[Joint House and Senate Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
116th Congress } Printed for the use of the
1st Session } Commission on Security and Cooperation in Europe
======================================================================
Curbing Corruption Through Corporate
Transparency and Collaboration:
The British Model
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
May 29, 2019
Briefing of the
Commission on Security and Cooperation in Europe
------------------------------------------------------------------------
Washington: 2019
Commission on Security and Cooperation in Europe
234 Ford House Office Building
Washington, DC 20515
202-225-1901
[email protected]
http://www.csce.gov
@HelsinkiComm
Legislative Branch Commissioners
HOUSE SENATE
ALCEE L.HASTINGS, Florida ROGER WICKER, Mississippi,
Co-Chairman Chairman
JOE WILSON, South Carolina BENJAMIN L. CARDIN. Maryland
ROBERT B. ADERHOLT, Alabama JOHN BOOZMAN, Arkansas
EMANUEL CLEAVER II, Missouri CORY GARDNER, Colorado
STEVE COHEN, Tennessee MARCO RUBIO, Florida
BRIAN FITZPATRICK, Pennsylvania JEANNE SHAHEEN, New Hampshire
RICHARD HUDSON, North Carolina THOM TILLIS, North Carolina
GWEN MOORE, Wisconsin TOM UDALL, New Mexico
MARC VEASEY, Texas SHELDON WHITEHOUSE, Rhode Island
Executive Branch Commissioners
DEPARTMENT OF STATE
DEPARTMENT OF DEFENSE
DEPARTMENT OF COMMERCE
[II]
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Curbing Corruption Through Corporate Transparency and Collaboration:
The British Model
May 29, 2019
Page
PARTICIPANTS
Paul Massaro, Policy Advisor, Commission on Security and
Cooperation in Europe......................................................1
John Penrose, M.P., U.K. Prime Minister's Anti-Corruption Champion.....2
Edward Kitt, Serious and Organized Crime Network Illicit Finance
Policy Lead, British Embassy, Washington...................................6
Mark Hays, Anti-Money Laundering Campaign Leader, Global Witness.......9
Nate Sibley, Research Fellow, Kleptocracy Initiative, Hudson
Institute.................................................................13
Curbing Corruption Through Corporate Transparency and Collaboration:
The British Model
May 29, 2019
The briefing was held at 9:00 a.m. in Room 2128, Rayburn House
Office Building, Washington, DC, Paul Massaro, Policy Advisor,
Commission on Security and Cooperation in Europe, presiding.
Panelists present: Paul Massaro, Policy Advisor, Commission on
Security and Cooperation in Europe; John Penrose, M.P., U.K. Prime
Minister's Anti-Corruption Champion; Edward Kitt, Serious and Organized
Crime Network Illicit Finance Policy Lead, British Embassy, Washington;
Mark Hays, Anti-Money Laundering Campaign Leader, Global Witness; and
Nate Sibley, Research Fellow, Kleptocracy Initiative, Hudson Institute.
Mr. Massaro. All right, let's get this show on the road. So
welcome, on behalf of our bipartisan and bicameral leadership, to this
briefing of the Helsinki Commission.
The Helsinki Commission is mandated to monitor compliance with
international norms and standards in Europe. This includes norms in the
military affairs, economic and environmental affairs, and human rights.
I cover that second category. I do a lot of work in anticorruption in
economics. And I am so honored and pleased to have with us today
Minister John Penrose, the prime minister's anticorruption champion,
all the way from the United Kingdom.
I'd like to make a quick administrative announcement that we'll be
ending at 10:15. Even if we have remaining questions, even if there are
other burning concerns, we are ending sharp at 10:15. So just the
briefest of opening remarks.
Globalized corruption is one of the greatest threats facing the
United States today. Authoritarian kleptocrats exploit the global
financial system to hide their ill-gotten gains on our shores and those
of our allies, providing protection for their stolen assets and a
vector of influence into our political systems. Once established, these
kleptocrats set about hollowing out the rule of law and our
institutions to better serve their preferences.
Much remains to be done to close these loopholes that enable this
malign activity, but Congress is taking action and the United Kingdom
is taking action. We're very excited to hear about what the United
Kingdom is doing today.
So with that I'll very shortly introduce Minister Penrose. As
discussed, Minister Penrose is the U.K. prime minister's anticorruption
champion. He's in charge of coordinating the U.K. response to
corruption and implementing the U.K. anticorruption strategy. He's in
charge of leading the U.K.'s push to strengthen the international
response to corruption, which is what he's doing here and what he'll be
doing in Canada right after this. And he's in charge of engaging with
external stakeholders. So I guess that's us, right?
So with that, please, Minister Penrose, take us away.
P.M. Penrose. Thank you very much.
Am I okay to stand up? Can everybody hear me if I stand up? Okay, I
will do that, and that way I present a moving target.
Mr. Massaro. Sorry, actually, I hate to----
P.M. Penrose. No?
Mr. Massaro. Yes, I hate to--I hate to interrupt. I think it's just
for C-SPAN, I think we've got to speak in the mic, right?
P.M. Penrose. Got to speak in the mic?
Mr. Massaro. Yes. So can you turn it on and maybe stand up? Would
that work?
P.M. Penrose. Let's try that.
Mr. Massaro. Talk.
P.M. Penrose. Does that work? Are you getting enough sound on that?
Should I keep talking and seeing? Is that enough?
Staff. That's fine.
P.M. Penrose. All right. We got it. Right, marvelous. So I can't
present a moving target because I have to stand roughly here, but
beyond that we're all set.
Look, first, thank you very much for inviting me here this morning.
Paul put it beautifully in his introduction just now. We share a common
threat. And I'm here because I believe that we can also share a common
response to that threat if we get our acts together and if we work
together in yet another example of, you know, one of the oldest
alliances on the planet, trying to make this work together.
And the reason why we share the threat is very simply that we both,
both our countries, play host to two of the largest financial centers
on the planet. So whether it's the city of London, whether it's New
York, whether or not it's incorporated companies in the State of
Delaware, both of our countries are right up there in terms of the
leadership and the market share which both countries command.
What does that mean? Well, it means that, as Paul rightly said,
there's an enormous amount of money--billions, trillions of dollars--
every single day sloshing through the city of London, sloshing through
New York. And it only takes a tiny fraction of 1 percent of all that
money, every day, to be dirty, to be the proceeds of crime, to be put
there by organized criminals of one kind or another, whether they are
drug kingpins, whether they are gun runners, whether they are foreign
state actors trying to undermine our countries' democracies--a tiny
amount of that and it creates an enormous reputational risk for our
countries. Because be under no illusion, ladies and gentlemen: There is
a reputational risk because these people want to create it for us. They
want to do it to us.
An awful lot of the criticism that you will hear from populist
political movements around the globe, but also from people who want to
undermine our rules-based system, is to say you cannot trust these
guys. You cannot trust these men and women in Washington, you can't
trust them in Westminster, in London, because the entire system is
corrupt. The entire system is stacked against ordinary people. And if
we let them, they will say, and therefore you don't have to abide by
their rules, because their rules are skewed. Their rules are trying to
hold down regular folk in the interests of an elite, and therefore the
entire system needs to be changed and brought crashing down.
And if, like me, you care about a rules-based system because you
care about democracy, and you care about a capitalist democracy in
particular, then that rules-based system really matters. And the
argument to say this does not fly and it undermines--it is stacked
against the ordinary man and woman in the street--that argument is
incredibly corrosive. It is powerful and it is dangerous for all of us
in both our countries.
And that's why I'm here, is because I believe that if we work
together as two of the leading countries with two of the leading
financial centers on the planet, then we can fight against this. And
with any luck, we can win.
