How Can We Stop the Corrupt from Gaming the System? More Transparency

Emile van der Does de Willebois, Senior Financial Sector Specialist at the World Bank, writes about a new report on the ever-more sophisticated methods used to hide bribes, stolen assets and other criminal proceeds from the World Bank’s Stolen Assets Recovery Initiative.

It’s easy to set up a company.  If I want to start a business and limit my personal liability, all I have to do is fill out some forms, pay a registration fee and, presto, an entirely new, separate entity is born. I am no longer just Emile van der Does.  I am also the 100% shareholder and director of ABC Ltd.

There might be other steps needed before you can actually start doing business, but the first step —  the creation of a legal person — tends to be a simple, straightforward process, certainly in the world’s financial centers.

On the whole that is a good thing: Impediments to free enterprise should be minimal.  But the fact that I’ve now limited my liability should not allow me to hide my identity: people doing business with ABC Ltd. should still be aware that they’re dealing with me – an actual person, not just a figment born of a piece of paper.  But such transparency is not always the norm, which is where problems can start.

Released today by the Stolen Asset Recovery initiative (StAR) of the World Bank and the UN Office on Drugs and Crime, “The Puppet Masters” explores how government officials hide ownership and control of corrupt assets behind constructions of paper. To paraphrase the famous English judge Lord Denning, these constructions are the puppets that dance to their master’s bidding.

Virtually all grand corruption cases involve a company, trust, or foundation (“corporate vehicles” in the report’s terminology) that has been created to conceal the beneficial owner’s identity.

Take the case of Diepreye Alamieyeseigha, former governor of Nigeria’s Bayelsa State.  He used companies with innocuous sounding names — “Santolina Investment Corporation” (incorporated in the Seychelles) and “Salomon and Peters Limited” (incorporated in the British Virgin Islands) — to conceal his beneficial interest in and ownership of monetary and real estate assets he acquired through bribery and corruption.

Or Bruce Rappaport, former Ambassador of Antigua and Barbuda to Israel and Russia, who bought an “off the shelf” company called Offshore Services Limited, renamed it IHI Debt Settlement, and used that entity to defraud his government of US$ 14 million. Or US lobbyists Jack Abramoff and Michael Scanlon, who set up the American International Center (incorporated in Delaware), a supposed think tank that in reality was a sham created to divert funds to entities they owned and controlled.

The list goes on. And a system that allows for the participation of corporate vehicles in our financial traffic, without insisting on transparency of who is driving them, allows such corruption to continue.

So it appears that instruments intended to facilitate business, encourage charity or limit liability can also be used for illegal ends. How can we combat this and ensure adequate transparency?  We all know that a puppet can only dance if someone is pulling the strings. It follows that identifying the puppet master behind such corrupt schemes is a crucial step. How do we do that?

Our report recommends that governments pursue several lines of attack to address this problem. First, governments should analyze the situation in their country to determine which entities are most often abused and how. This information should be made public.

Those dealing with the corporate vehicles– banks, legal advisers, accountants – should conduct proper due diligence when establishing a business relationship and find out who pulls the strings.

Is the director the real director or is he a nominee for someone else? Who is behind the shareholding company? Does the listed shareholder take instructions from someone else? They should not be allowed to remain willfully blind to corrupt operators.

Meanwhile, governments should increase financial support to their corporate registries, improve expertise and make sure that those registries contain a minimum standard of information – notably on directors, shareholders and relevant officers.

There are limits to what regulation can do, however. Sophisticated criminals can beat nearly any system. Therefore law enforcement needs to step up its game. Financial and legal literacy of investigators and prosecutors needs to improve.  They need to be able to distinguish a legitimate legal structure that makes economic sense, from one that is designed to conceal and confuse. They also need to be able to understand the ways these structures can be manipulated.

In The Puppet Masters, we are proposing key moves to re-engineer the infrastructure upon which corrupt money flows rely. To stop criminals from gaming the system, governments and the private sector must take action on several fronts. StAR will continue its work to return the issue to the international agenda. I hope you’ll join us in keeping the debate alive.

Emile van der Does de Willebois started his career working for the Office of the Prosecutor at the International Criminal Tribunal for the former Yugoslavia in The Hague. Subsequently he worked in private practice specializing in banking and securities law. He joined the World Bank in 2004, and has been involved in technical assistance to Eastern Asian Pacific countries on Anti Money Laundering and Counter Terrorism Financing (AML/CFT). He specializes in issues of abuse of legal entities, beneficial ownership and the use of non-profit entities for terrorist purposes.

