Opinion - Offshore companies – The need for greater transparency |13 February 2017

The transparency of director and ownership information related to Seychelles-registered offshore companies is currently under review by the National Assembly in a proposed amendment to the IBC Act. The bill has been proposed under a private member’s motion. The bill, it seems, seeks to reduce the transparency of offshore companies by removing the provision for public access to information about who the Directors of offshore companies are.

The transparency of offshore companies is a matter that worries business people as well as policymakers. A recent survey of corporate leaders in 62 countries by Ernst and Young found strong support for more transparency in company ownership; banks and legitimate firms want to know whom they are trading with and need to have access to information about the real people with whom they are doing business.

A recent Economist article on corruption claims that there is a correlation between corruption and anonymous offshore companies. The article cites the current investigation into the alleged multi-billion-dollar theft from 1MDB, a Malaysian state fund, which is focused on shell companies in the Seychelles and to a lesser extent, the British Virgin Islands, and makes the point that tracing illicit funds to a shell’s bank account is of little use if you cannot identify the individuals who control the shell company (the Directors) and who ultimately own it (the beneficial owners).

The Financial Action Task Force (FATF) is the international organisation that acts as the watchdog for global financial services. It issues de facto standards and evaluates each country's compliance with them in the fight against terrorist financing and money laundering. Recommendation 24 of the FATF international standards places specific obligations on company service providers in relation to the transparency and beneficial ownership of offshore companies and requires that countries should take measures to prevent their abuse. It states that there should be adequate, accurate and timely information on those that control companies (i.e. the Directors) and those that are the ultimate beneficial owners, and that this should be accessible in a timely fashion by competent authorities. It goes further by saying that all companies created in a country should be registered in a company registry which holds basic information such as:

• company name,
• proof of incorporation,
• legal form and status,
• the address of the registered office,
• basic regulating powers (e.g. memorandum & articles of association),
• a list of directors;

and that this basic information should be publicly available. While the recommendations are not legally binding in themselves, countries are expected to transpose them into their domestic laws. Developed financial jurisdictions have long embraced central registries and public access to this basic type of data but now many countries are going further. A new European Union directive which came into force in 2017 requires members to set up central registries for more detailed information on the ultimate beneficial owners of companies and to make the data available to police, tax authorities and others with a “legitimate interest” (such as investigative journalists). Britain has gone further: it launched a public registry in 2016 and other countries, including Australia and the Netherlands, are planning to do the same.

A forthcoming international report on the use of offshore companies for money laundering and tax evasion has warned that countries need to have sufficient law enforcement capacity and processes to take action against complicit Company Service Providers (CSPs) when they wilfully breach beneficial ownership requirements or facilitate crime. It further warns that countries need sufficient supervisory authorities and processes, to ensure obligations related to director and beneficial ownership information are properly implemented. The report, drafted by the international Financial Action Task Force (FATF) requires countries to make active use of both law enforcement and supervisory approaches as appropriate. The report, which cites Seychelles among others, says that analysis highlights that complicit actors among trust and company service providers (TCSPs) and weak supervision of obligations on beneficial ownership are significant factors in the misuse of offshore companies. The report comes at an important time as Seychelles will begin evaluation by the FATF in July 2017.

A. Mondon