Can we fight financial crime without corporate transparency?

June 20, 2018 3 minute read

Two steps back – Corporate transparency in the US

If the fight against financial crime is to be successful we need to know who companies are owned by. In other words we need corporate transparency. The EU and UK have recently taken steps to streamline this process by setting up registers of corporate and bank account ownership. The US looked like it was also making progress with the “Counter Terrorism and Illicit Finance Act”. Until last week that is, when the requirement to collect information on the owners of a company at formation was removed from the text of the bill.

Why is this such a problem in the fight against financial crime? The US and specifically the states of Delaware, Nevada and Wyoming are among the easiest places in the world to set up a company without declaring its ownership. “Anonymously” owned companies allow their owners to move money around the global financial system under layers of secrecy. For law enforcement this exacerbates the challenge of uncovering ownership as they “follow the money” in money laundering, terrorist financing and trafficking cases. Removing this requirement from the Bill will ensure that shell companies and complex ownership structures remain at the center of financial crime, and investigations into them will continue to be hindered.

The quiet before the storm – FATF to meet next week

FATF and MENAFATF will meet this Sunday for a week long plenary in Paris. Expect the agenda to be packed with a number of issues that require the urgent attention of the international AML/CFT standards setter. Regulation of cryptocurrency exchanges is one of the hotter topics rumoured to be on the agenda. Reports circulated last week that an unnamed Japanese official declared that the group would push for concrete guidance from the meeting. If this is the case, it would be the first meaningful piece of guidance from an international body on this topic.

Pakistan is also likely to be high up on the agenda. During February’s Plenary meeting the US put forward a motion to return the country to the FATF gray list of non-compliant states. At this week’s meeting we will likely find out if Pakistan’s efforts to stay off the list have been successful. Lastly, we expect to see the release and discussion of the Mutual Evaluation Reports of Saudi Arabia and Bahrain. The evaluation of Saudi Arabia’s counter-terrorist financing capabilities will be especially interesting in light of the establishment last year of their Terrorist Financing Targeting Center. After months of quiet we anticipate quite a lot noise to come out of this summit.

What are the financial crime challenges facing the new President of Colombia?  

On Sunday, the right wing Iván Duque was elected the next President of Colombia. When he comes to power in August he will inherit and address his country’s wide range of financial crime problems. Cocaine production, which has been on the rise for a number of years, will be a large part of the challenge. In his election campaign Duque pledged to return to a strategy of aerial fumigation and obligatory eradication to try and get production under control. This will be essential for the general security of the country and for maintaining a positive relationship with the US.

Illegal gold mining is another pressing problem. 87% of the gold mines in Colombia are illegal and many generate revenue for paramilitary, Bacrim and cartel groups in rural areas. To stem the flow of money to these groups, Duque has pledged to formalize the small “artisanal” mines which are responsible for a lot of illegal production – a particular challenge in areas where government influence is weak. Perhaps the most important of all however, will be his plans to renegotiate the Peace Deal with FARC which he feels is too lenient. One idea he discussed during his campaign is to improve AML efforts to help identify the assets that FARC failed to declare during the peace process –  a challenge that will probably prove the trickiest of all.