How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It
Corruption is estimated to be at least a $40 billion dollar a year business. Every day, funds destined for schools, healthcare, and infrastructure in the world’s most fragile economies are siphoned off and stashed away in the world’s fi nancial centers and tax havens.
Corruption, like a disease, is eating away at the foundation of people’s faith in government. It undermines the stability and security of nations. So it is a development challenge in more ways than one: it directly aff ects development assistance, but it also undermines the preconditions for growth and equity.
We need mobilization at the highest level so that corruption is tackled eff ectively.
This report, Th e Puppet Masters, deals with the corporate and fi nancial structures that form the building blocks of hidden money trails. In particular, it focuses on the ease with which corrupt actors hide their interests behind a corporate veil and the diffi culties investigators face in trying to lift that veil.
It serves as a powerful reminder that recovering the proceeds of corruption is a collective responsibility that involves both the public and private sector. Law enforcement and prosecution cannot go aft er stolen assets, confi scate and then return them if they are hidden behind the corporate veil. All fi nancial centers and developed countries have committed, through the UN Convention against Corruption and international anti-money laundering and countering the fi nancing of terrorism standards, to improving the transparency of legal entities and other arrangements.
This StAR report provides evidence of how far we still have to go to make these commitments a reality. Narrowing the gap between stated commitments and practice on the ground has a direct impact on actual recovery of assets.
As recent history shows, these issues are not hypothetical, they are real. Under the leadership of President Obasanjo, I initiated Nigeria’s eff orts to recover stolen assets. I know fi rsthand from that experience how corrupt offi cials hid their assets behind innocent sounding corporations and trusts.
Similarly, this report is fi rmly rooted in reality. It is based on documentary research, interviews with corporate registries, bankers, investigators, and other experts who confront this issue every day in the course of their work, and a “mystery shopping” exercise with relevant corporate service providers in multiple jurisdictions. Th e study highlights the weaknesses in the system that leave these structures open to manipulation and abuse. It provides a series of practical and balanced recommendations on how these weaknesses can be addressed.
At a time when the international community is stepping up its eff orts to fi ght corruption and underlining the need for fi nancial transparency, this report comes as a welcome contribution. I hope that policy makers, practitioners, and civil society will make good use of this analysis.