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14 Responses to How Can We Stop the Corrupt from Gaming the System? More Transparency

  1. KALYAN GHOSH 29 October 2011 at 10:23 am #

    Controlling authority’s action is the prime factor in curbing corruption. But, when it’s unreceptive to take stock of the situation, then chaos is inevitable. Collapse of governance, atrocity rules the roost.
    Prevalent wide spread corruption in India has been condemned in the world over. Sri Anna Hazre’s campaign for Anticorruption is gaining momentum. At this juncture, Transparency International India’s invulnerability is indeed a big question mark.
    India Government is trying their best to thwart Anna ji’s campaign against corruption. Washing dirty linen in public will never get them mass support. Their [on the whole every political party’s] bastion of corrupt governance is at stake now, so these burst outs are from ruling party members. Other political parties have sealed their mouth with watch and wait strategy. Justice and truth shall prevail. Mass uprising/awareness will decide fate of the nation. Out bursts and counter out bursts will ultimately yield no conclusion. Isn’t it ironic that grievance redressal system is in total chaos in India? My sister-in-law’s service tenure is snatched away by the Director, Directorate of Secondary Education, HRD, Jharkhand. Competent authorities do not pay any heed to it. There is no provision to settle this ambiguity through electronic media. Jharkhand Government web portal do not have any option. No e-mail addresses of the chief secretary, Honorable Governor. Email address of honorable C.M. seems to be dormant, as no response to mails, incorrect e-mail addresses of nodal officers etc. A blatant lapse of government’s e-governance plan. N.I.C. can not help which they have asserted through e-mail. D.I.T. has acknowledged complaint but keeps mum. Honorable D.C., Ranchi has forwarded her representations to appropriate authorities three times, but these too have failed to yield any result. He has expressed his inability as well. Sri Yashwant Sinha, Honorable M.P. has forwarded her representation to Sri B N Ram, Honorable HRD Minister, Jharkhand. Several registered complaints of DARPG, President’s Secretariat Help Line, NCW, CORE Center, letter from PMO, have failed too to break silence of the concerned authority. A news report; Hindustan Times, Ranchi, 3rd September, 2010, has exposed the whole episode. All these things indicate collapse of governance. The matter has been brought to the notice of almost all the conceivable authorities. Transparency International India initially backed up but ultimately has failed to settle this logjam. Ms. Anupama Jha, Executive Director and Mr. Anshul Jain Regional Coordinator East Zone had taken personal interest and have communicated the same, but silence of the authority prevailed. Coexistence of exposed corruption with corruption watch dog organizations is a mockery.
    To combat with such gross injustice a robust, unbiased, transparent and accountable system has to be adopted to save the nation from further disgrace and humiliation. I wish Transparency International India take cognizance of the situation and extend whole hearted support to aggrieved, hapless commoner in India.

  2. sudarshandatta 17 May 2012 at 8:55 pm #

    On your ‘The Puppet Masters: How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It, examines how bribes, embezzled state assets and other criminal proceeds are being hidden via legal structures – shell companies, foundations, trusts and others. The study also provides policy makers with practical recommendations on how to step up ongoing international efforts to uncover flows of criminal funds and prevent criminals from misusing shell companies and other legal entities.’

    ‘ Appears, that in the Indian context, ‘Your (World Bank’s) tame Sardarji puppet, who used to leak Indian budget to you at first, before presenting it to Indian Parliament, in order to inform compliance of your prescriptions, is now doing utmost for ‘The Puppet Masters, Soinaji, and Rahulji, the 2G’s, to absolve them of all scams, with help of chosen judiciary, corrupt ministers and party goons!’

  3. jack loach 29 December 2013 at 11:26 pm #

    Update —- Dec. 29th– 2013.

