The ICIJ’s Sheila Coronel shares how to investigate illicit money trails ahead of her Tracking Corruption Internationally presentation at the 2012 IRE conference.
It’s estimated that every year, over a trillion dollars flow illicitly out of the world’s economies. These are the proceeds of corruption, crime and tax evasion. A lot of that money ends up in bank accounts, companies and various assets overseas. The Global Financial Integrity Task Force says that a good portion of it – about $2 trillion of the $10 trillion in deposits held by non-residents in offshore centers – has found its way to the United States.
It’s hard to document these illicit financial flows: banking secrecy and the opacity of corporate information in offshore jurisdictions, including the U.S., cover up the money trail. But it’s not impossible.
Here are some ways in which journalists around the world have traced stolen wealth:
Finding houses, cars, planes and other assets. It’s hard to prove bribery, easier to show how the proceeds of bribery or other forms of corruption have been spent. Houses are among the easiest to find: most countries make real-property records publicly available and even though these properties are seldom in a corrupt official’s name, the official and his family members would have been seen there. After all, what use is a luxurious mansion if you can’t stay in it?
It’s amazing how many officials have been found out because of their mansion mania (see my Pinterest board for pictures). In many cases, records on the acquisition of real property lead to other clues, including the names of shell companies and nominees that fronted for the purchases, the bank accounts used, the law firms involved, and the architects, real-estate agents and other people engaged for property-related transactions. Same thing goes for cars and private planes.
A good example is James Ibori, the former governor of Nigeria’s oil-rich Delta state, who was found to have used bank accounts and shell companies in the UK to acquire houses in London, a fleet of Rolls Royces, a Bentley and a Maybach as well as a $20-million private jet.
In April, Ibori was convicted of money laundering in a London court. And, by the way, the Bentley was found when enterprising Nigerian journalists from the news site Sahara Reporters visited his London townhouse and found the vehicle parked there.
Following the family. Corrupt officials often hide their wealth through companies, accounts and other assets owned by family members, usually wives, mistresses and children. A corruption investigation almost always starts with drawing a family tree and then tracing companies and properties found in the names of an official’s relatives.
For example, when the Hong Kong-based Next Magazine searched for the property holdings of the recently ousted party official Bo Xilai, they found Hong Kong companies registered in the names of Bo’s sister-in-law; records from the Shenzhen stock exchange showed she owned over $100 million worth of shares in a listed company. (A detailed account of that investigation is here.) The Wall Street Journal also found that Bo’s controversial wife Gu Kailai, who has been implicated in the murder of a UK businessman, registered a company in the UK, but under a another name.
Piercing the corporate veil. Last fall, a World Bank study put together a database of 150 cases of grand corruption in the past 30 years. It found that 112 of these cases involved transnational entities like offshore companies and bank accounts.
While there’s much secrecy in offshore jurisdictions, there’s also much more information on companies available in online corporate registries (the Hong Kong corporate database ICRIS, for example, is excellent) and subscription databases like Dun & Bradstreet and Bureau van Dijk. In addition, The Investigative Dashboard, a project of three nonprofit investigative reporting centers, has links to corporate registers worldwide. Open Corporates has scraped data on 43 million companies in over 50 corporate registries and allows searches, including for directors’ names.
It pays to know how officials hide their wealth overseas. The World Bank publication The Puppet Masters is a good guide: It shows how savvy looters use multiple jurisdictions and layered companies to muddy the wealth trail.
Examining high-profile corruption cases can also be illuminating: The British Aerospace (BAE Systems) scandal, for example, shows how the UK company used offshore companies and accounts, as well as local agents or representatives for paying bribes to officials in at least seven countries.
One red flag that journalists should beware is excessive complexity in corporate structures: it’s a sign that someone is trying to hide something. BAE is a good example. So is the first deputy prime minister of Russia who used layered companies in multiple jurisdictions to conceal his wealth. This Barrons story explains how he did it.
Many journalistic investigations have tapped human sources to help unravel these transnational schemes. The service providers (lawyers, accountants, agents or representatives, registry companies) have been known to talk. Reporters have also tapped information from corporate, banking and government investigators.
Sometimes, the front men (or women) confess for fear of being held legally liable. In the BAE case, the managing director of a travel agency who arranged for £60-million worth of travel, hotels and holidays for a Saudi prince over a 13-year period brought his documents to the police because he feared the authorities would get to him sooner or later.
Then there are the insiders who become whistleblowers, as in an unnamed person employed by BAE who revealed how the firm arranged to pay bribes to an array of Czech officials so they would approve the lease of Gripen planes from the Swedish state company Saab. Swedish public television did that exposé in 2007 and prompted officials in seven countries to initiate investigations.
Some journalists have gone undercover. Posing as a shady businessman who wanted to hide proceeds from an oil deal, a reporter from the Overseas Crime and Corruption Reporting Project spoke to a notorious provider of offshore services in Romania who gave excellent advice on how to hide wealth overseas.