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Grave Secrecy

Grave Secrecy

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Published by corruptioncurrents

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Published by: corruptioncurrents on Jun 19, 2012
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06/19/2012

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GRAVE SECRECY
 
Please note that each ‘shell’ company named in thisreport is a reerence to that particular company reg-istered in the named jurisdiction only. For the avoid-ance o any doubt, Global Witness does not reer to oriner any link to other companies in other jurisdictionswhich may have the same or similar names. Any suchsimilarities in the names o companies registered inother countries are entirely coincidental.This report contains some quotations rom press arti-cles, documents and sources that have been translat-ed into English rom the Russian or other languages.These are clearly indicated in the reerences.
CONTENTS
ExECuTiVE SummARYRECOmmENDATiONS FOR POLiCY CHANGEiNTRODuCTiONCHAPTER 1: ASiAuNiVERSALBANk:COOkiNG THE BOOkS?CHAPTER 2: THE uSE OF SHELL COmPANiESFOR SuSPiCiOuS TRANSACTiONSCHAPTER 3: THE kYRGYz ECONOmY:iN THE HANDS OF A FEw mENCHAPTER 4: HOw AuB GAiNED ACCESSTO THE GLOBAL FiNANCiAL SYSTEmCONCLuSiONFOOTNOTES468111645586366
 
It is so easy to set up a company with hidden ownership inBritain that even a dead man can do it. Global Witness’snew investigative report
Grave Secrecy
shows the poten-tial or companies in the UK, New Zealand and elsewhereto be used as cover to launder the proceeds o corruption,tax evasion and other crimes.It is based on an investigation into a Central Asian bankat the centre o major money laundering allegations, butthe ndings are much broader, highlighting the shockinginadequacy o how some o the world’s major economiesmonitor the registration o companies.Kyrgyzstan’s largest bank, AsiaUniversalBank (AUB), wasnationalised and ound by the authorities to be insol-vent ater a revolution overthrew the regime o PresidentBakiyev in April 2010. The new Kyrgyz authorities allegethat AUB was engaged in large-scale money launderingand an independent audit by a multinational rm sup-ports these claims. However, the bank’s ormer manage-ment deny the allegations and claim that the new regimeillegally expropriated AUB because it was a successulbusiness and that their indictments by the new authori-ties are politically motivated.To get beyond these contradictory claims, Global Witnessinvestigated dozens o companies that held accounts atAUB, many registered in the UK, and ound signicantindicators that suggest money laundering: hundreds o millions o dollars seemed to be moving through theiraccounts while they were not engaged in any real busi-ness activity.In the most egregious example, the shareholder o oneUK company was a Russian man who had actually diedsome years beore the company was registered. His iden-tity had been used to hide the real owner o a companythat appeared to have US$700 million owing throughits account at AUB while doing no business in the UK andailing to le accounts with the UK corporate registry asrequired. It is scandalous that lax oversight and enorce-ment over company registration in the UK allows suchbehaviour to prosper.Many o the companies in this report, even i incorpo-rated ‘onshore’, eature shareholders and directors romoshore jurisdictions such as the British Virgin Islandsand the Seychelles. But these are not the companies’ trueowners. They are employees o corporate service provid-ers who are paid, quite legally, to pimp their identity as‘nominee’ shareholders and directors, in eect hiding theidentity o their customers: the real owners o the com-pany. Technically, police and tax authorities can requestcompany ownership inormation, but i it is cross-borderthe legal processes are cumbersome and the investiga-tors have to know what they are looking or – a
Catch-22
 system that does nothing to prevent money launderingand other criminal misuse o these companies in the rstplace. The corporate service providers who set up these com-panies and act as nominees are already required by theanti-money laundering laws to identiy who they are act-ing or and to report any suspicions to the authorities.But the UK, like many countries, currently does little toenorce this existing standard; it is time it did so.
Global Witness believes a urther dramatic changeis required: the identities o the real, ‘beneicial’owners o all companies should be publicly availa-ble in the country they are incorporated, and nomi-nee directors and shareholders should be held liableor their clients’ actions.
The EU has the opportuni-ty to take the lead on this over the next 18 months as itupdates its anti-money laundering laws.This matters because ‘shell’ companies – entities that arelittle more than just a name on a piece o paper – are keyto the outow o corrupt money that keeps poor countriespoor. Those who loot state unds through corruption ordeprive their state o revenues through tax evasion needmore than a bank: they need to hide their identity behinda corporate ront. Countries such as the UK might have acompany registry and consider themselves ‘onshore’, butas long as they only collect shareholder inormation, theyare eectively permitting hidden company ownership –which means they are as oshore as any palm-ringedisland and will continue to acilitate corruption, tax eva-sion and other crimes. This needs to change.The report also shows how:The Kyrgyz economy ell into the hands o just a ew×men, with up to US$64 million in state unds, includingpension unds, potentially missing rom AUB. MaximBakiyev, the son o the ormer Kyrgyz president wasriends with AUB’s chairman, and is suspected by theKyrgyz authorities o being involved. Meanwhile, Maximhas claimed asylum in the UK, saying that is being madea scapegoat by the new authorities in Kyrgyzstan.The billions o dollars in suspicious transactions that×apparently moved through AUB could not have beentranserred without the help o AUB’s relationshipswith banks abroad – called correspondent relationships.Though Swiss bank UBS was sufciently concerned about
ExECuTiVE SummARY
ExECuTiVE SummARY
AUB to close its correspondent account, others kept theirdoors open. The largest amounts o money rom AUBwent through Citibank in New York, the UK’s StandardChartered and Austria’s Raieisen Bank. Global Witnesshas asked these banks what anti-money launderingchecks they did on AUB; Citibank didn’t reply, the otherscouldn’t comment due to client condentiality.AUB’s international reputation was helped by the pres-×ence o three ormer US Senators, including ormer presi-dential candidate Bob Dole, on its board.
April 2010, Protestors try to storm the Kyrgyz White House, but what was happening to the money in Kyrgyzstan’s largest bank?Photo: Vyacheslav Oseledko/AFP/Getty Images.

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