From South Dakota to the high seas, the world gets less transparent

Oliver Bullough



Thanks to a friend for forwarding me an email sent from South Dakota’s Division of Banking to the state’s trust companies after the $1.5 million fine imposed on Kingdom Trust by FinCEN (about which I wrote last week). It sets out a long list of actions that all state-chartered trust companies must now perform: identify high-risk “customers and business lines,” evaluate if trust companies have the procedures and personnel to comply with financial regulations, check whether they have been filing an adequate number of Suspicious Activity Reports, identify occasions when a bank has closed accounts held by the trust company and describe why that happened, check up on any business relationship with third parties that refer customers to them.

An initial assessment must be completed within 30 days, then remedial actions must be finished within 90 days, as well as various other bits/bobs, which are all very good/necessary, while also being too little/late.

I now look forward to statements from the state’s Division of Agriculture advising South Dakotan horse owners on the correct mechanism for closing stable doors and any remedial action to be taken on occasions when the horse has already bolted. If it’s following the lead from the Division of Banking, however, it won’t worry itself too much with attempting to recover any runaway horses. There is no mention in the statement of follow-up investigative work to prosecute dishonest clients who have put illicit funds into the state’s trust structures, to confiscate any illicit funds that are found or indeed to investigate any dishonest trust providers.

Of course, thanks to the delights of South Dakota’s trust legislation, were any of the trusts to be found to have been created fraudulently, any creditors would need to bring a case at a criminal standard of proof (unlike in many other states) and to do so within two years. There is potentially very rich irony in South Dakota’s desire to attract trust business and consequent campaign to pass more generous trust legislation, preventing the state from cleaning up that same trust business. Though that does rely on the state actually wanting to clean up the trust business, which isn’t a given.


Many years ago, when I was studying history at university, I wrote an essay about criminal justice policy in early modern England, which was almost certainly as boring as it sounds. My tutor managed to remain awake long enough, however, to take issue with my argument that ever-stricter laws imposing the death penalty for minor crimes against property meant the government took these crimes seriously. “But, Oliver, if they’d solved the problem, why did they keep needing to pass laws? And, if they failed for decades to solve the problem, how could you say they’re taking it seriously?” Hmmm, good points.

It was, as they say, a teachable moment.

Anyway, I don’t want you to think that I’m comparing the European Union’s approach to money laundering to the fact that — by the 18th century — a starving English person could be hanged for catching a rabbit. However, it does seem to me that some EU officials are hoping that we’ll accept their production of anti-money laundering directives as a substitute for actually stopping money laundering. And I also think that we need to guard against the mistake my 19-year-old self made and not assume that this regular production of anti-money laundering directives means that European countries are actually taking the problem seriously. Because they’re not. If they were, just one directive would have done the job.

Anyway, the broad parameters of the sixth directive (6AMLD) were agreed two and half years ago to widespread indifference, building on the “successes” of 1AMLD (1991, criminalized money laundering), 2AMLD (2001, expanded the list of “predicate offenses”’), 3AMLD (2005, addressed terrorist financing), 4AMLD (2015, did something about “designated non-financial businesses and professions”) and 5AMLD (2018, required the publication of company ownership information). This was all plain sailing, until late last year when — as regular readers of this newsletter will remember — the European Court of Justice ruled on a case from Luxembourg and decided that a rich person’s right to hide their wealth was of greater import than the right of the rest of us to know how they hid it. That destroyed a central element of 5AMLD, thus giving 6AMLD greater import than it had previously assumed, since it now not only has to restore the ability of journalists, investigators and others to find out who owns companies registered in the EU but also has to do all the other stuff it was already intended to do.

Members of the European Parliament have voted in favor of tougher measures. And some of these measures are potentially transformative, including the creation of an EU-wide Anti-Money Laundering Authority with a registry of offshore companies owning property in the EU.

However, this being the EU, that is only the beginning of the matter, since the measures have to be agreed with the EU Council and Commission too.

  • “The European Parliament has made a full suite of progressive amendments to ensure that civil society, media, academia and foreign competent authorities do not encounter barriers when seeking ownership information for anonymous companies created across the EU, regardless of where they are based. And they did so while fully respecting the CJEU ruling. Now, we look to you to match the Parliament’s ambition and unequivocally support the right of investigative journalists, activists and academics – around the world – to access the information freely and without undue restrictions,” said an open letter to the European Commission and to the governments of member states from a very impressive list of academics, campaigners and others last week.

Negotiations will go on deep into the fall. And even then, that won’t be the end of things, since legislation only makes a difference if it’s enforced.

