How effective are beneficial ownership checks?

Anti-money laundering text with numbers spreadsheet in background on table
John Heathershaw
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New project investigates laundering of monies and reputations by professional enablers for African and Central Asian elites

This is the first in a series of blogs authored by researchers supported by the Global Integrity Anti-Corruption Evidence (GI-ACE) programme. The overarching objective of the GI-ACE programme is to support world-class multidisciplinary research to inform the development of more effective policies and interventions that will help reduce corruption in developing countries and address its negative impact on people’s lives.

To achieve this objective, GI-ACE produces new and operationally relevant evidence on tackling corruption, with a focus on ensuring that the research outputs support more effective, evidence-based anti-corruption initiatives by the Department for International Development (DFID) and other practitioner partners in DFID-priority countries and beyond.

Supported research focuses on innovative and practice-oriented projects, covering three priority areas: (1)Addressing the international architecture that supports corrupt exchanges; (2) Promoting integrity systems in the public and private sectors; and (3) Tackling corruption at subnational and sectoral levels.

Learn more about Heathershaw’s GI-ACE research project…

Money laundering is a serious impediment to the effectiveness of official development assistance in creating a more prosperous, just, and democratic world. Someone looking to move illegally obtained money can far too easily hide his or her identity and disguise the origins of dubious funds by using a complex international web of shell companies and bank accounts to wire monies across the globe, investing them in a variety of assets, including high-end real estate.

Often such figures are politically exposed persons (PEPs) – public officials, their family, and associates – from a kleptocracy, a nation where state funds are embezzled by the ruling elite. The PEPs that are involved in these practices seek to bolster their reputations to provide cover for both their activities and the kleptocratic regimes they represent. They do this by contracting a powerful network of lawyers, bankers, company service providers, and reputation managers who help protect their funds and improve their reputation internationally by, for example, getting unflattering coverage removed from the internet or making various charitable donations, activities that, in effect, clean dubious money and its owner’s reputation.

The disclosure of the Panama Papers in 2016 highlighted the need for greater interrogation of beneficial ownership and unexplained wealth by financial services companies, real estate agents, and related figures working in stable democratic countries. Since then, a string of new policies has been adopted, including the EU’s Fourth Anti-Money Laundering (AML) Directive and the UK’s register of Persons of Significant Control (PSC). This policy makes the UK the first of the G20 countries to introduce a beneficial ownership register for its companies, and the first in the world to extend this to trusts. However, these more stringent requirements and commitments to enforcement must be examined in order to assess compliance with this new AML regime by banks, real estate agents, and other financial service providers.

This GI-ACE-funded project aims to assess within its two-year period the effectiveness of the international AML regime with respect to banking, real estate purchases, and charitable investments via anonymous shell companies. In particular, it focuses on money laundering by the elites of various Central Asian and African states. However, our theoretical and empirical focus is not on the regional elites, themselves, but on the global service providers or ‘enablers’ — those professionals often based in liberal democracies that enable money and reputation laundering in their exploitation of ‘loopholes’ in anti-money laundering rules and weak adherence to due diligence requirements. Methodologically, the study combines a field experiment of banking, an analysis of real estate purchases via unexplained wealth, and qualitative comparisons to assess due diligence by international institutions and charities of investments via anonymous companies.

The research team includes academics from the University of Exeter, the University of Cambridge, and the University of Oxford in the UK, and Columbia University in the United States, supported by research assistants and an international advisory board composed of academics and civil society representatives from Africa, Central Asia, and beyond. 

The project will provide evidence of relevance to policy with respect to the degree of compliance in the banking sector and practices of (non-)compliance in real estate, philanthropy, and (where possible) banking. It also hopes to show the diffusion of, and linkage between, practices of non-compliance across the three sectors and the correlation between these practices and money laundering. Our work will be published through an international think tank or foundation and made available via Open Access publications and also presented at workshops in London, Africa, and Central Asia to which governmental and non-governmental participants will be invited.

John Heathershaw
John Heathershaw
Associate Professor and Director of Impact, University of Exeter

John Heathershaw’s research addresses conflict and security in authoritarian political environments, especially in post-Soviet Central Asia. It considers how and how effectively conflict is managed in authoritarian states. Heathershaw convenes the Exeter Central Asian Studies (ExCAS) research network and directs its Central Asian Political Exiles (CAPE) project. Heathershaw completed his Ph.D. at the Department of International Relations at the London School of Economics and Political Science in 2007.

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