Kyrgyzstan: Lax Western Regulations Make Money-Laundering Easy – Report

Since coming to power in April 2010, Kyrgyzstan’s government has said that the family of deposed President Kurmanbek Bakiyev and his associates used the country’s largest bank to launder and export vast amounts of cash. A new report by Global Witness, an anti-corruption watchdog, says lax Western banking regulations abetted such alleged criminal activities.

After Bakiyev and his notoriously venal family were overthrown in April 2010, the interim government promptly nationalized AsiaUniversalBank (AUB); the bank’s former managers claim the charges are politically motivated. The European Bank for Reconstruction and Development, in an audit, appears to support Bishkek’s money-laundering claims. The former president is living in Belarus; his son Maxim has sought asylum in the UK.

But the case points to a larger problem, says Global Witness in the report, “Grave Secrecy”: It is too easy to set up a fake company in many Western countries “to launder the proceeds of corruption, tax evasion and other crimes.” The UK, New Zealand, and states such as Delaware “are effectively permitting hidden company ownership” and doing little to enforce anti-money laundering laws. “This matters because ‘shell’ companies – entities that are little more than just a name on a piece of paper – are key to the outflow of corrupt money that keeps poor countries poor.”

“It is so easy to set up a secretive ‘shell’ company in the UK and elsewhere that criminals, terrorists and corrupt politicians can easily move money around the world with impunity,” said Tom Mayne, a Global Witness campaigner, in a statement. “Not only that but you can do this perfectly legally. This denies citizens of poor countries the chance to lift themselves out of poverty and leaves them dependent on aid.”

Though it is not able to establish where the money came from, Global Witness says $1.2 billion passed through AUB accounts of three UK-registered corporate fronts, including, according to one Kyrgyz official, money from the state budget intended for pensions. About $700 million passed through the account of a UK company “owned” by a dead Russian man: Somehow the Russian had set up the company three years after his death; no one noticed because British authorities do not require companies to submit the name of a company’s beneficial owner to a public registry.

Former AUB chairman Mikhail Nadel spoke with Global Witness and denied allegations of money laundering; Maxim Bakiyev was, surprise, unavailable for comment.

Some more takeaway:

--That three UK companies had US$1.2 billion running through their accounts despite not being involved in any real business that Global Witness could ascertain.

--That the suspicious transactions went through many banks around the world, with the largest amounts passing through Citibank in New York, the UK’s Standard Chartered and Austria’s Raiffeisen Zentralbank. These banks continued their relationship, though one bank, UBS, was sufficiently concerned about their relationship with the Kyrgyz bank that it broke off relations. [...]

--That the Kyrgyz bank’s international reputation was helped by the presence of three former US Senators, including former presidential candidate Bob Dole, on its board.

--At present, it is virtually impossible to find out the identities of the actual, ‘beneficial’ owners of companies. This is because there are several perfectly legal ways that corrupt politicians, tax evaders and terrorists can hide their identities. One way is to set up a company in a major financial centre such as the UK, then have its shareholders be other companies registered in places that keep ownership secret. Another way is to pay people to have their name on your company documents, instead of your own.

Global Witness hopes the AUB case will prompt Western governments to see how laid-back regulatory environments allow shell companies to be set up and hidden so easily, aiding corrupt dictators and other criminals.

Kyrgyzstan: Lax Western Regulations Make Money-Laundering Easy – Report

1 / 1
> <