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#Anti Money Laundering

Offshore secrets highlight the need for transparency and strong oversight

International Compliance Association

FATCA , HMRC , money laundering

The UK Guardian’s “Offshore secrets” series, and BBC Panorama’s concurrent investigation into the burgeoning trade in sham directorships, provided some fascinating (albeit depressing) reading/viewing for anyone interested in the prevention and detection of financial crime. 

Panorama’s undercover footage of corporate service providers apparently willing to turn a blind eye to money laundering risks and ready to openly engage in serious breaches of UK company law was damning, but the cynic in me can’t help but feel that it was not altogether surprising. The secrecy afforded by offshore jurisdictions will inevitably prove attractive to those willing to engage in such unscrupulous practices.

shhh

More alarming in one sense is the seeming inadequacy of the regulation and oversight of corporate service providers, which has enabled such practices to thrive. HMRC is responsible for regulating some 2,467 registered corporate service providers, yet has not prosecuted a single one for breach of AML regulations. Not wishing to downplay the excellent work of the Guardian and BBC journalists involved, the fact that a team of undercover reporters was able to so readily identify compelling evidence of firms apparently willing to openly flout those regulations suggests that HMRC needs to seriously up its game with regards to the sophistication and rigour of its investigations. HMRC claims that it conducts investigations into corporate services providers based on "intelligence and risk assessment". It appears, however, that either one or both of those have been lacking. Indeed, some of the firms filmed in Panorama’s report suggested that the chances of getting caught by HMRC were almost non-existent.

Next there is the issue of the identity of sham directors, many of whom are, according to the Guardian, “Sark Larkers” who, having been flushed out of Sark, have simply set up their operations elsewhere and carried on business as usual (http://www.guardian.co.uk/uk/2012/nov/25/offshore-secrets-sark-lark-britons). These individuals appear to be quite readily identifiable, yet have somehow managed to “fly below the radar” of the Department for Business, Innovation and Skills. 

The question arises, then, whether the proliferation of sham directorships has resulted from a lack of resources, a lack of nous, or a lack of will on the part of the authorities... or perhaps some combination of the three? Whatever the case, there will be pressure upon HMRC and Vince Cable’s department to bounce back strongly from what must have been an embarrassing couple of weeks.

What, then, is the answer to this apparently booming trade in sham directorships? As well as more regulatory dynamism, the requirement for greater transparency has rightly been identified as a priority. The announcement that the Treasury is looking to implement FATCA-style regulations on offshore territories, and the confirmation by the Isle of Man government that it will adopt such information sharing arrangements, is significant. Offshore territories may be concerned about the broader business impacts of such requirements, and determining the full implications for offshore business and compliance professionals is likely to be a priority in the coming weeks. Watch this space.


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