    Pictet & Cie Bank
    List of Crimes.
    1996 — F.S.A. — Breach in London.
    2003 — F.S.A. — States
    Rogues were operating in Pictet’s London offices.
    Ivan Pictet states that documents were forgeries but were later proved to be genuine in the British Courts. ( Ivan Pictet a proven liar.). He had documents destroyed in their London office – hoping to hide the crimes.
    2007 — The Securities&Exchange Surveillance ( Japan.)
    Issued a recommendation that the Prime Minister and the Commissioner of the F.S.A. to take disciplinary action against Pictet Asset Management – Japan Ltd.
    2008 — Dec. — Pictet Bank state – “ We have never chosen any funds linked to MADOFF.
    2011 – Madoff Trustees sue Pictet & Cie. Bank . for $156,000,000. ( They lied again.)
    2011 — Pictet & Cie bank abetted a Bribery Scheme. — Oil Company sues Pictet Bank for — $350,000,000.
    2012 — April.—Pictet & Cie, Bank .Geneva implicated in offshore Tax Scheme. –USA .
    2012 — June. — Published in Anglo INFO. Geneva, —- USA Trust Fund were sent false and fraudulent documents by Pictet Bank in order to collect large fees.
    (Like MADOFF). – Even after the SEC in the USA had uncovered the fraud Pictet Bank continued to charge fees and drain whatever was left in these accounts.
    Estimated that – $90,000,000 was lost in this Pictet Ponzi Scheme.
    2012 — July — German paper –De – Spiegel — states — Pictet Bank uses a letterbox company in Panama and a tax loophole involving investments in London to lure/gain German Millionaires as clients.
    2012 — August. — German Oppositon Leader accuses Swiss Banks of “ organised crime”.
    2013 — Swiss M.P.’s table motion to freeze Tiab Mahmuds assets of “ criminal origins” held in Swiss banks — $18,000,000 held in five accounts at Pictet & Cie Bank . Bahamas.
    2013 — Feb. — The bank is now seeking to re-structure — to cut the partners liability ( not to risk their ill gotten personal wealth.) — hoping to offload the decades of criminal responsibility. ( Some listed above.)
    The Germans are right – the bankers should go to prison if found guilty of financial crimes. ( Madoff got 150 years in prison — surely the Pictet Bank’s partners should go to jail.)
    Ironically the Pictet & Cie .Bank partners are bigger criminals than the criminals who have accounts in their bank. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

    Pictet & Cie Bank.— Partners —– ( 1996—2013)—Guilty.
    Peters & Peters — Partners —— (1996 — 2013) —Guilty.

    The bank and it’s officials/lawyers deliberately withheld crucial documents requested under a High Court Order. The bank and it’s officials/lawyers deliberately held evidence from the police/courts.
    One of Pictet’s accounts managers SUSAN BROADHEAD gave a false witness statement to the police. The banks Head of Alternative Investments concocted a letter pretending to be a client and closed his account.
    The senior partner ( IVAN PICTET) sought to have numerous documents destroyed along with copies held in their London Office’s of Pictet Asset Management. Initially stating that they were forgeries.
    Their lawyers PETERS & PETERS —– re MONTY RAPHAEL.Q.C. and the barrister CHARLES FLINT. Q.C. later had to admit in Court that the documents were indeed genuine.
    British Parliament. Hansard.
    Barry Sheerman .M.P. — quote:
    “ Constituents of mine have lost £2,000,000. through fraud. The fraudster used Pictet & Cie – a French Bank – and Pictet Asset Management to back the fraud being perpetrated”.
    Both Ivan Pictet and Monty Raphael Q.C. conspired to withhold crucial documents requested by the High Court —- the F.S.A —– and the Police Fraud Squad.
    Written Parliamentary Questions received by the table office.
    (1) To ask the secretary of state what steps he is taking to ensure that Swiss Banks such as Pictet & Cie do not evade criminal prosecution under EU law even when the illegal act is committed by a London based subsidiary.
    (2) To ask the secretary of state what steps he is taking mto protect the rights of UK citizens who seek redress following criminal activities by Swiss banks with subsidiary offices located in London.
    – – – – – – – – – – – – – – – .
    The consensus of opinion is that Pictet & Cie bank should be prosecuted, and that their U.K. Banking licence should be taken away.
    Their Solicitors at Peters & Peters.London. – “ Struck off and prosecuted.
    In America they would have all been in prison for the last seven years.

    Full Story. —– Google or Yahoo.
    Ivan Pictet. Banker.
    Charles Pictet. Banker.
    Nicolas Pictet. Banker.
    Renaud de Plant. Banker.
    Francois DeMole. Banker.
    Jacques de Saussure. Banker.
    Philippe Bertherat. Banker.
    Monty Raphael Q.C.

    Also view “ images” section.

    For several years we placed the following on hundreds of media sites —
    *** Were currently waiting to see if the West Yorkshire Police :-
    (1) Chief Constable —- Sir Norman Bettison.
    (2) Forces Solicitor —- Mike Percival.
    (3) Head of Economic Crimes Unit.— Det. Chief Inspector Steven Taylor.
    — continue to attempt to cover this case up like their F.S.A. Counterparts.
    We can now confirm that all three of West Yorkshire’s senior police officials have all been removed from their posts and facing criminal allegations.

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