The (Mis)Use of Corporate Vehicles by Transnational Organised Crime Groups in the Concealment, Conversion and Control of Illicit Finance

Lead Research Organisation: University of Manchester
Department Name: Law

Abstract

Transnational organised crime groups and the difficulties in intervening with illicit finances have been identified as a high-priority concern by the UK government (see Serious and Organised Crime Strategy (SOCS) (2013)) and remain high on the agenda of other sovereign states and intergovernmental bodies such as the EU and UN (see for instance SOCTA (2013)). A central issue for transnational organised crime groups is that in order to conceal their illicit finance, some form of collusion and/or cooperation with external, legitimate actors such as accountants, lawyers and other professionals may be required. One mechanism for facilitating this is the creation and misuse of legitimate business structures, such as 'corporate vehicles' - the EU's Serious and Organised Crime Threat Assessment (2013: 14) foregrounds how 'organised crime groups exploit various legal business structures and professional experts to maintain a façade of legitimacy, obscure criminal activities and profits, and to perpetrate lucrative and complex crimes'. Licit corporate entities provide opportunities to conceal, convert and control illicit finance and the proceeds of criminal behaviours by offering an external appearance of legitimacy to the 'beneficial owners' (i.e. the real people who actually own them) of these entities and/or the clients who use them to transfer funds - in this latter case, third-party legitimate actors become witting, or unwitting (or wilfully blind), facilitators of organised crime activities. However, there remains a major research gap in understanding the dynamics around how organised crime groups misuse such licit corporate entities and who assists them and this project aims to address this.

The project is a new and exciting interdisciplinary collaboration between academics from the University of Manchester, the University of Edinburgh and the Erasmus University Rotterdam with support from non-academic partners Police Scotland and Ciroc/the Netherlands Organised Crime Monitor. We have assembled a research team with expertise and research skills in Criminology and Law to investigate the misuse of 'corporate vehicles' by transnational organised crime groups for the management and control of the proceeds of crime in the UK and the Netherlands, and the EU more widely. This is the first such study in the UK. We aim to develop original empirical and doctrinal research, and utilise secondary data sources, to address the following three research questions:

Work Package 1: How, why and under which conditions do transnational OCGs use corporate vehicles to conceal, convert and control illicit finances cross-jurisdictionally?
- Method: (1) A three-month Rapid Evidence Assessment (REA) of existing academic, practice and policy literature to develop an overview of the depth and quality of the 'state of the art' in understanding of problems and impacts associated with the use of corporate vehicles by organised crime groups in the context of illicit finance. (2) Document/qualitative analysis of UK and Dutch enforcement investigation case files, semi-structured interviews and focus groups with law enforcement actors and other informed experts.

Work Package 2: Are there any patterns, trends and regularities in the forms that corporate vehicles take when used by OCGs and how does this compare across jurisdictions?
- Method: (1) Secondary data analysis of EU-wide international, intergovernmental, and domestic datasets and of previous research data.

Work Package 3: Under which legal, policy and enforcement conditions are corporate vehicles misused by OCGs and are there (a)symmetries across EU jurisdictions that create conducive circumstances for their misuse?
- Method: (1) Doctrinal analysis of the laws and policies governing the existence and transparency of corporate vehicles and associated constructs across the constituent jurisdictions of the UK and the Netherlands as well as the overarching EU framework.

Planned Impact

Introduction
The misuse of corporate vehicles by organised crime groups in the concealment, conversion and control of illicit finances presents a number of problems for responsible investigators, law enforcement authorities and regulators. Such problems arise when dealing with the immediate criminal networks and activities but more broadly when ensuring the robustness and integrity of legitimate business structures and services for those involved in transnational commerce. The misuse of corporate vehicles for illicit purposes is a highly complex issue in terms of detection as such illicit structures and transactions have an appearance of legitimate practice which is conducive to concealment.

This research project aims to inform our understanding of such misuse of corporate vehicles in order to support the activities of multiple stakeholder groups. For instance, the project will provide these groups with (1) a comprehensive understanding of how, why and under which conditions transnational organised crime groups use corporate vehicles for the concealment, conversion and control of illicit finance in the UK and the Netherlands and associated patterns, trends, features and impacts of these activities and their harms, and (2) a concise analysis of legal, enforcement and policy conditions that govern the creation and use of corporate vehicles for illicit finance in addition to the extent of legal/criminogenic asymmetries across the EU.