It is perfectly possible for an EU member state to have maintained an open corporate registry (Latvia has, for example) despite the Court of Justice ruling. It just requires a bit of political will and legal cleverness. However, it is also perfectly possible for an EU member state that lacks such political will to have hidden behind the same court ruling, waved its hands in the air and declared that there’s nothing it can do. Cyprus has decided that from now on, only banks or other similar organizations that submit a “solemn declaration” can access ownership information and that any information so gathered can only be used for the purposes of making compliance checks on current and prospective clients. Lawyers warn it could be perjury to misrepresent the purpose of your search if — for example — you’re a journalist or researcher trying to work out who exactly owns a Cypriot company that has won a cushy state contract somewhere and who pretends to be someone else in order to do so.

In short, it’s not enough to pass an anti-money laundering directive, whether it’s the sixth or 16th, it also has to be enforced properly.

Funnily enough, the same thing was true for legislation protecting property in early modern England. The Parliament kept on creating new capital offenses (by 1815, there were more than 200 different crimes bearing the death penalty, including going out at night with your face blackened), but the enforcement agencies of the time (juries in the law courts) refused to enforce them. Fewer people were hanged under this so-called “bloody code” than previously, and judges would go to extreme lengths to find reasons not to sentence people to death. Then as now, it was all about the battle between political will and political won’t.


So why does it matter that we know who owns companies? Let’s take the case of Gatik Ship Management. Its website says almost nothing, but it has — over 18 months — accumulated a fleet of oil tankers worth $1.6 billion and shipped vast amounts of crude oil from Russia to India, becoming one of the largest shipping companies in the world. And no one has any idea who owns it, or, rather, someone does but they’re not saying.

A connection to the Russian oil company Rosneft is certainly suggestive.

  • “In a 2016 article in Russian Pioneer magazine on his love of jazz, Sechin waxed lyrical about one of his favorite bands, the “magnificent” Cuban son orchestra, the Buena Vista Social Club. Whether by coincidence or by design, one of the vessels in Gatik’s fleet is called the Buena Vista. The name of its registered owner in the Marshall Islands: Social Club Inc,” notes the Financial Times in its article about Gatik.

But getting beyond such hints and suggestions is extremely hard. Each Gatik ship is owned by a company in the Marshall Islands, which does not reveal who owns its corporations. That makes it difficult to know if they are compliant with Western sanctions that prevent insurance companies from covering cargoes that breach the price cap on Russian crude. The continuing trade is helping raise money for the Russian budget and keeping its war effort afloat (although it is not perhaps a very good long term strategy, as this analysis makes clear).

Global Witness did a great job exposing the bonkers nature of the situation. A real ship carries real oil through the English Channel. If it goes wrong, the pollution will destroy a real ocean environment. And, once refined in India, the Russian crude returns to the West in the form of gasoline, diesel or other products. All hidden behind shell companies.

  • “Recently, Oleg Ustenko, an economic advisor to President Zelenskyy, told a reporter, ‘I had a friend in New York in the 1990s who complained cockroaches would get into his apartment through any available hole — that’s what Russia is doing with its energy,’” the Global Witness report said.

There are quite a lot of people that think I’m a bit hardline in my approach to company ownership information. As far as I’m concerned, if society limits your liability, society has a right to know who you are. But there are others who say that wealthy people risk being kidnapped or extorted from or otherwise targeted if they have to publicize what they own.

If you’re on that side of the fence, then I think it’s worth asking why your concern about one hypothetical person being kidnapped thanks to a non-anonymous company outweighs the entirely concrete reality of Russia funding a war of aggression that has already killed thousands of people on the back of an anonymous company.


I’m sure many of you already listen to the BBC podcast “More or Less,” which you can find both on Radio 4 and on the World Service. Both versions delve into the statistics in the news with wit and passion, though this week’s edition on U.S. life expectancy was unexpectedly harrowing. A few years ago, I wrote a book about Russia’s demographic crisis, which is driven by the combination of a low birth rate and high mortality, particularly among young men.

I was struck by similarities in the story I told back then and the developing U.S. situation, where young men die early thanks to violence and overdoses. In Russia, there was marked inequality in the figures. People with higher educational qualifications lived as long as people in Western Europe, whereas people without qualifications had the life expectancy equivalent to that of sub-Saharan Africans. Life expectancy in Hawaii is around the same as that in Sweden, but Mississippi is akin to Tajikistan. That surely deserves more discussion.

Another excellent BBC podcast is “The Lazarus Heist,” which delves into North Korea’s clandestine activities in cyberspace. It’s very well made, and I recommend it. On the subject of murky online matters, this piece from Wired on suspect hackers working for Russia’s foreign intelligence service is excellent as well.

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