Corrupt money: using legal entities to conceal ownership

Photo: World Bank24 October 2011 - Most large-scale corruption cases involve the use of legal entities to conceal ownership and control of proceeds of corruption, and policymakers should take steps to improve transparency in order to reduce opportunities for wrongdoing, according to a study released today by the Stolen Asset Recovery (StAR) Initiative of the World Bank and the United Nations Office on Drugs and Crime.

"We need to put corporate transparency back on the national and international agenda," said Emile van der Does de Willebois, the World Bank senior financial sector specialist who led the StAR research team. "It is important for Governments to increase the transparency of their legal entities and arrangements and at the same time improve the capacity of law enforcement."

The report, entitled " 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, including shell companies, foundations and trusts. The study also provides policymakers 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.

The study explains how corrupt public officials and their associates conceal their connection to ill-gotten funds by exploiting legal and institutional loopholes that allow opacity in companies, foundations and trust-like structures. It also lists obstacles to the investigation and establishment of the origin and ownership of stolen assets and highlights the difficulty of identifying where legal entities operate and have business relationships, lack of access to information on beneficial ownership and the use of complex and multi-jurisdictional corporate structures.

Drawing on evidence from relevant stakeholders, the report advises policymakers on how to effectively address the problem of corrupt payments made through opaque companies. In particular, the study recommends that more detailed information be collected in corporate registries, and that providers of legal, financial and administrative (incorporation and management) services to legal entities more effectively conduct due diligence with respect to those controlling corporate entities.

The study is based on research including an analysis of 150 grand corruption cases and an examination of the practices of 40 jurisdictions and their company registries in collecting, updating and providing access to the beneficial ownership information of legal entities. The report also draws on the experiences of more than 77 experts from 33 jurisdictions in investigating the misuse of transnational legal structures.

About the StAR Initiative

The Stolen Asset Recovery (StAR) Initiative is a partnership between the World Bank Group and the United Nations Office on Drugs and Crime that supports international efforts to end safe havens for corrupt funds. The secretariat of the StAR Initiative works with developing countries and financial centres to prevent the laundering of the proceeds of corruption and to facilitate the more systematic and timely return of stolen assets.

Related information:

Stolen Asset Recovery (StAR) Initiative