Ownership, Financial Accountability and the Law There is something visceral about ownership This is mine; you can’t have it This is mine; you can share it This is ours Try to find it Contemporary literature and investigative journalism are showing that the scale of the problem of tax evasion, money laundering, organised crime, terrorism, bribery, corruption and gross human rights abuses is vast Ownership – specifically, the quest to identify beneficial owners – has been chosen by national and international regulators as the touchstone, the litmus test in the fight back An owner by definition must possess something for which they are financially accountable But what is meant by “ownership”? This book explains why ownership is pivotal to accountability and what ownership means in common law, civil law and Shariah law terms It looks in detail at state, regional and international transparency strategies and at an equally powerful global private counter-initiative to promote beneficial ownership avoidance through the use of so-called “orphan structures” Where there is no owner, there is no accountability The distinction between privacy and legitimate confidentiality on the one hand and concealment on the other is explained with reference to commercial and trade law and practice, principles of corporate governance and applicable business human rights This book introduces one further counterinitiative: the phenomenon of transient ownership made possible through the use of cryptocurrency and the blockchain The study concludes with a blueprint for action with recommendations addressed to states, international organisations, practitioners and other stakeholders Paul Beckett has forty years’ experience as a lawyer, practising offshore as a commercial and trust specialist and a human rights defender He graduated from Worcester College, Oxford, in 1978 with First Class honours in Jurisprudence He also completed a Master of Studies in International Human Rights Law at New College, Oxford, in 2014 He is a member of the Solicitor Judges Division, Law Society of England and Wales, the Chartered Institute of Arbitrators and the Society of Legal Scholars He has written extensively on finance, banking, taxation and human rights law The Law of Financial Crime Series Editor: Nicholas Ryder Available titles in this series include: Countering Economic Crime A Comparative Analysis Axel Palmer The Global Anti-Corruption Regime The Case of Papua New Guinea Hannah Harris Financial Crime and Corporate Misconduct A Critical Evaluation of Fraud Legislation Edited by Chris Monaghan and Nicola Monaghan Corporate Liability for Insider Trading Juliette Overland Corruption in the Global Era Causes, Sources and Forms of Manifestation Lorenzo Pasculli and Nicholas Ryder Counter-Terrorist Financing Law and Policy An Analysis of Turkey Burke Uğur Başaranel and Umut Turksen Ownership, Financial Accountability and the Law Transparency Strategies and Counter-Initiatives Paul Beckett For more information about this series, please visit: www.routledge.com/ The-Law-of-Financial-Crime/book-series/FINCRIME Ownership, Financial Accountability and the Law Transparency Strategies and Counter-Initiatives Paul Beckett First published 2019 by Routledge Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2019 Paul Beckett The right of Paul Beckett to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988 All rights reserved No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers Trademark notice: Product or corporate names may be trademarks or registered trademarks and are used only for identification and explanation without intent to infringe British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Beckett, Paul, 1956– Title: Ownership, financial accountability and the law: transparency strategies and counter-initiatives / Paul Beckett Description: Abingdon, Oxon ; New York, NY : Routledge, 2019 | Series: The law of financial crime Identifiers: LCCN 2019002255 | ISBN 9781138359888 (hardback) | ISBN 9780429433443 (ebook) Subjects: LCSH: Finance—Law and legislation | Property—Law and legislation | Commercial crimes—Law and legislation Classification: LCC K1066 B43 2019 | DDC 343/.02—dc23 LC record available at https://lccn.loc.gov/2019002255 ISBN: 978-1-138-35988-8 (hbk) ISBN: 978-0-429-43344-3 (ebk) Typeset in Galliard by