G20 accord focuses on shell firms as China drops objection

G20 leaders have backed a drive against the use of shell companies and trusts to engage in tax evasion and money-laundering, after China dropped a last-minute objection to the plan.

Following talks yesterday, the G20 published a set of principles for governments to follow that aims to make it easier to find out who is the beneficial owner of entities, which experts say facilitate hundreds of billions of dollars in illicit financial flows.

“We endorse the 2015-2016 G20 anti-corruption action plan,” said leaders in the final communiqué. “We commit to improve the transparency principles of the public and private sectors, and of beneficial ownership, by implementing the G20 high-level principles on beneficial ownership transparency.”

Developing economies

One, a campaign group, estimates that up to $1 trillion is being taken out of developing countries every year through a web of corrupt activity involving anonymous shell companies that typically hide the identity of their true owners.

A World Bank report in 2011 found 70 per cent of the biggest corruption cases between 1980 and 2010 involved anonymous shell companies.

Last year, the G20 committed to tackling the beneficial ownership issue and drew up principles to guide governments when making national rules. At a meeting of G20 officials in Paris in September, China was concerned about the principles, saying they raised issues it needed to evaluate.

The Chinese objection surprised diplomats given that Beijing has been implementing its own tough anti-corruption drive against officials.

But following talks in Brisbane, officials said the impasse over the plan had been resolved, enabling publication of the principles and allowing the G20 to back a drive for disclosure of beneficial ownership.

The principles state countries should ensure legal persons maintain beneficial-ownership information onshore and that information is adequate, accurate and current.

Statement of principles

“Countries could implement this, for example, through central registries of beneficial ownership of legal persons or other appropriate mechanisms,” says the statement of principles.

It also calls on countries to ensure that information is shared between domestic and international agencies, including law-enforcement bodies.

However, the principles stop short of recommending public access to registries of beneficial ownership – a key demand of advocacy groups that campaign against tax evasion and corruption.

“This is a good but insufficient first step,” said Friederike Röder, a director of One. “But this information needs to be public to create a deterrence effect. It would also ensure developing countries that suffer from tax evasion and corruption would gain access to this information.”

G20 leaders also endorsed the OECD’s action plan to crack down on international tax avoidance. – (Copyright The Financial Times Limited 2014)