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From The World Bank Group
The Puppet Masters 
How the corrupt use legal structures to hide stolen assets and what to do about it.
E. vand der Does de Willebois et al -  October 2011

Contents - Foreword - Acknowledgments - Abbreviations

Executive Summary

Research carried out for this report shows that these cases of “grand” (that is, largescale) corruption are not untypical. Such cases can be found around the world, in both industrial and developing countries, whether as the place that the proceeds originate from or as the place they eventually end up. A review of some 150 cases carried out as part of this study showed that they shared a number of common characteristics. In the vast majority of them,
--a corporate vehicle was misused to hide the money trail;
--the corporate vehicle in question was a company or corporation;
--the proceeds and instruments of corruption consisted of funds in a bank account;
--in cases where the ownership information was available, the corporate vehicle in question was established or managed by a professional intermediary.

This report casts light on how corporate vehicles are misused to conceal the proceeds of grand corruption. It describes how providers of legal, financial and administrative (management) services—including banks, financial institutions, lawyers, accountants, and other professionals that are known as trust and company service providers (TCSPs)—can be employed to facilitate such schemes. While this report focuses on the use of front companies and the abuse of corporate opacity to conceal corruption, the weaknesses highlighted in this report are not specific to corruption. There is evidence of similar misuse of legal entities, legal arrangements as well as charities, in the context of other criminal and illicit behaviors, including escaping international sanctions and the funding of terrorist organizations.

A Significant Challenge
The Elusive Beneficial Owner: A Call for a Substantive Approach
Wanted: A Government Strategy
The Advantages of Service Providers
Why Service Providers Should Be Obligated to Conduct Due Diligence
Enforcing Compliance
Attorneys and Claims of Attorney-Client Privilege
A Two-Track Approach
Why Due Diligence Is Not Enough
Enhancing the Skills and Capacity of Investigators
Transnational Investigations
Building a Transnational Case
Conducting Risk Analysis and Typologies

Part 1. The Misuse of Corporate Vehicles

Suppose you want to give someone some money, and because it is for an illegal purpose, you do not want anyone else to know about it. What would you do? You could hand it over in cash—but that might be difficult if it were a large sum of money or if the recipient lived a long way away. Alternatively, you could transfer funds from your bank account to the recipient's—but then your respective banks would know about it. And they might tell the police, or at least they might offer information if the police came knocking. So your ideal solution would involve a bank account that you control, but that no one can link to you—or at least only with the greatest difficulty.
That, in a nutshell, is the starting point for this study: people who are trying to find ways of sending or receiving funds or assets while concealing their involvement. The funds in question derive from bribery, embezzlement of public funds, or other forms of corruption. In the past, people hid their involvement with funds through anonymous bank accounts or accounts in fictitious names. This option, however, is becoming increasingly less available. So now the preferred method is to use a legal entity or arrangement, known (in the terminology of the Organisation for Economic Co-operation and Development [OECD]) as a “corporate vehicle.”

1.1 Introduction
1.2 Objective of This Report
1.3 How to Use This Report

Part 2. The Beneficial Owner

In Part 2, we focus on the beneficial owner(s)—the person (or group of people) who have an interest in or control over ill-gotten gains (property or financial assets) and who are trying to conceal the fact through the misuse of corporate vehicles.

2.1 Introduction
2.2 Origin of the Term “Beneficial Owner”
2.3 Defining Beneficial Ownership: The Theory
2.4 Applying the Concept of Beneficial Ownership in Practice
2.5 The Service Provider’s Perspective
2.6 Conclusion and Recommendations

Part 3. Where Does the Beneficial Owner Hide?

This study revealed that, in the vast majority of grand corruption cases we analyzed, corporate vehicles—including companies, trusts, foundations, and fictitious entities— are misused to conceal the identities of the people involved in the corruption. Of these corporate vehicles, the company was the most frequently used. Investigators confirmed this misuse, noting that locating information about the person who is in control of a corporate vehicle was essential to any large-scale corruption investigation, and indeed, to almost any large-scale organized-crime investigation. Despite the widespread misuse of corporate vehicles for criminal purposes (including corruption, financing terrorism, money laundering, and fraud), most countries have no coherent strategy to tackle this problem. This chapter identifies the types of corporate vehicles used to conceal the identity of the person involved in the corruption and other obstacles that investigators may face. An overview of each of these corporate vehicles is given in appendix C.

3.1 Introduction
3.2 Corporate Vehicles: Types and Features
3.3 Conclusion and Recommendations

Part 4. Finding the Beneficial Owner
4.1 Introduction
4.2 Company Registries
4.3 Trust and Company Service Providers
4.4 Financial Institutions
4.5 Conclusion and Recommendations

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

Appendix B. The Five Component Projects: Methodology and Summary of Findings
Project 1. The Grand Corruption Database Project
Project 2. The Bank Beneficial Ownership Project
Project 3. The Trust and Company Service Providers Project
Project 4. The Registry Project
Project 5. The Investigator Project

Appendix C. Short Description of Selected Corporate Vehicles
Legal Persons
General Partnerships
Limited Partnerships
Limited Liability Company
Legal Arrangements
The Trust