So what can we do? How can we fight against this?
Well, there are lots of different things that need to be done,
everything from better and stronger responses from law enforcement
officials through to better exchange of financial information and
sharing of intelligence between both investigative agencies here in the
States and in the U.K., but across the Atlantic as well.
All of those things matter. But they aren't enough on their own,
because if you talk to law enforcement inspectors and investigators,
they will say we--that all works for us up to a point, but sooner or
later these drug kingpins, these gun runners, these organized
criminals, they've got smart lawyers. They've got smart accountants.
And they move money all the way around the world. They bounce money
from one jurisdiction to another to another. And they have nested
companies and trusts and foundations right the way around the world.
And when we try to follow the money, we're fine until we get to a
secrecy jurisdiction. And when we get to a secrecy jurisdiction, or at
least one that just doesn't have the information in a convenient or
accessible fashion, then we hit a brick wall, they say, and it's
incredibly frustrating. We can get no further, and that means that we
cannot bring the people to justice who richly deserve it. And it isn't
just a question of putting people behind bars, although that's great,
of course; it's also a question of going after the assets which have
been bought with the dirty money.
In my country, if you go to parts of London--equally in this
country I'm told anecdotally--you go to some American cities and you
find people who are swanning around living incredibly bling lifestyles,
living in multi-zillion-dollar apartments which they have bought with
dirty money. Sooner or later, people who are trying to do the right
thing--people who are trying to live honest lives, people who are
trying to follow the rules-based system which we have all created in
order to ensure order and a sensible capitalist economy--sooner or
later they're going to turn around and they're going to say, Do you
know what? We're following these rules and these guys aren't, and who's
doing better? Who is the one driving the Ferrari? Who's the one living
in the marvelous, multi-zillion-dollar duplex apartment? Well, it's not
me. It's that kleptocrat over there. It's that organized criminal over
there. It's that gang boss over there. And we are going to start to
lose credibility and we're going to start to lose legitimacy.
And so, therefore, yes, put these people behind bars, but also go
after their money. Go after their assets. Hit them where it hurts, in
the pocketbook, because that matters enormously. And it shows people
that we care and it shows people that we are serious.
How do we do it? Well, as I said, all sorts of things we can do
with better enforcement, better sharing of data and information. But
ultimately, the way to ensure that you can follow the money is to make
sure that the audit trail works. And the way you can do that--and one
of the reasons why I'm here and why I'm off to the open-government
conference in Ottawa very shortly, later on today--is to talk about
something called beneficial ownership registers.
I was saying last night at a very good event, it's a lousy piece of
branding. We have to find a sexier name for this thing. But ultimately,
it may be lousy branding, but it does something very, very important
indeed. It establishes that audit trail in whichever country the drug
kingpins try to move their money to. And it says, look, we don't need
to know everybody who owns every single share in every single company
in every single country. That's a level of intrusion into privacy that
we don't need to have. But what we do need to know is who controls
shell companies. For whose benefit are shell companies being run? And
that means you need to know who the main directors are and who the
controlling economic actors are. Who owns the majority shares in it?
Don't need to know everybody else, but you do need to know who controls
the shares in these companies, because if you have a shell company and
it's moving money around on behalf of drug kingpins and everybody else,
you need to be able to follow that cash. Otherwise you will never get
to those assets, you will never be able to sequester them, you will
never be able to get them back, and you will never be able to show the
man and the woman in the street that the system is on their side and
not on the side of the kleptocrats and the organized criminals.
So what the U.K. is doing--and we would love it, ladies and
gentlemen--the reason why I'm here is we would love it if you guys in
the States would be part of this at some level. It would be
transformational if the USA, with all its heft and its might and its
global leadership, could be part of this.
What we are trying to do in the U.K. is, we are trying to set up
something which will effectively create a global norm to say let's all
have some kind of a register about who owns and controls these
companies. We're not asking for the moon. As I said, we don't need to
know everybody who owns a piece of every company. We just need to know
who the controlling minds and the controlling interests are.
And if, at that point, that is available around the world, and
certainly in major centers like the U.K. and in the USA, then we can
start to make sure that that audit trail works and there will be no
place to hide. We will be shining a spotlight into some of the murkiest
corners of our planet's financial system, and they will not be able to
go anywhere at all and hide their money anywhere. Sunlight is the best
disinfectant, as the saying goes.
And so that's what we're trying to do in the U.K. We would--we
aren't perfect, incidentally. Nowhere on the planet is perfect yet.
This is a fairly new political movement. It is something which has been
developing over the last few years and has further to go. So the U.K.,
I'm not overclaiming for what we can do. We are perhaps in the vanguard
here, but we are the tallest pygmy. That's all. There is an enormous
amount more which we as a nation and we as a planet need to do in order
to deal with what is effectively a global problem, as we all know.
But we would love it if you guys could come with us and be part of
this, because the people who will hate us if we do this will be the
drug lords, will be the gun runners, will be the kleptocrats and the
organized criminals. But the people who will love us, the people who
will say this is a great thing--you are starting to drain the swamp,
they will say--the people who will love all that will be the victims of
corruption, the powerless, the people who are always on the receiving
end of, be it grand corruption, be it petty corruption--it doesn't
matter if someone is just asking for a small bribe, which may be
utterly unaffordable for someone on a low wage, or someone who's the
victim of a much larger institutionalized piece of dishonesty.
But ultimately, they are the people who we will be serving. They
are the people who will benefit from this kind of measure. And they are
the people who won't just thank us in their thousands and thank us in
their hundreds of thousands and thank us in their millions; the
marvelous thing, ladies and gentlemen, is they will vote for us as
well. And I don't care which side of the aisle you are on. That
matters. It counts. And in any democracy, it is the route to having a
political legacy which anybody can be proud of. So they may not quite
erect statues in your name just yet, but it matters, and we can do well
by doing good.
So thank you very much for inviting me here. I hope we can persuade
the USA and the U.K. to work together on this. This is something which
is on the right side of history. It's on the right side of justice. And
it is on the right side of everything which everybody who votes in the
USA elections will surely, surely want.
Thank you very much. [Applause.]
Mr. Massaro. Well, thank you so very much, Minister Penrose, for
those deeply meaningful remarks.
I'd like now to invite up our panel. I'm very excited today to
welcome this very distinguished panel. Their full bios are in the
folders that you picked up at the entrance. So I'll give some short
intros here.
We'll first hear from Ed Kitt, to my right.
[As an aside.] Move that if you like.
Ed is the illicit finance lead at the British Embassy in Washington
and the U.S. representative of the United Kingdom's new Serious and
Organized Crime Network Initiative. He has held many different posts in
the United Kingdom's National Crime Agency, and we're extremely
grateful to have him with us here today.
Mark Hays will then provide us his insights into the United
Kingdom's policies. Mark is a senior advisor at Global Witness, a
nonprofit that has done extraordinary work fighting globalized
corruption around the world. Mark himself is an anti-money laundering
guru who is an invaluable member of D.C.'s anticorruption community.
And then, finally, we'll hear from Nate Sibley, a research fellow
at Hudson Institute's Kleptocracy Initiative and himself a Brit, though
not part of the U.K. Government. Nate has been published widely, and he
and his organization have been a constant voice for curbing
authoritarian capital.
On a personal note, I'd like to mention that Nate was also one of
the first conversations I had when I started this job in this city, and
I will forever be grateful for his early insights.
So, Ed, please, the floor is yours.
Mr. Kitt. Thank you, Paul. I just want to start by saying good
morning, everyone. I'd like to express our sincere thanks to the
Helsinki Commission for hosting this important event today.
