THE Panama Papers, the world’s biggest leak, highlighted the complex ways used by companies and individuals to conceal who the actual beneficiaries of a company are. The information was leaked from the database of the fourth biggest offshore law firm, Mossack Fonseca. Someone from the firm is alleged to have leaked 11.5 million financial and legal records, exposing a system that appeared to facilitate economic crime.
The Panama Papers revealed 12 national leaders were among 143 politicians, their families and close associates from around the world known to have been using offshore tax havens. Some of them put their money into offshore accounts such as in Labuan, which is also an offshore financial centre and tax haven.
One way to overcome corruption and money laundering is by introducing a central registry for beneficial ownership of companies registered in Malaysia and those keeping funds in Labuan.
A beneficial owner of a company is the person who truly owns, enjoys and controls the company even though the title to some form of property or security is in another’s name.
This move also ensures corrupt officials and politicians will be unable to award themselves, through their families or cronies any government contracts. Apart from preventing the giving of contracts to related parties, it can also promote good governance and prevent companies from being misused or involved in illicit business, and help identify and report suspicious activities.
The government should ensure that all information related to the person who ultimately controls or benefits from companies is included in a central business registry, which the public can access.
For a start, the government must make it mandatory for all companies bidding for public sector contracts to disclose those who actually own, control or benefit from the company.
The UK government introduced and created the world’s first public register of the ultimate owners of companies. This means that anyone will be able to find out who owns and controls British companies, even if they are owned by an offshore company or trust.
On July 11, 2016, the US introduced a rule which requires financial institutions to collect information on significant beneficial owners of legal entities.
Graft is the biggest problem for businesses in Malaysia. In KPMG’s 2013 Fraud, Bribery and Corruption Survey, 90 per cent of respondents said that bribery and corruption were the biggest problem for businesses in Malaysia.
In the Global Corruption Barometer (GCB) 2017, 60 per cent of Malaysians felt the level of corruption had increased while only 11 per cent said that corruption had decreased. This is in contrast to the 2013 GCB survey, where only 39 per cent of respondents felt corruption had increased.
There are also studies that show terrorist financing, money laundering and corruption are among the by-products of offshore secrecy. As mentioned earlier for the UK, by introducing a central registry for beneficial ownership of companies issues like tax evasion, money laundering and the financing of terrorism can be addressed at least partially, and thus improve the investment climate in the UK.
According to the Tax Justice Network, the amount of money stashed via shell companies and offshore tax havens has been pegged to be as high as US$21 trillion.
In 2015, the Boston Consulting Group stated that Singapore held around one eighth of the global stock of total offshore wealth while IMF’s report in 2014 estimated that over 95 per cent of all commercial banks in Singapore are affiliates of foreign banks: a testament to its extreme dependence on foreign and offshore money.
It is estimated that the amount of money laundered globally in one year is 2 to 5 per cent of global GDP, or US$800 billion to US$2 trillion in current US dollars.
In Malaysia, the Commercial Crime Department of the Royal Malaysia Police reported “any criminal activity that generates significant profit creates a need for money laundering. Organised crime and financial crime together costs Malaysia between RM15 billion and RM25 billion per annum.”
The requirement for disclosure of beneficial ownership can help stop the proceeds of corruption, transnational crime and organised crime from being laundered through investments in high-value property in Malaysia. Apart from damaging economic and capital flow, these illegal activities have a greater impact on our society and the image of Malaysia.
There is no good reason why the government should not immediately adopt this measure.
DATUK AKHBAR SATAR ,
President,Transparency International Malaysia