Governments need to put in place measures identifying beneficial owners of trusts, shell companies and other corporate vehicles, according t...

Governments need to put in place measures identifying beneficial owners of trusts, shell companies and other corporate vehicles, according to a report by the Organisation for Economic Cooperation and Development. The OECD has identified certain corporate structures as likely vehicles for misuse in cases of fraud, market abuse and money laundering in a report on the Misuse of Corporate Vehicles published yesterday. The report contains several case studies and outlines possible measures depending on the type of regulatory supervision available in a particular jurisdiction and the size of the market.

"There has been a growing realisation among governments and regulatory bodies that corporate vehicles ranging from corporations and trusts to foundations and partnerships are often misused for money laundering, bribery and corruption, shielding assets from creditors, tax evasion, self-dealing, market fraud and other illicit activities," said the OECD. The report calls on governments and other relevant authorities to ensure they are able to obtain information on the beneficial ownership and control of corporate vehicles.

Certain jurisdictions allow corporate vehicles to use instruments that further obscure beneficial ownership and control, such as bearer shares, nominee shareholders, nominee directors, corporate directors, fee clauses, and letters of wishes. In order to successfully combat and prevent the misuse of corporate vehicles for illicit purposes, it is essential that all jurisdictions establish effective mechanisms that enable their authorities to obtain, on a timely basis, information on the beneficial ownership and control of corporate vehicles established in their own jurisdictions for the purpose of investigating illicit activities, fulfilling their regulatory/supervisory functions, and sharing such information with other authorities domestically and internationally.

The OECD has proposed that all jurisdictions should adhere to three fundamental objectives:

beneficial ownership and control information must be maintained or be obtainable by the authorities;

there must be proper oversight and high integrity of any system for maintaining or obtaining beneficial ownership and control information, and

non-public information on beneficial ownership and control must be shared with other regulators/supervisors and law enforcement authorities, both domestically and internationally, for the purpose of investigating illicit activities.

The OECD has further suggested that policymakers in each jurisdiction consider ways of making it possible to grant access to beneficial ownership and control information to agents with authority delegated by the government or the judiciary and financial institutions seeking beneficial ownership and control information in order to comply with customer identification and due diligence requirements under anti-money laundering laws.

The report examines both onshore and offshore jurisdictions but places a greater focus on offshore financial centres. The OECD has argued that some offshore jurisdictions provide excessive secrecy for their corporate vehicles and thereby create a favourable environment for their abuse. Shell companies are particularly prone to abuse and constitute a substantial proportion of the corporate vehicles established in some offshore jurisdictions, observed the OECD.

Offshore jurisdictions with authorities which possess relatively little enforcement powers may particularly benefit from introducing ex-ante mechanisms guaranteeing up front disclosure of beneficial ownership and control. The report lists Bermuda and Jersey as examples for successfully implemented ex-ante regimes.

In jurisdictions with a substantial domestic commercial sector, an extensive up front disclosure system may impose significant costs on corporate vehicles, cautioned the report. In such jurisdictions, especially in the OECD area, authorities rely primarily on ex-post investigative means, such as compulsory powers, court-issued subpoenas and other measures to obtain beneficial ownership and control information when illicit activity is suspected. The report singles out the sharing of information between authorities within the same jurisdiction or between different jurisdictions as a possible area for improvement in ex-post systems.