Part of my segment of talking will very much touch on collaboration
and dialog as crucial tools to tackling illicit finance and
anticorruption issues. And it's really events like these that are
useful in driving this issue forward, so thank you very much for
hosting us.
So I'm going to talk briefly and pick up on some of the comments
made by the minister on beneficial ownership in the U.K. and what we've
done so far. And then I'd like to talk a little bit more around the
U.K.'s Joint Money Laundering Intelligence Task Force, or the JMLIT,
which has been a really great initiative in the U.K. for enhancing
engagement with public- and private-sector partners. The intelligence
exchange which the JMLIT has facilitated has been replicated globally
and it's a model that we're very proud of. So I'd like to talk a little
bit further around that.
The two issues of beneficial ownership and JMLIT are intertwined,
and I will touch on why so. But it's fascinating, the interaction with
law enforcement and the banking community as being pivotal to
anticorruption. And both those issues facilitate such measures.
So let me talk briefly about beneficial ownership in the U.K. The
U.K. was the first G-20 country to adopt a public beneficial ownership
register in January 2016. The U.K.'s beneficial ownership register has
been absolutely fundamental--and I can't emphasize this point enough--
it's been fundamental in increasing collaboration between law
enforcement and private-sector bodies. It's evident by reports from the
Global Witness report that Mark will, I'm sure, touch on later. The
suspicious-activity reporting has increased significantly by Companies
House from 426 reports--I'm quoting directly from Mark's brilliant
report--but 426 reports in 2016 to 2,264 reports in 2017. So that just
shows the real increase in reporting that we're getting because of this
system. Indeed, requests to Companies House, the centralized company
that--or body that administers the register, has received--it went from
11 requests per month to 125 requests per month from law enforcement.
So we're seeing a marked increase in the engagement between law
enforcement in their investigations and how they're looking to find out
who is behind these companies that were previously anonymous shell
companies responsible for laundering significant proceeds of crime.
I would just say that, speaking purely in a U.K. context now, we
have an open register in the U.K. And I'm not going to sit here before
you this morning--and the minister alluded to this in his remarks--I'm
not going to sit here and pretend that our register is the finished
article. It's not. It's not perfect, but it's a significant step. It's
a significant step in identifying the individuals behind companies who
are laundering significant proceeds of criminality. We've still got a
long ways to go in addressing issues such as data verification and
compliance. But again, speaking in a purely U.K. context, the fact that
it's a public register allows us to be open to levels of scrutiny, for
people to have a look and see what data our register has, what we hold,
and mark ways for improvement. And that's something that we're really
proud of, to be able to have that register, an open register, and be
able to be open to those levels of scrutiny.
And what I would say--and I really want to emphasize this point--is
that what we've done is a start. We're on a journey, a corporate
transparency journey. The data-verification issues and compliance
issues that we have, and which I'm sure Mark will touch on in his
remarks, they are issues that we recognize. But I posit this theory,
which is that the law enforcement have a selector. But I'm not for a
moment excusing inaccurate data in our register, but it gives--
regardless of the accuracy of data, it gives law enforcement a start.
It gives them a selector to work off, be that a name, be that an
address. It gives them something, as opposed to nothing. And that's got
to be worth something. So providing law enforcement with that initial
piece of data, initial selector, that's something that our register
works upon.
There are a number of measures in place for us to address our data
verification and compliance issues. It will be a legal requirement for
businesses to report inaccuracies by January 2020. We're also looking
to see how we can actually improve the system itself, the Companies
House system itself, making it easier for people to search on different
companies. And we're also embarking on a work stream that will allow us
to screen the data on our beneficial ownership register against our
sanctions list. So that cross match of data is going to be absolutely
fundamental in advancing our capabilities around beneficial ownership.
And it's, you know, really important to emphasize that we recognize the
challenges we face and we're on a journey to address them.
So that's sort of the remarks I wanted to make specifically around
beneficial ownership, and I'm sure Nate and Mark will have more to add.
What I did want to touch on, and what I know that Paul's very keen
on looking at, is the Joint Money Laundering Intelligence Task Force,
or the JMLIT, which is a U.K. model. It was developed in 2015 and it
has evolved since then. But considerable progress has been made in
bringing financial institutions together with law enforcement to share
data and to advance investigations. And it's a theme throughout my
segment, hopefully, but the genuine partnership and collaboration are
really at the heart of the JMLIT, and that's what makes it so
successful.
So there are in excess of 30 financial institutions in the U.K. who
are signed up to the JMLIT, and I guess it's easiest to think about it
in two segments. So you've got the operations group and you've got the
expert working group.
I'll address the operations group first, which is involved in the
sharing of tactical financial intelligence. So groups are divided into
different areas. We have groups for organized immigration crime,
bribery and corruption, trade-based money laundering, terrorist
financing, future threats, and money laundering through markets. And
these groups convene on a weekly basis. And how that structure looks in
practice is banks sat round the table, and each week at the operations
group an officer will come and bring their investigation, and the banks
will either in the room or in slower time go away and search their data
bases to see what selectors they have that could assist the
investigations of the officer. That information is then provided back
to the case officer via the National Crime Agency, the NCA.
It's important to sort of recognize the legislation under which the
JMLIT operates. It operates under a piece of legislation in the U.K.
called the Crime and Courts Act, specifically Section 7 of the Crime
and Courts Act, and the information provided is for intelligence
purposes only. It cannot be used evidentially. So should useful data
come back, the case officer would then have to either parallel that
information or apply for more formal proceedings via a production
order. But it's a gateway to be able to identify the extent of an
illicit finance network, and it's really effective in seeing where
funds are being moved through. So that's a really sort of key part of
the JMLIT model.
The second strand which I referred to operates more on a strategic
level, and it comes under the expert working group. And this is, again,
a similar format. The banks are sat round the table and also law
enforcement agencies, the National Crime Agency predominantly, and
strategic threats and trends identified, emerging threats and trends
which are being seen by the banks, emerging threats and trends which
are being seen by law enforcement. All these sort of emerging threats
are discussed and often formulate into industry-wide alerts which go
out to the banking sector and will allow them to look across their data
bases and identify any patterns or trends which replicate what is being
seen in that forum.
I think I certainly speak for the U.K. when I say that one
challenge we have is feedback to financial institutions on suspicious
activity reports [SARs]. Often, financial institutions will submit
suspicious activity reports and they don't hear any feedback as to
actually what was the utility of that, how useful was that. The expert
working group for the JMLIT really sort of assists that process because
it allows the financial institutions to be able to get a sense of what
law enforcement are seeing, what trends they're seeing and what will be
most useful. So, again, it comes back to dialog being--dialog and
collaboration being at the absolute center of how we operate in terms
of addressing illicit finance issues and anticorruption issues.
A couple of results. It's all very well sort of sitting here
listing to you what the JMLIT does, but what does it deliver? I think
that's probably what we all want to know. So it's generated 400 live
tactical cases. It's generated in excess of 1,600 suspicious activity
reports. Often, as I was mentioning, when an individual has an
investigation and they bring it to the JMLIT, they will not necessarily
be aware of the extent of the financial footprint of the people they're
investigating. The JMLIT's identified 3,000 accounts that were
previously unknown to law enforcement. So if that's not value add, then
I'm not sure what is. And 97 arrests have been assisted by JMLIT
inquiries. So it's not just a talking shop; it delivers. And the
results are tangible. And finally, it's been--it's assisted in
identifying and restraining in excess of 39 million. So the
results are palpable.
