Panama papers show international efforts to tackle 'dirty' money lack oomph

The issue of financial secrecy has returned to global headlines thanks to the Panama papers. The year-long investigation by global journalists into 11 million encrypted documents from Panamanian law firm Mossack Fonesca shines a light on secret offshore holdings from a large number of prominent individuals, including 128 politicians and 12 world leaders, and gives a much better glimpse into exactly how massive and widespread the practice is.

It certainly is big business. A recent Transparency International article highlighted that every year as much as US$2 trillion of dirty money is laundered through the global financial system, much of it by hiding the real owners of companies. Further, out of 400 bribery cases across more than 40 countries, the OECD found a quarter involved funnelling stolen cash through secret companies.

But what are governments doing about shell companies?  Through the G20 and G8, financial transparency issues have been on the international anti-corruption agenda for years. This drive has delivered progress.  Griffith University professor Jason Sharman, co-author of The Puppet Masters and the Global Shell Games, remarked in February 2013 that it is often overlooked that the G20 has been effective in generating political momentum for existing initiatives in anti-corruption, the combating of money laundering, and tax evasion.

Rather than creating new initiatives, the G20 threw its heft behind the UN Convention on Corruption, the OECD blacklist of tax havens, and a similar Financial Action Task Force (the body that sets international anti-money laundering standards) blacklist of money launderers.

Not to be outdone by the G20, in Lough Erne in June 2013, G8 Leaders endorsed principles on beneficial ownership transparency () through which governments committed to ensuring that information about the real identities of owners of corporations, trusts, and other legal entities is kept and made available to authorities internationally. (The UK government is going further, by establishing a public register of UK companies’ beneficial owners that is due to launch in June.)

The Financial Action Task Force then reflected these agreed principles in their Guidance on Transparency and Beneficial Ownership.

An under-appreciated achievement of Australia’s G20 year was that all G20 countries adopted the High Level Principles on Beneficial Ownership Transparency at the Brisbane Summit, responding to a chorus of calls from G20 engagement groups representing civil society, think tanks, youth groups, and the business community. Brisbane also saw G20 countries agree to the G20’s third, two-year G20 Anti-Corruption Action Plan. This extended the G20’s anti-corruption work to incorporate a wider integrity and transparency agenda, on top of the ‘hard’ corruption activities of foreign bribery or siphoning off of public assets.

At the time, these efforts were cautiously accepted by the broader community, although bodies such as the Global Financial Integrity argued that the G20 should have done more to address the issue of anonymous companies.  There were also questions over whether commitments would translate into concrete action.

On the latter, the G20’s report card in 2015 (as with other agenda items) was not all that stellar. The sprawling, seven-page Antalya Leaders’ communique  did include references to G20 High-level principles on Integrity and Transparency in the Private Sector, G20 Anti-corruption Open Data Principles and G20 Principles for Promoting Integrity in Public Procurement. G20 members also each produced an implementation plan for the beneficial ownership principles in Antalya.

But Transparency International was not impressed with these efforts, questioning whether the G20 corruption promises were more than a photo-op.[fold] Further,  Transparency International argued that, as at November last year, only two G20 countries (India and the UK) required companies to identify and record the people who own and control shell companies, in eight G20 members banks could proceed with a transaction without identifying the person behind the funds, and real estate agents in seven countries weren’t required to disclose the real people who are behind the sales and purchases of property. On top of this, Australia, Brazil, Canada, China, South Korea and the US were all described as having a weak legal framework for beneficial ownership transparency. 

2016 offers an opportunity for fresh momentum, particularly given the prominence of anti-corruption as a domestic Chinese issue. The Chinese G20 priorities document  emphasised the importance of ‘working together to safeguard the credibility of government, create a clean business environment and promote economic growth’ and practical cooperation in areas such as denial of safe haven to corruption officials, recovery of the proceeds of corruption, repatriation of corrupt officials.

Given the mobility of capital around the world, the G20 (and G8)’s efforts in recent years can be criticised as incremental and piecemeal. As G20 Studies Centre alumnus Hugh Jorgenson has discussed in detail, while corralling governments into ratifying an international convention is valuable, the real test lies in getting countries to fulfil their existing obligations. To date, the weak point of international effort remains in closing the gap between commitments and implementation.