The Puppet Masters: How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It

Overview

Billions in corrupt assets, complex money trails, strings of shell companies and other spurious legal structures. These form the complex web of subterfuge in corruption cases, behind which hides the benefi cial owner?the puppet master and benefi ciary of it all. Linking the benefi cial owner to the proceeds of corruption is notoriously hard. With sizable wealth and resources on their side, they exploit transnational constructions that are hard to penetrate and stay aggressively ...

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The Puppet Masters: How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It

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Overview

Billions in corrupt assets, complex money trails, strings of shell companies and other spurious legal structures. These form the complex web of subterfuge in corruption cases, behind which hides the benefi cial owner—the puppet master and benefi ciary of it all. Linking the benefi cial owner to the proceeds of corruption is notoriously hard. With sizable wealth and resources on their side, they exploit transnational constructions that are hard to penetrate and stay aggressively ahead of the game.

Nearly all cases of grand corruption have one thing in common. They rely on corporate vehicles —
legal structures such as companies, foundations, and trusts—to conceal ownership and control of tainted assets.

The Puppet Masters: How the Corrupt Use Legal Structures to Hide Stolen Assets and What to
Do About It takes these corporate vehicles as its angle of investigation. It builds upon cases,
interviews with investigators, corporate registries and fi nancial institutions, as well as a “mystery shopping” exercise that provide factual evidence of a criminal practice. This approach is used to understand the nature of the problem and design policy recommendations to facilitate the investigative process by unraveling the complex world of corporate vehicles.

This report is solidly built on step-by-step arguments and designed to deliver practical, applicable,
and well substantiated recommendations. It is intended for use by policy makers in developing national legislation and regulation as well as international standard setters. It also provides helpful information for practitioners engaged in investigating corrupt offi cials and academics involved in the study of fi nancial crime.

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Product Details

  • ISBN-13: 9780821388945
  • Publisher: World Bank Publications
  • Publication date: 11/3/2011
  • Series: StAR Initiative
  • Pages: 284
  • Product dimensions: 6.90 (w) x 9.90 (h) x 0.60 (d)

Table of Contents

Foreword ix

Acknowledgments xi

Abbreviations xv

Executive Summary 1

A Significant Challenge 1

The Elusive Beneficial Owner: A Call for a Substantive Approach 3

Wanted: A Government Strategy 4

The Advantages of Service Providers 5

Why Service Providers Should Be Obligated to Conduct Due Diligence 5

Enforcing Compliance 6

Attorneys and Claims of Attorney-Client Privilege 6

A Two-Track Approach 7

Why Due Diligence Is Not Enough 8

Enhancing the Skills and Capacity of Investigators 8

Transnational Investigations 9

Building a Transnational Case 9

Conducting Risk Analysis and Typologies 9

Part 1 The Misuse of Corporate Vehicles 11

1.1 Introduction 11

1.2 Objective of This Report 13

1.3 How to Use This Report 15

Part 2 The Beneficial Owner 17

2.1 Introduction 17

2.2 Origin of the Term "Beneficial Owner" 18

2.3 Defining Beneficial Ownership: The Theory 19

2.4 Applying the Concept of Beneficial Ownership in Practice 23

2.5 The Service Providers Perspective 26

2.6 Conclusion and Recommendations 29

Part 3 Where Does the Beneficial Owner Hide? 33

3.1 Introduction 33

3.2 Corporate Vehicles: Types and Features 33

3.3 Conclusion and Recommendations 65

Part 4 Finding the Beneficial Owner 69

4.1 ntroduction 69

4.2 Company Registries 69

4.3 Trust and Company Service Providers 84

4.4 Financial Institutions 97

4.5 Conclusion and Recommendations 102

Appendix A Compliance with Financial Action Task Force on Money Laundering (FATF) Recommendations 5,12,33, and 34 109

Texts of FATF Recommendation 5 and Recommendation 12 109

Texts of FATF Recommendation 33 and Recommendation 34 112

Appendix B The Five Component Projects: Methodology and Summary of Findings 117

Project 1 The Grand Corruption Database Project 117

Project 2 The Bank Beneficial Ownership Project 122

Project 3 The Trust and Company Service Providers Project 134

Project 4 The Registry Project 143

Project 5 The Investigator Project 144

Appendix C Short Description of Selected Corporate Vehicles 159

Legal Persons 159

General Partnerships 159

Limited Partnerships 161

Companies 161

Limited Liability Company 164

Foundations 165

Legal Arrangements 165

The Trust 165

Appendix D Grand Corruption: 10 Case Studies 171

Case Study 1 Bruce Rappaport and IHI Debt Settlement 171

Case Study 2 Charles Warwick Reid 175

Case Study 3 Diepreye Alamieyeseigha 179

Case Study 4 Frederick Chiluba 183

Case Study 5 Jack Abramoff 187

Case Study 6 Joseph Estrada 193

Case Study 7 Saudi Arabian Fighter Deals and BAE Systems 198

Case Study 8 Pavel Lazarenko 202

Case Study 9 Piarco International Airport Scandal 207

Case Study 10 Telecommunications D'Haiti 212

Appendix E An Overview of Corporate Vehicles in Selected Jurisdictions 219

Glossary 265

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