So what I'll conclude with is saying that public-private
partnerships and international engagement are at the heart of how the
U.K. wishes to proceed in tackling illicit finances and anticorruption
issues. Both beneficial ownership cultivates a system of feedback and
it cultivates a system of assisting law enforcement with our
investigations. And equally, the JMLIT also assists in private-sector
and law enforcement collaboration. And it's only from learning from
each other, from the U.K. learning from the U.S. and vice versa--it's
only from learning from each other that we can look to tackle the
illicit finance flows that fuel organized crime groups and undermine
both of our economies.
Thank you. [Applause.]
Mr. Massaro. Well, thank you so much, Ed. And I really appreciate
the deep dive into JMLIT. You know, in sort of this high-tech age when
we can't stop talking about blockchain and AI and big data and stuff
like that, it's nice to think that, you know, in the U.K., which has
got kind of the banks and the agents just sort of sitting in the same
room, face to face, talking about the issues they're seeing, which is
just this incredibly simple yet highly effective and highly efficient
response to the issues we're seeing today.
So, with that, turning back to corporate transparency, let me hand
it off to Mark Hays of Global Witness.
Mr. Hays. Sure. Thank you, Paul. And I wanted to thank the members
and the staff of the Helsinki Commission for convening this briefing
today. I'm very glad to have the chance to join Minister Penrose, Mr.
Kitt, my colleague Nate Sibley to share some thoughts on these critical
issues.
For those who don't know me and Global Witness, my name is Mark
Hays and I direct our anti-money laundering advocacy efforts, which
have focused primarily on a range of financial transparency measures to
be adopted in the U.K., the EU, and the U.S., given these countries'
outsized role in shaping and influence global--shaping and influencing
global finance, including illicit finance.
And Global Witness, we are an international investigative advocacy
organization, and for 25 years we've sought to expose and break the
links between corruption, natural resources, and conflict. And we use
the findings from our investigations to advocate for transparency and
accountability measures that seek to hold corrupt actors accountable,
and also provide tools for governments and civil society to ensure such
resources are managed equitably and sustainably for future generations.
Now, our investigations have exposed grand corruption cases in
dozens of countries around the world, from Myanmar to Cambodia, Angola
to Nigeria, Eastern Europe and Eurasia, and more. These investigations
have demonstrated that corruption is far from a challenge that
countries outside of Europe and the U.S. face alone. Indeed, rather, it
shows corruption as a global phenomenon involving players and that
works throughout the Global North and the Global South, which means the
scope of our response must be global as well.
Our anti-money laundering campaign work was established on the
basis that in nearly all of our investigations across a wide range of
sectors the role that the global financial system played in
facilitating those cases was quite evident. And our work is really
focused on three pillars of inquiry: one, looking at the role that
financial institutions themselves play in enabling this kind of
activity, wittingly or unwittingly; the role that financial
intermediaries play in doing the same; and the role that anonymous
companies or other opaque corporate structures play in facilitating the
movement of suspicious proceeds with ease, speed, and secrecy.
I will assume that a number of folks here already have heard from
our colleagues about the importance of dealing with anonymous companies
and not explain that, but I should say simply that we're not alone in
considering this a problem. In nearly all of our cases, legal entities
whose ownership is hidden have played a role in our cases. This is
borne out in the larger world. But I'm happy to speak more to that if
people would like more data.
My comments today are largely going to focus on the U.K.'s role in
establishing the world's first open public registry of beneficial
ownership data for corporate entities, and that's for really one simple
reason. The U.S. and the U.K. both have areas where they have
demonstrated leadership on anti-money laundering policies and
protocols, as well as areas where they have or are falling short. But
since we're here in the U.S., it's important understanding the U.S.
context. The U.S. has gotten high marks in a variety of areas dealing
with anti-money laundering but has been criticized in two separate
evaluations, in 2006 and 2016, for failing to address critical gaps in
our infrastructure, including beneficial ownership reporting. And this
gap takes on an outside significance not only because of our role in
combating anti-money laundering, but because we are actually one of the
largest incorporators of legal entities in the world. By one count,
according to the World Bank, we create 10 times more legal entities
than all 41 tax-haven jurisdictions combined. So simply put, if the
U.S. wants to continue to show this leadership we need to match the
U.K.'s efforts in establishing some modicum of disclosure for
beneficial ownership transparency for companies. If we don't, not only
will we be failing to live up to this leadership test, but we will put
ourselves at greater risk for becoming a haven for bad actors and their
ill-gotten gains.
And so, in our view, the best lesson we could take from today is to
explore some of the lessons learned from the U.K.'s experience on this
journey of corporate transparency that my colleagues have alluded to--
in terms of the value of the data, some pitfalls to avoid in terms of
setting up registers; and what it actually means to do this in the real
world, what is the experience of the companies attempting to comply
with these new rules and regulations. And as Mr. Kitt alluded to, the
U.K.'s register is public and open. And that means not only can
register users access individual data records, but one can take the
aggregate data itself and conduct greater analysis. And this is one of
the fundamental promises of open data, that a variety of stakeholders
can conduct data analysis that drive both innovation and impact.
So, 2 years after the onset of the registry, Global Witness decided
to put that promise to the test. So we worked with a key collaborator,
an organization called DataKind, and explored 10 million corporate
records from Companies House. It was the largest-ever data analysis of
that register. We used cloud computing to analyze and combine the data
with other datasets and ran scripts to identify mistakes and suspicious
filings. And we published our initial results in July 2018 and repeated
that analysis in an abbreviated fashion earlier this year.
That report, entitled ``The Companies We Keep,'' is available
online. \1\ Be happy to share that with folks attending here today. I
want to hit a few highlights. And I think if--there's just a few
lessons to take away from that analysis, as I attempt not to lose you
in a bunch of numbers and figures. The few takeaways that we found are
really compelling in terms of how manageable and reasonable this
process actually could or can be for companies in the U.S.
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\1\ https://www.globalwitness.org/en/campaigns/corruption-and-money-
laundering/anonymous-company-owners/companies-we-keep/
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So the first point is that 2 or 3 years on it appears that, with
some notable exceptions, compliance appears to be easily managed by the
large majority of companies complying with the new U.K. register. The
majority of companies report little difficulty in complying with the
U.K. register's reporting requirements. And the data suggests and gives
life to something understood by many but rarely quantified, that the
overwhelming majority of U.K. companies have ownership structures that
involve very few people, which means it appears that most businesses
know who their owners are.
Second, there is demand for this data. Mr. Kitt alluded to this in
terms of the increase in law enforcement requests for information and
reporting on suspicious activity reports. But the use of the U.K.'s
existing company register, when coupled with beneficial ownership
reporting, has increased dramatically. Use by law enforcement has been
a key part of this demand, but the data suggest that other actors,
including the private sector, appear to have been part of this
increase. Which suggests that there are other use cases for beneficial
ownership data beyond law enforcement, that businesses might actually
benefit from this disclosure.
Third, it appears that disclosure may help, at least in part, with
deterrence. Even though as Mr. Kitt alluded to there are important
improvements to make in terms of validating the data in the register
and verifying it, already the reporting requirements alone appear to
have had some measurable impact on the degree to which certain U.K.
legal entities may or may not be being used exploiting secrecy for
nefarious purposes.
And then, last, disclosure appears to help drive data quality. So
public disclosure of the data, while not in consideration at the moment
in the U.S., nonetheless provides some critical insights into the
quality and value of the beneficial ownership data itself. And just
that alone has allowed NGOs like Global Witness, dialoguing with U.K.
agencies like Companies House and others, to drive important
improvements in the register's collection, management, and analysis of
that data in just three short years, even in spite of modest resources
on our end and on the government's end.
