By Katya Lysova
Earlier this year, the ‘Panama Papers,’ an unprecedented leak of 11.5 million files from the Panama-based offshore law firm Mossack Fonseca, shocked the global compliance community and underscored the value of robust and meaningful due diligence.
The Panama Papers exposed the link between more than 200,000 offshore companies and prominent public officials and other wealthy individuals. The scandal emboldened regulators and immediately prompted numerous global tax investigations against public officials and companies worldwide.
Secret company ownership can make it easier to engage in illegal activity, including bribery, tax evasion, embezzlement and money laundering. By some estimates, opaque beneficial ownership contributes to the more than US$2 trillion that is stolen from developing countries every year by corrupt officials, drug dealers, tax evaders and other criminals.
Individuals – beneficial owners – can exercise control in a company not only through ownership but by other means, such as board positions, shareholder agreements on voting rights, financing structures and family relations. The anonymity of shell companies and their often complex, multilayered structures can make it difficult to identify beneficial owners and links to government officials. Many multinational companies now require their third parties to disclose beneficial ownership information as part of their compliance with anti-corruption, trade-related sanctions and anti-money laundering regulations.
What can project cargo and heavy-lift sector companies do to avoid compliance violations? Most importantly, meaningful due diligence on existing and prospective business partners, particularly those that have been identified as high risk, should always include information on beneficial owners. That means going beyond the first – and often second and third – level of shareholders, down to individuals who ultimately own or exercise control over a company.
It is a good business practice to ask potential business partners to disclose their beneficial owners as part of the on-boarding process. Companies can use detailed questionnaires to get ownership down to an individual. This information should then be crosschecked and verified by conducting Internet and database searches, collecting business references and searching public records. If a prospective partner is unwilling or reluctant to disclose its beneficial owners, a company must be prepared to walk away.
TRACE developed TRACEpublic, the first global register of beneficial ownership information, in direct response to the risks inherent in secret company ownership. The database is designed to increase commercial transparency and to provide companies with a starting point for due diligence. Unlike other databases of beneficial ownership, it is not country-specific and is voluntary. Any company, regardless of headquarters, may share their beneficial ownership information, or search the database, at no cost.
With changing expectations regarding anti-bribery compliance and commercial transparency, project cargo and heavy-lift companies should operationalize collecting beneficial ownership information on prospective and existing business partners to avoid costly investigations and reputational damage.
Katya Lysova is a Russian-trained lawyer with a background in fraud and corruption investigations focused on Eastern Europe and Central Asia. She is an associate in TRACE’s Member Services and Advocacy department.
Photo credit: Shutterstock
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