January 10, 2017 – The Panama Papers, the world biggest leak highlighted the complex ways used by companies and individuals to conceal who actually were beneficiaries of a certain company. Some of them put their money into offshore accounts including such as in Labuan, which is also an off-shore financial centre and tax haven.
One of the ways to overcome corruption and money laundering activities is by introducing a central registry for beneficial ownership of companies registered in Malaysia and those keeping funds in Labuan. A beneficial owner of a company is the person who truly owns, enjoys and controls the company even though title to some form of property or security is in another’s name.
The goal of registry for beneficial ownership is to provide greater transparency as to ownership and who really controls a company so as to distinguish between the registered shareholder and the ultimate beneficial owner when the two persons are not the same.
This move also ensures corrupt officials and politicians will be unable to award themselves through their families or cronies any government contracts. Apart from preventing the giving of contracts to related parties, it can also promote good governance and prevent companies from being misused or involved in illicit business, and help identify and report suspicious activities. Such accountability will attract investors who will be able to access information and scrutinize relevant data when considering an investment.
The government should ensure that all information related to who ultimately controls or benefits from companies are included in a central business registry which is accessible to the public.
For a start governments must make it mandatory for all companies who are bidding for public sector contracts to disclose who actually owns, controls or benefits from the company.
In the UK the government has started to introduce and create a public register of beneficial ownership, while the US has introduced a rule on July 11, 2016 which requires financial institutions to collect information on significant beneficial owners of legal entities.
Creating and accessing this open data repository is important to disclose who owns the companies and makes it more difficult for fraudsters and white collar criminals to hide their illegal money, and also helps to detect acts of corruption, tax evasion and money laundering.
In KPMG’s 2013 Fraud, Bribery and Corruption Survey, 90 % of respondents said that bribery and corruption is the biggest problem for businesses in Malaysia. PWC’s Global Economic Crime Survey 2016 showed that bribery and corruption increased from 19% in 2014 to 30% in 2016. It also estimated that global money laundering transactions comprise 2 to 5% of global GDP, or roughly U.S. $1-2 trillion annually. Yet based on the United Nations Office on Drugs and Crime (UNODC), less than 1% of global illicit financial flows are currently seized by authorities.
Offshore funds are also a potential source of illegal money. The amount of money stashed via shell companies and offshore tax havens has been pegged as high as $21 trillion according to the Tax Justice Network. There are also studies which show that terrorist financing, money laundering and corruption are among the byproducts of offshore secrecy.
In Malaysia, the Commercial Crime Department of the Royal Malaysian Police reported that “any criminal activity that generates significant profit creates a need for money laundering. Organised crime and financial crime together costs Malaysia between RM15 billion and RM25 billion per annum”.
The requirement for disclosure of beneficial ownership can help in stopping the proceeds of corruption, transnational crime and organized crime from being laundered through investments in high-value property in Malaysia. Apart from damaging economic and capital flow, these illegal activities have a greater impact on our society and the image of Malaysia.
There is no good reason why this measure should not be immediately adopted by the Government.
Dato’ Akhbar Satar
PresidentTransparency International Malaysia
Transparency International-Malaysia is an independent, non-governmental and non-partisan organisation committed to the fight against corruption.
Note to Editors: For clarification on any and all official statements from TransparencyI nternational – Malaysia (TI-M), kindly refer to its President, Dato’ Akhbar Satar (email@example.com)