So I'll touch on a few really interesting data points that give a
little bit of meat on the bones to what I just described. First, in the
area of compliance, there are--there are nearly 4.9 million legal
entities that have filed a PSC [Person of Significant Control] report
or statement since the onset of the register. Of those, a smaller
subset--around 3.3 to 3.5 million--have actually reported they have an
owner. The U.K. reporting requirements have thresholds where if you
have ownership stakes that are less than a certain threshold or don't
qualify certain criteria, you do not have to report an owner. And there
are issues with that, but that is--that is the way this is sort of
structured.
Given the number of reporting entities, the average number of
company owners reported for companies in the U.K. was 1.16. That is the
average number. So again, most companies are reporting a small number
of owners.
It gets deeper. The mode, or most common number of owners, was one.
And last, the distribution of ownership is also quite telling. Of
the several million companies reporting their owners to the register,
99 percent of them declared that they had six owners or less, with well
over half of that number reporting two owners or fewer.
So the number of companies reporting ownership structures with more
than six owners under the current reporting regime is so few we are
unable to chart it on a graph. And in the U.S. context, this is
critical because one of the key policy points is a discussion around
whether or not providing a few small pieces of information about
yourself, your company, and your identity will be onerous for most
companies. Here we have the first public register online that exists
dealing with a large dataset of companies that operate under similar
conditions to the U.S.; it appears that most of those companies do not
have a problem complying with those requirements.
So in terms of demand, Mr. Kitt has already spoken and discussed
some of the really promising data around law enforcement access. I want
to touch on overall access. The U.K. company register was accessed more
than 2 billion times in 2017, and that's a huge increase from when
paywalls which restricted access were in place several years back--6
million requests a few years before the register came online. There are
an average of half-a-million searches a month for beneficial ownership
information alone in April 2018, and overall that data base was
accessed 5 million times in 2017. So we're not Companies House. They
can probably tell you more about who's using that and why. But again,
this suggests that when you make this data available, easily
accessible, the value expands beyond law enforcement to helping promote
a higher standard of doing business in many sectors.
Beneficial ownership disclosure deterring suspicious activity, this
is probably one of the most interesting findings we found. In the U.K.
there are legal entities entitled Scottish limited partnerships [SLPs].
They are a relatively recent legal creation, and for a number of
reasons quickly became a legal entity that was known for,
unfortunately, providing a degree of secrecy that in some cases
facilitated nefarious activities. Folks may have heard about the
various, quote, ``laundromat scandals'' coming out of Europe where
billions of dollars are being moved through the European financial
system via, in some cases, U.K.-based entities. There was a dramatic
and concerning increase in incorporation of SLPs over the past decade
until SLPs were required to disclose their owners in 2017. And shortly
after that disclosure level, we saw incorporation levels of SLPs
plummet by 80 percent in the last quarter of 2017 from their peak in
2015. And our most recent analysis confirms that these levels have
remained historically low.
Now, does that in and of itself suggest that overnight criminals
can no longer launder money? That's not the case. But what it does
suggest is even a modicum of sunlight has changed the cost-benefit
ratio for those actors, encouraging to go elsewhere. And while at the
end of the day we want to detect and catch these criminals, at the very
least both here in the U.S. and in the U.K. we want to make sure that
our systems are not complicit in facilitating those problems.
So there's a lot more to disclose here and I sense that my time is
drawing short. I just want to speak to disclosure and then looking
ahead.
I mentioned disclosure as helping drive data quality. There are a
couple interesting facts there. There were over 50,000 reports from the
public regarding likely mistakes in the register and discrepancies
between July 2017 and 2018. Again, if one of the major concerns about
implementing these registers is cost, there are plenty of people in the
government and in the NGO sector and law firms who can tell you that
the cost is both reasonable and has a massive benefit or a return on
investment, as it were. But take this data point as one element of
proof that suggests that if a register is constructed correctly the
data form in itself will enable low-cost reporting to improve the
quality itself. And that's true in a public context; it may also be
true in a limited fashion in a private context, because in the U.S. you
will have agencies dealing with this data. The better that data is
structured, the easier it will be to manage it.
But additionally, as I mentioned, our analysis, done at a very low
cost--just a few staff, a couple of smart computer geeks--found a
number of discrepancies in the data quality that were easily fixable
simply by changing the user interface of the register itself. So, for
example, there were owners reporting incorrect or nonexistent
nationalities like Cornish or ``Bridddish'' with three Ds. [Laughter.]
There were owners reporting their ages of 2 years old or 899. Changing
the date ranges and changing the fields can make that easily done. So
this is an example of how structured data, appropriately organized, can
help make improvements quickly and cheaply.
So I'll say two things and then wrap up and let my colleague Nate
share his broader thoughts. There are areas of improvement for the
register. Mr. Kidd mentioned verification. That's an incredibly
important aspects of the register. Companies House needs both the
mandate and the resolve and the resources to increase compliance and
enforcement. That involves enhanced capacity and resources.
There are a number of what I would describe as loopholes in the
register's reporting that allow circular ownership structures, allow
companies to claim owners in so-called secrecy jurisdictions. Some of
this will help when some of the U.K.'s overseas territories begin
establishing their own public registers. But until then, the onus is
both on the agencies of the U.K. Government and us to ensure that we
have all the tools we need to enforce the compliance of the register.
So there remains a great deal to be done. And in the U.K. policy
arena, Global Witness has not shied away from criticizing the U.K.
Government when we believe their efforts, however well-intentioned,
have fallen short of what's needed to combat the harm posed by illicit
finance with vigor and scale, given the scope of this problem. However,
as I said, context matters. And in the U.K. the conversation has moved
well beyond making the case for beneficial ownership registers and is
now grappling with how to make them work and how to propagate those
learnings to establish a global norm. Beneficial ownership transparency
will not alone solve money laundering, but a stronger, more effective
AML regime cannot be built without it.
In contrast, in the U.S., despite overwhelming support from a wide
and diverse set of stakeholders, efforts to advance beneficial
ownership transparency has failed to advance in Congress for nearly a
decade. So we remain cautiously optimistic that 2019 will be the year
when such legislation does advance. That will be even more true if
leaders in Congress recognize today and capitalize on the leadership
that the U.K. has shown in this space and can seek out their
partnership to join them in this effort.
Thank you. [Applause.]
Mr. Massaro. Well, thank you very much, Mark, for those fantastic
data points and the incredible work of your organization, really mining
this data and getting those conclusions out of it.
So let's move on to our final speaker, Nate Sibley of Hudson
Institute's Kleptocracy Initiative.
Thank you.
Mr. Sibley. Hello. Well, first, thanks, Paul, for inviting me here
today. It's a big honor to speak in Congress for the first time, but
it's also great to be able to acknowledge the leadership the Helsinki
Commission has shown on the issue that I work on, which is
transnational corruption and kleptocracy. And Paul has been very much a
leading voice on that in Congress, so thank you so much for that. And
they've held many hearings and briefings on this in the past, so if
you're interested it's worth going back and looking at some of those, I
would say.
And second, just to clarify, yes, I am British, but I live and work
here in Washington, D.C. and I'm not affiliated with the other Brits on
the panel. I work at Hudson Institute, which is a think tank here in
D.C., and I work on a project called the Kleptocracy Initiative. And
what we look at is the way that authoritarian regimes abuse the global
financial system and particularly the U.S. financial system to export
crime and corruption around the world, and how they sort of use that
process in furtherance of their geopolitical aims, and also to
undermine sort of U.S. national security and that of our democratic
allies, obviously first and foremost including the U.K.
