Offshore
FEATURE: Beneficial Owner Data Could Put Wealthy Into Arms Of Kidnappers - Banker Warns

The UK Government calls for a crackdown on tax evasion by publishing a UK-wide register of all company owners, which could expose the wealthy to increased risk of kidnapping, the private client director at RBC has warned.
The UK government calls for a crackdown on tax evasion by
publishing a nationwide register of all company owners, which
could expose the wealthy to increased risk of kidnapping, Alan
Binnington, private client director at Royal Bank of
Canada has warned.
The register is designed to unmask accountants, lawyers and
business figures who use shell companies – often located in
offshore tax havens such as Guernsey, Jersey and the Isle of Man
– to hide the identity of ultimate beneficiaries. It was first
championed by David Cameron, UK prime minister, during his
chairmanship of the G8 summit in June last year and is now being
pushed by the business secretary Vince Cable.
The government last week showed its commitment to the proposal by
including it in the Queen’s speech under the Small Business,
Enterprise and Employment Bill.
Although an exact date for its introduction has not been set, it
has caused a stir in the Overseas Territories who thrive on
providing wealthy investors with anonymity.
Nevertheless there are no signs that the government will exempt
the UK’s offshore financial hubs. In April, Cameron wrote a
letter to the Overseas Territories stating that they would be
included in all the beneficial ownership plans.
“I am firmly of the view that making company beneficial ownership
information open to the public is by far the best approach. It
will give businesses and individuals a clearer picture of who
ultimately owns and controls the companies they are dealing with
and make it easier for banks, lawyers and others to conduct due
diligence on their customers,” Cameron wrote in the letter.
“It will shed light on those who have provided false information,
helping to tackle crime where it occurs and deterring people from
providing this false information in the first place,” he
added.
While the plan is laudable in its goal, critics point out that
individuals with offshore investments will be exposed and taken
advantage of by criminals who can easily access public
information about their potential victims.
For wealthy individuals from Latin America and Africa, having
investments in the Overseas Territories is one way of staying
anonymous from criminals - in particular kidnappers, said
Binnington. They also live in these countries in modest homes and
without flash cars to prevent being robbed or attacked.
“Kidnapping is a very real threat for the wealthy and their
children in many parts of the world,” said Binnington. “For many,
maintaining a low profile is key, especially when it comes to
everyday things such as taking their children to school. The
beneficial ownership exposes legitimate clients by making public
personal financial information about them and seriously increases
the risk of kidnapping.”
According to crisis management company red24, there were 33,000
kidnappings in 2013 globally and it is estimated that the
kidnap-for-ransom insurance market is now worth $500 million
(£299 million) per year, reflecting some of the steep ransom
demands that can reach $10 million.
Statistics show that Mexico, Nigeria, The Sahel and Pakistan were
the primary kidnapping spots in 2013. Mexico reported 750
kidnappings in the first half of last year, an 8 per cent rise on
2012 and the highest recorded number since statistics began
tracking the crime in 1997.
Meanwhile, over the same time period Nigeria accounted for more
than 25 per cent of all kidnappings globally and 70 per cent of
all incidents in Africa. Red24 predicts an escalation of
incidents throughout 2014, driven by criminal and Islamist groups
using kidnapping as a means for raising funds and applying
political pressure.
“Although foreign national business personnel do face a risk from
kidnapping when travelling abroad, especially to locations such
as Nigeria and Yemen, the majority of kidnap victims are local
nationals,” said Frances Nobes, global risk analyst at red24.
“This is demonstrated most clearly in countries such as Mexico,
where an overwhelming majority of kidnapping and extortion
incidents (numbering in the thousands) target local nationals,
including local business owners and wealthy businesspeople.”
Overseas investment vehicles are also used by these individuals
to guard against despot governments stealing their wealth and
assets. The most well-documented example is Zimbabwe, where the
country’s central bank is regularly accused of taking hard
currency from private businesses in order to keep government
ministries running.
“It doesn't need to be a country where the government goes so far
as to 'steal' assets but it could be any country where citizens
have experienced, or fear, a breakdown in the rule of law, which
is there to protect their personal and property rights,”
Binnington added.
Yet it is not just overseas individuals that could be affected by
the new legislation. Many UK company directors also prefer the
anonymity of being offshore, often for their own safety. The most
obvious example is the life sciences and genetically-modified
food sectors, where directors and employees often come under
attack from animal rights groups opposed to their businesses or
testing methods.
But the life science and health industries have done little to
endear themselves to the public lately with recent allegations
that non-Chinese companies bribed doctors and employees of
Chinese government-owned hospitals to boost drug and product
sales, according to legal experts at Dechert LLP. If proven true,
it is likely these companies will have run out of political
capital when putting forward their case for political anonymity
with the government.
The Overseas Territories are fighting their corner aware that if
the government introduces the register many clients will leave
for states that can offer economic anonymity, such as Hong Kong
or Singapore.
Guernsey in particular has stuck its neck out, arguing that it is
one of only a handful of jurisdictions that already has a
beneficial owners list in place since 2000. The only difference
is that the information is not shared publicly for client
confidentiality reasons.
Meanwhile, business bodies such as the CBI, the Institute of
Directors and the Law Society have also mounted a rearguard
action to kill off the plan, saying unilateral action would leave
British firms at a competitive disadvantage.
But despite the protests, the government at this stage shows no
signs of backing down.
Western governments are currently on a worldwide tax evasion
clampdown, knowing full well that they carry with them public
support.