Offshore Crime Inc wins Daniel Pearl Award for investigative journalism

TJN is delighted that a long term investigation into how Eastern European criminals and politicians have been using secrecy jurisdictions to hide the proceeds from their crimes has been selected as one of the two overall winners of this year's Daniel Pearl Award for cross-border investigative journalism. TJN has been consulted by some of the journalists involved in this lengthy investigation, along with our colleagues at Global Financial Integrity and Global Witness, and our Financial Secrecy Index, which placed the USA at the top of the rankingm in 2009, and drew specific attention to how Delaware, Nevada and Wyoming provide offshore secrecy, is also cited in the report.

We have always argued that secrecy induces criminality and secrecy jurisdictions provide a supply side environment that encourages criminal activity. In social science terms, secrecy jurisdictions create a 'criminogenic' economy, in which criminal behaviour is significantly more profitable than productive activity. The markets adapt accordingly, which explains why so many major banks have been under investigation for supporting criminal clients. The journalists behind this project came to similar conclusions about how secrecy jurisdictions shape market behaviour:

"East European criminals and corrupt politicians have found in offshore havens a tool so perfect that it has permanently changed how business is done in the region. By using offshore laws that stress secrecy over everything else including crime prevention, they have been able to set up networks of offshore companies where they can hide their assets from police, launder their money and evade taxes all at the same time."

Happy days for criminals, and also for the pinstripe mafia of bankers, accountants and lawyers who cash in magnificently on the fees charged for setting up the complex hybrid offshore structures. From our own experiences of investigating offshore, it is clear that these players are as culpable as the criminals they serve. Commenting on the top award going to the team behind the Organised Crime and Corruption Reporting Project (OCCRP), one of the judges noted how “Reporters from OCCRP went undercover, which allowed them to meet business agents, lawyers and others who advised them how to set up phony offshore accounts, cheat on taxes, even buy turnkey money laundering and tax evasion services.”

Taking a look here at the range of secrecy jurisdictions involved in this project shows just how widely organised crime spreads its activities across the globe, and also confirms our view that small islands are especially vulnerable to being abused by criminals wanting secrecy combined with lax regulation. OCCRP selected the Seychelles to demonstrate the ease with which offshore companies can be formed, but Jason Sharman, who is also cited several times in the report, has shown that lax know your client rules and weak disclosure requirements can also be found in major jurisdictions like the United Kingdom and the United States.

Unsurprisingly, the journalists involved in the OCCRP identify a range of solutions to these problems, and stress the importance of applying these solutions across the board, including to powerful players like the UK and USA. Here are their summary recommendations:

Needed are better laws addressing:

• Transparency of company ownership. Jurisdictions must have a way to find out who the really owns companies and a method to close loopholes that make shells operate, such as use of proxies or bearer shares.
• Regulation of agents who set up companies. The US and the UK have no rules on lawyers and others who incorporate companies.
• Imposition of restrictions on non-residents who want to set up companies in the US and the UK.
• International standards and cooperation. A mishmash of organizations that are involved in money laundering and economic transparency – from the Financial Action Task Force (FATF), the group of 20 major world economies known as the G20, and the wealthy countries’ club known as the OECD – need to get as tough on their own members as they are on traditional secrecy jurisdictions in the Caribbean.

All good stuff, and perfectly practicable if there were genuine political will on the part of G20, OECD, et al, to carry this agenda forward. Sadly, therein lies the problem: too many politicians tied - financially and otherwise - to the key actors in this process.

Anyway, to end on an upbeat, congratulations to the many journalists involved in the OCCRP for deservedly winning this prestigous award.