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Focus on misuse of corporate vehicles

Our Bureau

NEW DELHI, July 12

CORPORATE vehicles ranging from trusts and corporations to foundations and partnerships are often misused for money laundering, bribery and corruption, shielding assets from creditors, tax evasion, self-dealing, market fraud and other illicit activities.

This realisation among Governments and regulatory bodies needs to be set against the presumption that corporate vehicles underpin most commercial and entrepreneurial activities in market-based economies and have led immensely to growing prosperity worldw ide over recent decades.

OECD said on Thursday that the rapid flows of private capital, ideas, technology and goods and services involve corporate vehicles at virtually every level.

It is against this backdrop that G-7 Finance Ministers earlier this month hailed a report by the Paris-based inter-Governmental think tank of 29 rich industrial countries on the misuse of corporate vehicles for illicit purposes.

One of its principal conclusions is that the types of corporate vehicles misused most frequently include those that provide the greatest degree of anonymity to their beneficial owners.

With this in view, the OECD report calls on Governments and other authorities to ensure that they are able to obtain information on the beneficial ownership and control of corporate vehicles, so as to combat their misuse for illicit purposes.

In May 2000, the Financial Stability Forum Working Group on Offshore Financial Centres made a plea to the OECD to explore the issue of developing mechanisms to prevent the misuse of corporate vehicles by ensuring that supervisors and law enforcement auth orities are able to obtain on a timely basis information on the beneficial ownership and control of corporate vehicle and to share that information with foreign authorities.

This requires adherence to three fundamental objectives such as (i) beneficial ownership and control information must be maintained or be obtainable by the authorities; (ii) there must be proper oversight and high integrity of any system for maintaining or obtaining beneficial ownership and control information and (iii) non-public information on beneficial ownership and control must be able to be shared with other regulators/ supervisors and law enforcement agencies, both domestically and international ly for the purpose of investigating illicit activities and fulfilling their regulatory functions.

Accordingly, OECD released a report recently examining the misuse of a host of corporate vehicles with limited liability features. The report recommends that governments and other relevant authorities should required upfront disclosure of beneficial owne rship and control information to the authorities upon the formation of the corporate vehicle; oblige intermediaries involved in the formation and management of corporate vehicles, such as company formation agents, trust companies, lawyers, trustees and o ther professionals to maintain such information; launch investigations to obtain beneficial ownership and control information when illicit activity is suspected.

The report is to be submitted to the Financial Stability Forum at its next meeting to be held in September, 2001, OECD said.