So I just wanted to start on a slightly different tack. I know the
primary focus today is on the public-private partnerships, the JMLIT
and the corporate beneficial ownership data. But there's another really
great facet to anticorruption work in the U.K., which is the scale and
the scope of the anti-money laundering regime. So maybe I'm just going
to spend a brief second on this.
So in the U.S. we have the Bank Secrecy Act, which is the
legislation that governs anti-money laundering systems in the U.S., and
it applies very specifically to financial institutions as the name
suggests. In the U.K. and indeed now across the EU, in recognition of
the fact that the financial sector is not the only sector at risk of
money laundering problems, they have expanded the AML--the anti-money
laundering regime--to include not only banks, but also lawyers,
accountants, realtors. Real estate is, obviously, one of the favored
places you want your dirty money to end up because it's very discreet
and it's high value. So I think if you--I know predominantly these
are--you're all staffers in here. I know lots of your bosses are
interested in working this area. I think that's an area that you could
well look into more if you're interested in doing something really
different.
And so I just wanted to follow particularly what Ed was saying on
the public-private partnership arrangements. So I'm going to talk
primarily--rather strangely, again, because I'm British, but I live and
work here--so I'm going to talk about what's going on in the U.S. and
why it's so important perhaps even above and beyond the U.K. to take
action on these issues.
So first, with the JMLIT public-private partnership, there is
already an equivalent of the JMLIT in the U.S. It's called FinCEN
Exchange, so it's administered by the Treasury's Financial Crimes
Enforcement Network, which is the U.S.'s financial intelligence unit.
The difference is it's--it was introduced, I imagine, in response and
appreciation of the U.K.'s system about a year or two after it, I
think. However, I'll be perfectly honest, I've had no personal
interaction with this group, but from what I hear anecdotally it meets
far, far, far less than the U.K. JMLIT does, and I've even heard it
described offline as a--by someone working in the financial sector as a
sort of glorified mailing list.
So I think, like, the framework is there, and I think it's a really
good idea. I mean, it was a crucial idea, as Ed was outlining. And this
is something that would be really easy to build on and beef up in the
U.S. context, and it's something that you get a lot of feedback from
financial institutions all the time: We're sending all these SARs. You
know, the Treasury receives 55,000 suspicious activity reports a day,
and the banks aren't really sure always what's useful, what could they
improve on. So I think that's an absolutely critical area. And I think
the lesson to draw from the U.K. experience was everything Ed was
saying, frankly, like, about the outcomes they've had from that.
There's clearly a force multiplier to working closer with the people
who are the first line of defense when it comes to anti-money
laundering, the banks.
This has come up, actually, in legislation that's in the House
Financial Services Committee at the moment called the COUNTER Act. It
would--all it really does, though, is to sort of formalize FinCEN
Exchange. And it has a few other provisions, as well, not related to
Exchange that would improve public-private partnerships. For example,
establishing sort of innovation labs within FinCEN. Because one of the
problems that banks have at the moment is they run a risk when they
introduce new anti-money laundering systems that if it doesn't work and
they accidentally let through, you know, a billion dollars that's being
laundered through from Russia, the Treasury will come down hard on them
and say, well, this was a failure; we're going to fine you. And so what
the Treasury's being very good about at the moment is saying we'll give
you a little bit of leeway if you're experimenting in good faith with
good system. We will, you know, we'll work with you on that.
And I think that--I don't support particular legislation. So,
Hudson Institute, we never support specific legislation. But I think
the ideas in this act are really like the first step in the right
direction.
And just one final point on the JMLIT. It works--[inaudible]. I'm
aware that the--and it's not my area of expertise, so please don't ask
me in the questions--but the sort of privacy and data laws are a bit
stricter about what you can share between institutions, between law
enforcement in the U.S. So that is an issue that would have to be
worked around or legislated forward, but I think the benefits that Ed
was talking about just so clearly outweigh the--you know, the results
of doing nothing more than exists at the moment. So those are my
thoughts on the public-private partnership.
Moving on to the sort of bigger issue that's very much live on the
Hill at the moment, is the sort of--is the corporate beneficial
ownership issue. This is, obviously, like, a huge conversation. I
know--recognize many familiar faces I've spoken to in briefings and
things about this of ours. So there is also a legislative vehicle for
that. It's called the Corporate--well, I know that many offices are
working on this issue with potential legislation. At the House
Financial Services Committee there's a bill at the moment called--
introduced by Representative Carolyn Maloney called the Corporate
Transparency Act, and what that would do would create a private
beneficial ownership register. So not a public one like they have in
the U.K., but one that was accessible only to law enforcement, under
very strict and controlled circumstances, it has to be said. I was
surprised at how strict they were when I--[laughs]--when I learned
about them.
And it would also--I mean, the further complication you have in the
U.S. is the Federal system. In the U.K. it's pretty easy; if Parliament
wants to introduce a corporate beneficial ownership register, it just
tells the relevant department to create one. But in the U.S., of
course, you incorporate, you know, companies at the State level, so
that adds a--so who should run the register, you know, these questions
have been threshed out. I think there's a general agreement, you know,
it would--it makes sense to locate it at FinCEN, at the financial
intelligence unit. If this information is being gathered for use--for
national security purposes, for law enforcement purposes, it makes
sense to send that information straight to where it will be most
helpful.
And there's a--you know, as Mark alluded to, there's a growing and
absolutely huge coalition behind this now outside of Congress: all the
big banks, national security community, many think--my own think tank--
my project has supported this. We don't take institutional positions as
a think tank, but my project has supported this for, you know--ever
since we started as probably our major policy recommendation.
Obviously, the entire law enforcement community is behind it, faith
groups, all sorts. And I'll allude a bit more to why in a second.
But also, importantly, the administration has also signaled its
interest in advancing this as well. Steven Mnuchin has indicated as
such in this room. The Treasury, the DOJ, the FBI all testified--I
think it was last week in the Senate they all spoke of the overwhelming
need for their investigators to have access to corporate beneficial
ownership information in order to keep Americans safe.
And so I think there is a real movement. Now there's a real moment
where this could happen in the U.S. I'm very personally hopeful that it
will.
But as we're looking at the comparisons with the U.K. today I think
we need to bear in mind there's sometimes a bit of a tendency in the
U.S. to--and other stuff to work through it as well, that we sort of
start from scratch on this big idea. The U.K. has really done a lot of
the legwork, the hard work of gathering the evidence of the benefits
and the drawbacks of a corporate beneficial ownership register for us,
right? Like, all--you know, the minister and Ed and Mark all described
the--you know, the great benefits law enforcement has reaped from this.
But also, like, whether there's room for improvement, some of the
problems that you can encounter when you're setting one of these up--
like, just stuff like the data entry fields, which you wouldn't
necessarily think of.
So I do encourage if you're looking at this and you're a staffer,
then please do reach out to them, reach out to me, or whatever, and
there's a wealth of information already out there about how this can
work, the benefits it can give.
But I think even more so than the U.K. there is a an overwhelming
case. The U.S. has specific strengths and vulnerabilities, which means
that it's just so much more important for it to be the next country to
introduce a beneficial ownership register.
So first, I think just domestically--I mean, well, it's great if
you're a money launderer if you can get your stolen renminbi, rials,
whatever they are, if you want to get out of that into a safe, stable
currency and so on, which, you know, observes the rule of law. Now,
it's wonderful if you can get that into pounds; it's even better, to my
mind, if you can get it into dollars, which is the global currency,
right? So when you add that to the U.S.'s rule of law, you've got the
world currency, the most stable economy in the world, you guys are
becoming a magnet for dirty money.
