The UK trumpets new register to rein in kleptocrats but it’s six years late and riddled with loopholes
PRESS F9 FOR “OH, FFS”
For pretty much as long as kleptocracy has been a thing, kleptocrats have bought property in London and hidden their ownership behind shell companies. This has allowed them to keep their wealth secret from the citizens of their home countries, and from UK law enforcement agencies. It is therefore a Bad Thing but is, apparently, no more.
As of Monday, under a plan intended to “flush out corrupt elites laundering money through UK property,” anyone wishing to deal in British property with a foreign-registered company will have to declare who owns it.
- “By getting this first of its kind register up and running at breakneck speed, we are lifting the curtain on those criminals attempting to hide their illicitly obtained wealth,” said Business Minister Lord Callanan in a statement.
First things first, this is progress. If this leads to a penny less theft in Russia, Ukraine, Nigeria, Angola, or any of the other kleptocrat-haunted countries of the Global South, it is a Good Thing.
But, second things next: it is incredibly frustrating too. The government first promised to implement this measure in 2016, fully six years ago, which is more than enough time to design, implement, stress-test, reconsider, redesign, and roll out something that is genuinely brilliant.
Instead, they sat on the plan for five and a half years, then bungled it through in a hurry, and we ended up with something riddled with loopholes. It was only done at “breakneck speed” because ministers didn’t get around to passing the necessary legislation until after this year’s assault on Ukraine. And, as with anything, if you do it at breakneck speed, you risk breaking your neck.
So, for any oligarch readers concerned about what this means for their investment decisions, here are three ways to get around the gold standard, first-of-its-kind, etc. etc. register.
– Own the property-owning company via a nominee, such as a law firm in a tax haven.
– Own the property-owning property via a group of relatives, because someone has to own 25% of a company before she counts as its owner.
How will it help them to lie? Well, the registry is maintained by Companies House, the UK’s corporate registry, which has long been riddled with fraudulent companies because it doesn’t check the information filed with it. Graham Barrow, co-host of the Dark Money Files and extravagantly-gifted sleuth, has been digging out examples of flaws to demonstrate why oligarchs shouldn’t be too worried about having Companies House on their case.
Exhibit A is Global Risks Reduction Funding Ltd, which appointed at least 19 directors in July alone, the majority of which appear to be outgrowths of a philosophy that countries and/or people are somehow the same thing as boats, and thus subject to maritime law.
– British law requires companies to declare an owner so they can’t be used as anonymous shell companies, and for this particular company that person is: “Neutral-Claimant-Federal-Witness-Director-Captain-Postmaster-Bank-Banker-Plenipotentiary-Notary-Judge-Vassalee For The Vessel-Phouthone-Thone: Siharath.”
– It declares a governing law, and that law is: “God’s-Law > Natural-Law > International-Law > [Uni]Form-Commercial-Code (Ucc) = Canon-Law = Maritime-Law.”
This is a limited liability company. Its debts are guaranteed by everyone, and it can operate everywhere, which are privileges afforded in exchange for providing accurate information. But what good is information to anyone if it’s incoherent drivel?
I suspect the founder of this company is not very well, and I don’t want to mock him in the circumstances, but I do want to highlight that this is what you can find on Britain’s corporate registry if you bother to look. And that’s just the start of what Graham has dug up in the last 12 hours. Here’s a company controlled by a seven-month-old. And here’s a company controlled by someone who gives his name as “Mac the Knife McMillan,” his address as “Wandsworth Prison,” and his occupation as “gangster.”
Graham Barrow is incredibly resourceful, but he’s just one person who’s doing this in his spare time. Just imagine what ministers could achieve it they employed some equally resourceful people (maybe put Graham in charge?), resourced them properly and unleashed them on this problem; perhaps the ministers could take the time while they’re about it to really structure the department well, and provide it with top of the range IT, as if this was a problem they genuinely wanted to solve. Wouldn’t that be nice? But no, instead they’ve passed a new law, and entrusted implementation to an organization that is already failing, as if this is a problem they want to go away.
I feel like I should have a keystroke I can press, which would produce the same text for this newsletter every week: before you pass any new laws, resource the battle against financial crime properly. That would save me having to type out the same thing week after week after week. Although it would not, I’m afraid, save you from having to read it.
On that note, it was disappointing to see the Senate proposal to send $21 million less to FinCEN, the US financial intelligence unit, than both the House and the White House have proposed. There has been a huge increase in the volume of Suspicious Activity Reports filed this year, thanks to sanctions related to the Ukraine crisis, and FinCEN employees will be even more overstretched than normal, which will get in the way of them implementing other important initiatives. They need and deserve proper funding.