Apex CoVantage, LLC This book is dedicated to my wife, Dr Lesley M Stone Contents ContentsContents Acknowledgementsxi Introduction: why ownership matters What is meant by “ownership”? Introduction 9 The philosophy: Kelsen and Wittgenstein “Ownership” and “Beneficial Ownership” 11 The Common Law and equity: legal and equitable title 12 Ownership in civil law: Usufruct, Fiducie and Treuhand 13 Usufruct 13 Fiducie and Treuhand 14 Ownership in Islam 14 Charity 17 The structures 19 Generic corporations 19 Piercing the corporate veil 21 Tax haven corporations 22 Nominee directors, nominee shareholders 22 De facto ownership 24 Generic trusts 24 The Hague Convention 25 The Hague Convention – offshore counter-initiatives 26 Trustees 27 Offshore trusts 29 The Wakf 30 Foundations 32 Conclusions 34 Appendix one 35 Appendix two 36 viii Contents Disclosure and registration initiatives Part one: Introduction 42 Part two: Fundamental transparency strategies 43 The World Bank’s StAR initiative 43 G20 45 Brisbane November 2014, Washington DC April 2016, Hangzhou September 2016, Hamburg July 2017 45 The 2014 G20 High-Level Principles on Beneficial Ownership Transparency 48 Financial Action Task Force 52 FATF’s origin and mission 52 Beneficial ownership 54 Legal persons 57 Trusts 61 Ownership vs Control 63 FATF and concealment of beneficial ownership 64 How effective is the FATF’s transparency strategy? 68 Part three: The Organisation for Economic Co-operation and Development (OECD) 70 OECD’s origins and mission 70 OECD and Multinational Enterprises 72 OECD Due Diligence Guidance for Responsible Business Conduct (2018) 72 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (“Anti Bribery Convention”) 73 OECD and Supply Chains 76 OECD and Tax Evasion: Information Exchange 76 Exchange of Information on Request 77 Automatic Information Exchange: OECD Common Reporting Standard 2014 81 Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (2016) (BEPS) 91 BEPS Project Action 12 – the disclosure of CRS avoidance arrangements and offshore structures 93 BEPS: Tax Challenges Arising From Digitalisation 101 OECD: current self-assessment 102 Part four: United States of America 104 “A major money laundering haven”? 104 Foreign Account Tax Compliance Act 2010 (FATCA) 108 42 Contents ix Part five: European Union: Fifth Anti-Money Laundering Directive (Directive EU 2018/843 30 May 2018) 111 Part six: The Council of Europe MONEYVAL 118 Part seven: United Kingdom 121 Unexplained Wealth Orders 121 Shades of Empire –The British Overseas Territories 123 Part eight: Isle of Man – an offshore case study 128 Beneficial Ownership Act 2017 129 Part nine: Conclusions 133 Confidentiality versus concealment Introduction 145 Privacy 145 The meaning of “privacy” 145 General Data Protection Regulation (“GDPR”) 148 Principles of commercial confidentiality 150 English Common Law approach 150 Directive (EU) 2016/943 – trade secrets 152 Anonymity – a commercial right? 154 Principles of corporate governance 154 The United Nations Global Compact (2000) and the United Nations Convention Against Corruption (2004) 156 The United Nations Guiding Principles on Business and Human Rights 2011 159 IGCN Global Governance Principles and IGCN Global Stewardship Principles 162 Guiding Principles issued by the Islamic Financial Services Board 164 The UK Corporate Governance Code (July 2018) 168 Corporate governance and beneficial ownership 168 Privacy and business human rights 169 The human rights of companies 173 “Piercing the corporate veil” 175 Privacy and corporations: an American perspective 175 Conclusions 176 145 “Orphan Structures” Introduction 182 Tools of abuse 182 The “Orphan Structures” 183 Seychelles IBC: absence of information on public record 183 182 ... side, the politicians The separation of ownership and accountability on the one hand from benefit on the other is not esoteric financial wizardry The anonymisation of a super elite removes them... common law and equity, civil law and Shariah law It poses the question whether “ownership” and “beneficial ownership” are capable of definition and, if so, whether that definition can be fixed and. .. the distinction between privacy and legitimate confidentiality on the one hand and concealment on the other and their legitimacy or abuse is explained with reference to commercial and trade law