And as the EU and the U.K. and other partners--Canada, for example,
is now taking action on this--as they begin to tighten up their own
systems, the bad guys are going to start looking for other places to
launder their money into. And I think if I was a bad guy the U.S. would
now be moving very, very swiftly up to the top of my list. I think the
only reason it's not perhaps at the top of the list at the moment is
the sheer aggression of U.S. law enforcement in pursuing criminals
around the world. They're the only country which has--the only agencies
which have the reach and the determination to hunt bad actors through
the global financial system. But imagine how much more powerful they'd
be if they did have access to this information.
And so there's a couple of specific issues in the U.S. which the
U.K. doesn't have, which I'm thinking particularly of the opioid crisis
and sort of human trafficking that goes on down by the border. You
know, that's all very well to try and stop those specific activities,
but people don't do--criminals don't do those for fun; they do them for
profit. And so one of the most important things we can do to
disincentivize that is to remove the proceeds--their ability to launder
the proceeds of crime from those activities. And that's why I think
domestically speaking, at least, the need for a beneficial ownership
register is so great.
But my--that's not my sort of specific area. What I look at is the
sort of international aspect of this. And my great concern is that at
the moment this is absolutely--this issue is, like, killing many
aspects of the U.S.'s economic statecraft overseas. So if we take, for
example, first, there's a--you know, over the past couple of years
we've seen absolute blizzards of sanctions coming out of the Hill and
coming out of the administration. The inability to track and--like, who
controls assets, frankly, like, makes a mockery of the U.S. sanctions
regime. How can you expect the Treasury to sort of, you know, enforce
sanctions when it can't--it doesn't know who owns what within its own
territory? It's a no-brainer as far as improving--you know, making a
sort of more powerful sanctions regime.
I mean, the most egregious example of sanctions evasion, to my
mind, took place right here on U.S. soil. It was sanctioned U.S.--
Iranian entities were able to maintain control of a--of a skyscraper in
the--in the heart of Manhattan, a huge skyscraper, using an anonymous
U.S. shell company. They went undetected for 20 years before U.S. law
enforcement was able to seize--discover this and seize the building off
of them.
I'm also interested at the moment in how the administration's
attempts to take on China's sort of economic malpractices is being
undermined by this. China is the sort of global hub for illicit trade.
Counterfeit goods, you know, the opioids that are killing Americans,
this stuff just floods out of China. And the profits for all this
illicit trade are all too often laundered through anonymous shell
companies. And you guessed it by now; it's getting to be a pretty tired
script, right? And I think if--and naturally, that goes up to a higher
level as well. Some of the big State-owned Chinese companies that were
sort of--I won't name names because they're pretty powerful people--
[laughs]--but you know, the Trump administration is trying to take on
some of these people. We don't know who owns them. They conceal their
ownership. And the reason they do that is to hide the fact that they're
being controlled from Beijing by the CCP--by the Chinese Communist
Party. They're being used as tools of economic warfare against us. And
we--you know, if we were--it would put a real twig in their spokes if
we were to suddenly say, hang on a minute, you can't actually even do
business in the West unless you tell us who actually is owning you and
controlling you.
So I think that sort of leads on to the final sort of point I just
wanted to make, because I know you all have questions and stuff. Just
really quickly--I think all the talk of law enforcement is really
important. That's, obviously, the primary, absolute, and overwhelming
need to introduce this register. But the other really important thing
that it would do, it would also empower your diplomats. At the moment,
whether it's the State Department or the Treasury, international
meetings relating to economic stuff--anti-money laundering policy,
sanctions policy--this issue of beneficial ownership is bogging them
down and it keeps getting turned back at them, and it's distracting
from what should be the great project of American economic statecraft
at the moment, which is rolling back malign economic influence of
strategic rivals like China, like Iran, like Russia, like Venezuela,
regimes that use--see no distinction between politics and economics,
and use the global financial system to advance their political aims at
the expense of the U.S.
One of the most important things is one of the things that's been
least talked about, which is the morning after the U.S. creates a
beneficial ownership register there will probably be no immediate--you
know, you're not going to see hundreds of people led off to jail or
something like that. In the U.K. it's taken time for prosecutions and
things that have--you know, arise from the information they get from
this thing to churn through, right? What you will see is the U.S.'s
diplomats, its anti-money laundering policy officials empowered to
suddenly take the fight to the U.S.'s strategic rivals I was
mentioning. At the moment they've got us on the back foot. They are
using our economies to launder money, to project their interests,
project their influence, to--and above all to shape--reshape either--
well, in the case of somebody like Russia, to completely undermine
global norms and destroy them just to hurt us. In the case of somebody
like China, to--more to remold those global norms and values so that
they're amenable to their way of doing things. It's not a way of doing
things with which we agree in the West. It doesn't involve the rule of
law, it's very personalized, and it's a conduit for corruption. As
anyone who's read about the way in which the Belt and Road project
investment--development investment project, as they say it is, has
spread across Eurasia, it has done so on the back of corrupt deals and
bribes and so on. So I think this, you know, above all else, this will
just--the day after this is passed, this will put America on a moral
and operational platform, frankly, to just like reinvigorate the
capitalism that made you great and that should continue to--for this to
be an American century, frankly.
So thanks. I'll probably hand it back over because we're running
out of time. [Laughs.]
Mr. Massaro. No, thank you, Nate. And the way you're approaching
that from the sort of foreign policy perspective, how this weakens U.S.
foreign policy and jeopardizes national security, I mean, that
perspective is so, so valuable. And I agree that it gets short shrift,
especially from the sanctions perspective, at a time when sanctions are
being used again and again and again. The number one thing we could do
to strengthen U.S. sanctions is to get something like this in place. I
mean, hands down, you know? So thank you very much, Nate.
And with that, let's move on to the Q&A. As I had mentioned at the
beginning, we're going to have to end at 10:15 today, so I'm going to
abstain from taking moderator's prerogative. If you could raise your
hand, I'll call on you, and then we got a--you actually need to come up
to the witness table, take a seat in the hot seat, turn the mic on, and
ask a question. But do we have any questions from the audience? Don't
be shy about it. Okay, please.
Questioner. Hi. My name's Costanza [sp]. And I----
Mr. Massaro. Can you turn the mic on? Yes, thanks. And yes, name
and affiliation, please. Thank you.
Questioner. It's not working. I'll just project.
Hi. My name's Costanza [sp] and I work in Representative Elijah
Cummings' office.
And my question is about how can we on the Hill kind of help get
this process moving forward to implement or pass legislation about
transparency. And what kind of hurdles do you see currently in
Congress?
Mr. Massaro. I would say it's a Mark or Nate question. Perhaps Mark
would like to take that?
Mr. Hays. Sure, I'll give it a try. Thank you for your question,
Costanza [sp].
I think probably offhand I would say the first thing is to ask your
Members of Congress to speak to their colleagues, particularly on the
House Financial Services. One of the unique aspects of this issue is
that, you know, anonymous shell companies appear in nearly any scenario
in which illicit activity generates money. Nate has alluded to this. My
colleagues have alluded to it. But whether you're concerned about human
rights, wage theft, human trafficking, contract fraud, Medicare fraud,
it's a very long list, unfortunately. What that means is if your member
or another member have a legislative priority that focuses on some
aspect of illicit activity, chances are there's going to be some
thematic overlay between that and this issue. And I think by having
your members communicate that relevance and having us help you make
that case, I think the leadership of the House Financial Services,
who's already doing good work on this and is making progress, will see
that this issue is priority beyond the scope of their interest and is
actually one that touches a wide range of interests for Members of
Congress.