Appendix D. Grand Corruption: 10 Case Studies
Case Study 1: Bruce Rappaport and IHI Debt Settlement
Case Study 2: Charles Warwick Reid
Case Study 3: Diepreye Alamieyeseigha
Case Study 4: Frederick Chiluba
Case Study 5: Jack Abramoff
Case Study 6: Joseph Estrada
Case Study 7: Saudi Arabian Fighter Deals and BAE Systems
Case Study 8: Pavel Lazarenko
Case Study 9: Piarco International Airport Scandal
Case Study 10: Telecommunications D’Haiti

Appendix E. An Overview of Corporate Vehicles in Selected Jurisdictions


2.1 The Origin of the Trust
2.2 Basic Attempt at a Concealment
3.1 Setting Up a Shell Company
3.2 Misusing a Shell Company
3.3 Using Shelf Companies to Conceal Ownership of Bank Accounts
3.4 A Typical Advertisement for “Shelf Corporations and Aged Corporations”
3.5 Laundering Money through a Front Company
3.6 Setting Up Companies with Bearer Instruments
3.7 Misusing a Bearer-Share Company
3.8 Misusing a Trust
3.9 Hiding the Proceeds of Corruption in a Charitable Foundation
3.10 Receiving Fraudulent Government Contracts by a Partnership
3.11 Laundering Money through a Sole Proprietorship
3.12 “Chaining” Corporate Vehicles to Conceal Beneficial Ownership
3.13 Developing a “Nose” for Inappropriate Complexity
3.14 Setting up Formal Nominee Arrangements for BCP Consolidated
Enterprises (Nevada)
3.15 The Opacity Benefits of Using Nominees
3.16 Finding the Front Men: An Insider’s View
3.17 The Control of Corporate Vehicles by a Front Man

The Case of Former President Augusto Pinochet (Chile)[a]
Former Chilean president Augusto Pinochet funneled illicit proceeds through foreign corporate vehicles that named his family members and other close associates as the owners and controllers. For instance, Meritor Investments Ltd., Redwing Holdings, and a trust numbered MT-4964 were foreign corporate vehicles beneficially owned by Pinochet’s son, Marco Antonio Pinochet Hiriart and his daughter Ines Lucia Pinochet. Bank accounts were also opened under the names of these two persons, as well as another daughter of Pinochet, Maria Veronica Pinochet. Oscar Custodio Aitken Lavancy, an attorney who had ties to Pinochet, controlled six other corporate vehicles involved in the scheme. Pinochet’s family members and Aitken effectively served as front men for Pinochet, allowing him to disassociate his name from the scheme while maintaining control over the assets.
Note: a. Facts confirmed in U.S. Senate Committee on Governmental Affairs, Permanent Subcommittee on Investigations, “Money Laundering and Foreign Corruption: Enforcement and Effectiveness of the Patriot Act, Case Study Involving Riggs Bank,” Report prepared by the Minority Staff of the Permanent Subcommittee on Investigations (July 15, 2004), available at (last accessed August 14, 2011). more

3.18 The Experience of the United States
4.1 The Jersey Model
4.2 Tracking Down Disqualified Directors: United Kingdom
4.3 The Directors Index: Hong Kong SAR, China
4.4 Information Sharing and Financial Reporting Systems: Singapore
4.5 Establishing a Legal Entity Involving More Than One TCSP
C.1 The Liechtenstein Anstalt
C.2 The Panamanian Foundation
C.3 The British Virgin Islands VISTA Trusts

3.1 Example of a Complex Legitimate Corporate Vehicle Structure
4.1 Types of Information on Corporate Vechicles Collected by Registries
4.2 The Balancing Act of the Corporate Registry
4.3 Extensive Online Search Facilities Publicly Available at the Company Register of Dubai International Financial Centre
4.4 Extensive Online Search Facilities Publicly Available at the ICRIS Cyber Search Centre in Hong Kong SAR, China
4.5 Types of Information Made Available Online by Registries
4.6 Requirement to Provide ID in Forming Companies (Sampled OECD Countries)
4.7 Requirement to Provide ID in Forming Companies (Other Countries)
4.8 Requirement to Provide ID in Forming Companies (Worldwide)
A.1 FATF Recommendation 5
A.2 FATF Recommendation 12
A.3 FATF Recommendation 33
A.4 FATF Recommendation 34
B.1 Questionnaire: Financial Institutions’ Rules on Beneficial Ownership
and Their Implementation
B.2 Questionnaire: Investigator Project
C.1 Composition of Economic Activity Undertaken in the United States
as Ascertained by Internal Revenue Service Tax Data

3.1 Two Examples in Which the Registration of Corporate Directors
Is Addressed in Law
3.2 Examples in Which Nominees Are Addressed in Law
B.1 Grand Corruption Cases Database: Case Summary
B.2 Grand Corruption Cases Database: Corporate Vehicles
B.3 Grand Corruption Cases Database—Key Statistics
B.4 Complete Results of First Audit Study
B.5 Complete Results of Second Audit Study (noncompliant responses
in italics)
B.6 Combined Results
E.1 Companies
E.2 Exempt/International Business Companies
E.3 Limited Liability Companies
E.4 Partnerships
E.5 Limited Partnerships
E.6 Trusts
E.7 Foundations

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