- “If FinCEN receives the additional requested funds from Congress, it will have no excuse if it continues to delay rulemakings on the bipartisan Corporate Transparency Act, the completion of which was supposed to take place earlier this year. With new resources, FinCEN must accelerate implementation of the Corporate Transparency Act to help end the scourge of anonymous shell companies used to commit financial crimes,” said Ian Gary, executive director of the FACT coalition.
They describe a local government system that consumes a huge amount of money, and achieves basically nothing, leaving ordinary Nigerians to solve problems for themselves. Meanwhile, higher layers of government spend yet more money overseeing local administrations, for no apparent reason, and with no worthwhile results.
- “The corruption-induced failure of local government in Nigeria inflicts severe grassroots-level socioeconomic damage and makes it harder for communities to cope with rising poverty, worsening insecurity, and creeping climate change.”
- “Local kleptocracy also stymies Nigeria’s democratic development where it matters most: at the grassroots level. Perniciously self-reinforcing, kleptocracy makes it easier for state and federal elites to manipulate elections.”
It is a bewildering system, and can leave you feeling a bit hopeless about the prospect of any meaningful improvement any time soon, but there are still things we in the West can do to help countries like Nigeria, as laid out in this blog post from Patricia Ainembabazi. More capital flees Africa each year than is invested. As a result, Africa — despite record high debt levels — remains a net creditor to the rest of the world.
- “What’s been missing is a truly concerted and global effort – grounded in African leadership but with global support – to stem the tide of capital flight,” she writes.
In December, President Joe Biden will be hosting a “US-Africa Leaders Summit”, which will hopefully bring some more commitments from the White House to close the loopholes through which this capital flees. The global food crisis, driven by Russia’s assault on Ukraine (and its decision to mount what historian Timothy Snyder calls “a one-country blockade of the world”), has made this all the more urgent.
One good idea would be to implement country by country reporting for multinationals, which would require them to declare separate accounts for each jurisdiction they operate in. That would prevent them being able to artificially declare high profits in tax havens, and thus evade paying their fair share in developing countries. And as long as I’m dreaming, I’d like a pony.
ARE SANCTIONS WORKING?
Many of you will have read conflicting accounts of whether the sanctions on Russia are working (including this from the reliably-wrong Simon Jenkins), but this report from various academics at Yale is worth looking at in depth. It is unequivocal in saying that the Russian economy is in a deep hole, thanks to its inability to access foreign capital, foreign imports and foreign markets.
- “Despite Putin’s delusions of self-sufficiency and import substitution, Russian domestic production has come to a complete standstill with no capacity to replace lost businesses, products and talent; the hollowing out of Russia’s domestic innovation and production base has led to soaring prices and consumer angst.”
I am a little bit suspicious about reports that tell me things I want to hear (and the fact that this one refers to rival analysts who think Russia is doing better than expected as “defeatist” doesn’t help), but it does seem pretty thorough. Of particular interest to me is the fact that imported Liquefied Natural Gas from the United States has now overtaken Russian gas in the European Union (slide 13), which not only will — in the long term — deprive Putin of a crucial and lucrative market, but also of leverage over his neighbours.
Russia lacks the pipelines to Asia that would allow Putin to simply switch exports elsewhere. While he could theoretically send oil to Asian markets with greater ease, Russian oil companies have long been reliant on Western technology, which is now not available (slide 17).
- “Looking ahead, there is no path out of economic oblivion for Russia as long as the allied countries remain unified in maintaining and increasing sanctions pressure against Russia,” they conclude.
Fingers crossed, on the second point in particular, though there have been signs for months that some members of the Western alliance are less committed than others.
WHAT I’M READING
My brother gave my wife a copy of The Princess Bride for her birthday. I adore the film (and I hope you do too, or I’m not sure we can be friends anymore) but hadn’t even realised it was based on a book until this one turned up. So, obviously, I stole it and read it before she could, because that’s what husbands are for. If you want some daft holiday reading, I couldn’t recommend it more.
When I was starting out as a journalist, I dreamed of being a war reporter. I had my mind turned (ironically enough during an interminable wait at yet another Russian military checkpoint) by a line that was something like “the real winners of wars are never found on the battlefield,” but which I can’t check because I can’t remember what book it came from. Anyway, I’ve been chugging through my book of George Orwell essays, and came across something similar in his analysis of Boys’ Weeklies, which I thought I’d share.
- “It is worth noticing that in papers of this type it is always taken for granted that adventures only happen at the ends of the earth, in tropical forests, in Arctic wastes, in African deserts, on Western prairies, in Chinese opium dens — everywhere in fact, except the places where things really do happen.”