Legal Smokescreens: Corruption and Exploitation by Anonymous Companies

April 22, 2016

What could a wealthy oligarch sprawled in a luxury New York City apartment possibly have in common with member of ISIS battling with state-of-the-art weapons? Both share a common connection enabling their crime. The link between a terrorist and a corrupt business magnate is the same as the link between a dictator and the leader of a drug cartel - their money is veiled in paperwork, and it is safe. An increasing and overwhelming number of major criminals today manage, move, and maintain their wealth in plain sight, under a guise of legal contracts shielding their names and thus allowing for vast and far-reaching unlawful activity in a lawful setting.

 

In certain states in the U.S. it is easier to open a company than to renew a library card. Delaware, for example, was ranked in 2009 as the most financially secretive location in the world, requiring a proof of address or social security number to carry out a majority of basic administrative tasks such as applying for a driver’s license or city library membership, but not to create publically recorded company accounts. Creating a business is simpler, faster and often less regulated than any other official activity in these states - a phenomenon that is making economic crimes commonplace.

 

'Anonymous companies' are companies registered using little to no information about their beneficial owners - that is, the people who manage the company’s assets and benefit from its profits - leaving a complex and misleading paper trail that makes it nearly impossible to know who is truly in control of business. Incorporating a company is a process that is wholly legal and easily managed in all fifty American states, turning a company into its own legally autonomous business structure that is able to operate as a separate actor from the individual actually running affairs. Subsequently, American law allows new companies to be opened under the name of existing ones rather than under the name of a traceable individual, furthering the cycle of ownership anonymity and spinning webs of deceit. In other words, the American government (along with the governments of states that have more stringent privacy laws, such as the United Kingdom) doesn’t require that a face be put to the name behind a company. Because of this, and in spite of claims to high standards of financial accountability and a commitment to civil justice, the United States is home to the largest and fastest-growing network of fraudulent corporations in the world.

President Mugabe, who has held office since 22 December, 1987, by Gregg Carlstrom

 

Dubbed the “getaway cars of choice for the world’s criminal and corrupt”, anonymous companies provide channels to conduct legal business practices for illegal purposes. Criminals fund and enable illicit activities of all kinds through these companies, powering the global trade of drugs, people, arms, and a vast array of human rights abuses. Deeply concealed in the multi-layered disguise crafted by current corporate bureaucracy, creators of anonymous companies manipulate a system that is intended for enterprise, instead using it for exploitation. The World Bank, in a 2011 report analysing over two hundred major corruption cases between 1980 and 2010, found that the greatest number of companies involved in scandals were incorporated in the United States - a result of the liberal and loosely regulated laws surrounding corporate ownership. 

 

'Shell companies,' another term for the phenomenon, owe their name to the many layers of false ownership that any one company may have, like the many shells of a Russian doll. Certain countries simply do not require information to open companies, while others store information about company shareholders in binding secrecy agreements, creating tremendous difficulty for law enforcement when tracking criminals down. States that collect ownership information allow for the aforementioned use of one company as the registered owner of another. 

 

A harrowing example of the corruption and inhumanity propelled by anonymous companies can be seen in the turmoil shrouding Zimbabwean politics. A country marked by decades of authoritarianism, the control of dictator Robert Mugabe has been turbulent, bloody, and fraught with human rights abuses. The Zimbabwean people have suffered greatly at the hands of their brutal leader, facing political coercion and intimidation, the threat of assassination for dissent, and significantly, exploitation as a workforce. Supported by the national production of blood diamonds, the industry of Zimbabwe’s profitable national resource has been propped up by their corrupt President in order to fund his various power campaigns. The Marange diamond fields of eastern Zimbabwe are the site of unprecedented atrocities, including the torture and enslavement of local populations to work in the fields mining diamonds.

 

In the wake of the public eye turning to the abuses taking place in Marange fields, U.S. officials placed sanctions on the production site, banning the export of diamonds from the fields owned and operated by the Zimbabwean military at the time. In response, the Zimbabwean government removed the military from the fields altogether, replacing their presence with that of private companies that would thereafter manage the diamond industry - or so it was alleged. In 2012, a report on the diamond industry of Zimbabwe found that the “private companies” in charge of the Marange fields were in fact anonymous companies, running the fields in the exact same manner as prior to sanctions.

 

Zimbabwe’s secret police force (the Central Intelligence Organisation, or CIO), is believed to exercise joint control over Sino Zimbabwe Development (Pvt) Ltd., a national diamond conglomerate shared with Sam Pa, a Chinese business figure. Upon closer inspection, it emerged that Sino Zimbabwe Development (Pvt) Ltd. was an anonymous company used to supply the Zimbabwean military with funds from the exploitative national diamond trade. Consequently, Sam Pa also represented an anonymous company. Registered in the name of an individual, the businessman was simply representing a broader fraudulent scheme in which the government held large stakes. This revelation, indicative of the systematic abuse and oppression of Zimbabwean civilians, outraged human rights activists. Nonetheless, little has changed in the diamond industry. As Mugabe’s time in office approaches twenty-nine years, Zimbabwe is ranked 163rd out of 179 nations on a global Corruption Perceptions Index by the non-governmental organisation Transparency International, making it one of the most corrupt nations in the world – and it is wholly facilitated by anonymous companies.

 

Global Witness co-founder Charmian Gooch at a TED Conference

 

Efforts to halt the speed and ease with which anonymous companies are created are marred by politicians in favour of corporate freedom, who argue that all systems are corruptible. A threat to company ownership is a threat to the very core tenets of capitalism that many Western states rely on. This is why few restrictions are placed on such processes as opening a company; it is meant to encourage the spirit of entrepreneurship that nations such as America greatly herald. Anonymous companies currently exist in a global system in which their creation is fuelled by dictators to fund corrupt governments, oligarchs to hide wealth, terrorists to buy arms, and many more.

 

However, anonymous company exploitation ends when policy changes. The harm caused by unregulated, unfettered corporate activity to disenfranchised Zimbabwean civilians, enslaved sex workers, and illegal drug manufacturers can be curtailed if laws are put in place to hold individuals accountable. The issue of anonymous companies is a deeply ingrained, institutional problem, but efforts are being made to change policy and such movements are gaining momentum. Organisations such as Global Witness, a non-profit watchdog organisation based in London, are pushing politicians to insist on mandatory public registries for company beneficial ownership, making it a legal requirement to name - and shame, in the case of illicit activities - the face behind a corporation.

 

Transparency in business and consumership is possible if we ask questions and demand the right answers. Creating an ethical conscience in all levels of society - in the government, in corporate administration and as consumers ourselves - is critical for promoting the solution to this issue and cutting the economic power of human rights abuses. 

 

To explore an interactive map of currently known anonymous companies, their far-reaching bases, and their victims, click here. To learn more about what you can do to get involved and raise awareness, check out Global Witness here.

 

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