In terms of barriers, I guess I would say that's probably a good
question to put back to some of your members because a lot of this has
to do with the internal political process and how decisions get made
and priorities are set within committees. I guess I would say we've now
built the case externally from a stakeholder perspective. There are
Members of Congress who are making the case internally, along with
their staff. In some cases our biggest enemies are time and confusion.
This is a complex issue and it takes time to sort through the issues.
Once you see the picture it's pretty reasonable and self-evident, but
it takes time to get there. So making sure your members and your
colleagues have the time to work through the materials provided by our
organization, by the FACT Coalition of which we're a member who's led a
lot of this work, and coalition of others by the Hudson Institute,
working through that and really understanding the basics will go a long
way toward making sure that members can--once this is presented to
them, the opportunity to vote on it, they understand the relevance and
can move forward on it.
Mr. Massaro. Thanks very much.
Could we get another question? Please. I guess maybe if you just
want to turn on one of those mics on the stand and speak into it. Oh,
it's working! [Laughs.]
Questioner. Yes? Okay. My question is--Capitol Intel.
One of the most successful corporate transparency and
anticorruption devices is the U.S. Security [sic; Securities and]
Exchange Commission use of media as a trigger for investigations. One
of the biggest problems we find is prosecutors--DOJs, those guys--will
not do their jobs until they're forced to that. So any public mention
of a corruption, ill-gotten gains should automatically open an
investigation by law enforcement of that. Mr. Penrose, you know, U.K.
bribery is really problematic, as almost everything's illegal.
And the second question is, for Mr. Penrose, with Brexit, either if
it happens or not, all your overseas territories, are they now becoming
highly regulated by the EU and other authorities?
Thank you.
Mr. Massaro. Can we get your name and affiliation real quick? I'm
sorry.
Questioner. Yes. I'm Peter Semler. I'm the chief executive editor
of Capitol Intelligence Group. We're, like, worldwide experts on CPA
enforcement and also U.K. bribery and places like Libya.
Thanks.
Mr. Massaro. Great. Thank you.
P.M. Penrose. I'll try and address those quickly to allow other
people to answer questions--ask questions as well.
You are right, absolutely, sir, that even when you have the most
independent, the most committed, the most professional investigative
agencies, they have to prioritize. They have to put things at the top
of the pile or further down. And sometimes public opinion on what is
egregious and wrong can get them to reprioritize and to add extra focus
to something, yes, absolutely. Also, sometimes press reporting can get
more people to come forward as witnesses or as examples, and that can
help a previously stalled investigation move forward. So you are
absolutely right about the effect of public shame, public outrage. That
matters.
It helps--it's easier to do that with an open register, but you
know, we've got to start wherever we can. So closed registers, you can
get quite a long way with that. The advantage of the open register, we
found, for Britain at least--this may not apply in the U.S.--is that it
is easier to get the public square engaged, not just through press but
more generally. If you have an outraged middle class, digitally
equipped, anywhere in the world that can see that the leaders of
whichever developing nation it is have stolen half that nation's GDP
and have invested it in real estate in London or in Manhattan, that's a
very, very powerful political force, and it doesn't have to be a
democracy to be shaken to its roots if that stuff becomes public.
You also asked about Brexit and the British Overseas Territories. I
was mentioning earlier on that, you know, Britain does not have a
monopoly on virtue here. We have further to go. We are in the process
of getting our overseas territories--it's mainly a series of islands in
warm seas dotted around the world--we're in the process of getting
those different territories to introduce their own registers as well.
They're starting from further back. Some of them are still recovering
from hurricane damage from a couple of years ago, and many of them
don't have financial sectors worth the name either, but some of them
do. So, yes, we acknowledge that as one of the areas where we have to
make progress. We have already made some, but it's an area we have
further to go.
Mr. Massaro. Thanks.
And I think we have time for maybe one or two more questions. Other
questions from the audience?
[Pause.]
Okay. I'll ask a question, then. Thanks.
So, Minister Penrose, I guess to the point of kind of the
commission's major interest in this--and that is how authoritarian
regimes are operating and pushing their influence through the global
financial system--I think maybe one of the most visceral and
frightening examples of this has been the attempted assassination of
Sergei Skripal and sort of the fallout around that on U.K. soil. I
mean, this was a terrorist act on the soil of the United Kingdom by
Russia, you know? [Laughs.]
So I'm just interested in your perspective on how this has played
out in the sphere of anti-illicit finance, anticorruption, and what the
United Kingdom is doing in response to this egregious act.
P.M. Penrose. Thank you, Paul. And this is something which brought
it home to the U.K. and I think it probably brought it home to other
countries around the world as well, because until this moment most of
the public debate, at least in the U.K., had been mainly around
organized crime. That's a very serious problem. I'm not trying to
minimize it. It's broad-based and there's a whole range of different
activities. As Nate rightly said, criminals don't do crime for fun;
they do it for money. And that was the major focus of attention.
With the advent of the attempted poisoning of the Skripals and
eventually also, you know, clear evidence that it was Russian State
actors behind it, that broadened the concern very greatly. And it was,
incidentally, incredibly impressive, and I think Britain is enormously
grateful to the international coalition around the world, including the
USA, where diplomatically everybody said this is wrong and we will not
put up with this, and there was coordinated diplomatic action right the
way around the world from people who care about our rules-based
international system to say this is--you know, this is something which
deserves public censure, and there were consequences that flowed.
And I think it brought it home not just to us, but to many other
countries around the world, therefore, that we aren't just dealing with
the organized criminals--although there may be an intersection between
them and some sort of state actors--but we're also dealing with people
who want to undermine our way of life and our society. And if you
consider that the USA and the U.K. are, you know--if any two countries
are behind the current global rules-based system, it's our two
countries. We helped set this up over the last two global wars.
And you know, we need to make sure that this thing carries on and
is not undermined by people who want to pretend that it is somehow
invalid and lacking in legitimacy. It is absolutely essential,
absolutely critical that we do not allow that to happen, because make
no mistake, an awful lot of the populist rhetoric right the way through
the developed world--Western Europe has it in spades in all the
different countries in Western Europe, happens in North America too--
the populist rhetoric about saying this system is corrupt, it is
slanted, it is rigged against the people it purports to serve, that is
the thing which will ultimately do for us if we let it.
And so, yes, the effect of foreign state actors is crucial. But as
I said, you know, it doesn't--whatever the USA decides it wants to do
in terms of, you know, not a public register, a private register open
to investigators, okay. But the crucial thing here is just remember,
ladies and gentlemen, first, it's really cheap to set one of these
things up. You can do one of these things, set it up and maintain it
for less money than it costs you to build a few kilometers of road.
It's that easy. And just think of the benefits that you can get.
If you can make it available to your financial sector, then their
know-your-customer requirements dramatically become cheaper, faster,
easier, and more accurate. If you wanted to go further--you don't have
to, but if you did want to go further and make it available to some of
your corporate facilitators--so your lawyers, your accountants, your
realtors as well--then their know-your-customer stuff, they will thank
you in spades for that because their know-your-customer requirements
suddenly become dramatically easier, simpler, faster, and cheaper as
well. The amount of red-tape reduction you can get from having one
place that tells people authoritatively what the answer is as to
whether or not I should do business with this supplier or that
customer, whether or not I should accept their account or not, I can
get to that answer fast, reliably, and cheaply, is enormously powerful.
It's economically sensible, as well as you rightly point out, Paul--
politically, too.
Mr. Massaro. Well, thank you very much, Minister Penrose. And
thanks so much to the whole panel. If you're talking price tag I think
you know your audience here, so that's great.
Thank you all so much for coming. And hope you learned something.
See you around.
P.M. Penrose. Thank you. [Applause.]
[Whereupon, at 10:15 a.m., the briefing ended.]
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