracies;
  • Enable banks and other financial institutions to perform due diligence more effectively;
  • Ensure that businesses know who they are doing business with; and
  • Contribute to more effective law enforcement – investigations, prosecutions and the return of stolen assets.

6. The UK Government must take decisive action now, committing to make public information about who owns and controls companies and trusts, through a publicly accessible register. The UK should also work to ensure that the 4th EU Anti-Money Laundering Directive has the same level of ambition. To make progress at European level, the UK should work closely with France – a strong transparency ally – showing the flexibility that is required as regards trusts to join forces and make the case to other European partners, including Germany which is currently set against public registers of company ownership.

7. Cracking down on Phantom Firms is a key focus for ONE’s advocacy in Europe over the next few months, with plans in place to step up the public-facing element of our work. We stand ready to applaud UK leadership and to highlight any back-tracking in terms of ambition. With the Open Government Partnership Summit taking place in London at the end of October, the UK Government has the perfect opportunity to further establish its reputation as a true transparency champion by announcing its intention to implement a public register of beneficial ownership, helping to enable citizens in developed and developing countries to follow the money and hold governments and companies to account.



[1] Financial Times, “Cameron under pressure to push for G8 tax transparency deal”, 16 June 2013, http://www.ft.com/cms/s/0/7c60715a-d692-11e2-b03f-00144feab7de.html#axzz2egjYlMGB

[2] World Bank, The Puppet Masters, 2011, http://star.worldbank.org/star/publication/puppet-masters

[3] Africa Progress Panel Report, Equity in Extractives, 2013 http://africaprogresspanel.org/index.php/download_file/view/3092/