Who will benefit from this research and how will they benefit?
The research proposed here builds on concerns raised by practitioners (e.g. those participating in Campbell/Lord's AHRC project) and by the (inter)national community (e.g. inter- and non-governmental organisations, governments) and has the potential to impact positively on a wide array of scientific, practitioner, policymaking and institutional actors:
(1) International intergovernmental and nongovernmental organisations:
- Organisations such as the EU, FATF and Global Witness respectively that lead the international agenda and discourse on the misuse of corporate vehicles will benefit from a comprehensive comparative understanding of the nature and activities central to these illicit enterprises with a view to impacting on their international policies towards what is required of legal frameworks and their evaluation of enforcement responses in contrasting jurisdictions.
(2) Law enforcement authorities:
- Including investigators (e.g. Police Scotland and Ciroc/the Netherlands Organised Crime Monitor) whose approach to intelligence and evidence gathering as well as intervention and disruption practices will be directly informed data on how these behaviours are organised and the conditions that are conducive/restrictive to their occurrence.
(3) Central/local government and policymakers:
- Transnational organised crime is a high-priority concern for UK and Dutch governments, locally and nationally, and they must develop strategic and operational policies and priorities for implementing legal frameworks and protecting UK/Dutch systems, services and (corporate) infrastructures.
(4) Private sector institutions:
- Financial institutions, such as banks, are often involved, whether knowingly or not (or being wilfully blind), in the facilitation of illicit finances. Such businesses must implement robust financial monitoring mechanisms.
(5) Academic researchers:
- Those working in an array of disciplines can benefit from the unique insights of a criminological/socio-legal analysis that will inform concepts, theories and models existing in their own discipline areas. (See Academic Beneficiaries section).
 
Description Our research evidenced that corporate vehicles create an illusion of legitimacy through the abuse of otherwise lawful business arrangements, provide effective anonymity for the owners of illicit assets and insulation from enforcement, particularly when organised across jurisdictions with favourable features, and that there is a necessity for third-party professionals who operate within a stratified market to facilitate their misuse (Lord et al., 2018). In all cases we come across, corporate vehicles provide opportunities for managing illicit finances that individuals alone cannot access, but which require some element of third-party collaboration and facilitation.

The professional intermediaries facilitating corporate vehicle misuse are Company Formation Agents (CFAs), Trust & Company Service Providers (TCSPs) or other agents who set-up and manage corporate vehicles on behalf of others. These are usually legitimate service-providers, such as accountants, lawyers, notaries, or specialists in company formation. Little is known about the motivations of those professionals who assist criminal enterprise in this way, but some form of collusion or assistance from them - whether witting or unwitting (or wilfully blind) - is usually required. Furthermore, a stratified market exists for professional intermediaries that can service the management of illicit finances, and this consists of (Lord et al., 2019):

Actors and Providers: This includes a range of professional actors/providers with cognate expertise operating in different market segments and with capacity for corporate vehicle formation defined by clientele, access, advertising and available products/services.

Commodities/products: This includes different types of corporate vehicles of varying assigned value determined by features/specifications offered e.g. history, legal characteristics and jurisdictional location.

Services: This includes a range of different types of service over time (i.e. as one-off or continuing arrangements) with level/extent of service, duration and nature (i.e. product or assistance also).

The structure of, and changes in, these markets and the actors, products and services are shaped and driven by:

• Supply (of different products and services across different jurisdictions)
• Demand (by actual and potential clients of varying type, and with different intentions/purposes in mind)
• Competition (between/within jurisdictions and between different formation agents operating in within varying segments of the market; secrecy wars)
• Regulation (presence and competence of capable guardians; legal asymmetries and lacunae that shift supply/demand/competition dynamics)

Our research demonstrates the misappropriation of otherwise legal markets and constructs as facilitators of crime. Furthermore, it reinforces, as with much white-collar, corporate and organised crime scholarship, the ambiguities that exist within legitimate spheres, the blurred interfaces between the licit and illicit, and the social harms that can arise from otherwise lawful financial structures and arrangements. A difficulty in researching the misuse of corporate vehicles is the lack of valid, systematic data and sources on misuse, meaning the extent of professional misconduct is unknown or unproven. Cases that led to convictions of professionals for facilitating money laundering rarely involved corporate vehicles, implying many high-level money laundering cases are going unprosecuted. It is clear that the misuse of corporate vehicles is a serious issue, impacting on the functioning of financial systems and market integrity, and generating social harms across society.
Exploitation Route In scientific terms, our research has addressed a significant empirical gap illuminating the role of professional actors in facilitating money laundering via the misuse of 'corporate vehicles'. Our findings inform concepts and theories on organised crime and white-collar/corporate crimes, and how these can be integrated through analysis of the mechanisms and actors utilised in managing illicit finances.

In policy terms, the UK and Dutch Governments recognise the need for corporate vehicle misuse to be addressed, and such misuse was also highlighted in the Financial Action Task Force's evaluation of the UK's anti-money laundering measures (FATF, 2018). In policy terms, it is clear that a plausible route to minimising misuse is to focus on i. professional intermediaries by improving the regulation and supervision of third-party professionals to reduce opportunities for misuse by their clients, and ii. tightening laws and regulations on how and where corporate vehicles can be created. In these terms, our research has identified a series of short-term, medium-term and long-term policy changes that could significantly reduce corporate vehicle misuse in the UK:

Short-term:
- Raising awareness about the nature and seriousness of corporate vehicle misuse
- Randomised enforcement/supervision trials

Medium-term:
- Creation of a UK Screening Authority
- Only licensed and/or regulated agents to be able to form UK corporate vehicles

Long-term:
- Legislative change for the support of public-private data sharing for regulation, policing and research
- Formal periodic reviews of strategy and operation
Sectors Financial Services, and Management Consultancy,Government, Democracy and Justice,Security and Diplomacy

URL https://sites.manchester.ac.uk/corporate-vehicles/
 
Description Since the completion of the award, the research team has submitted evidence to a UK Government consultation on 'Corporate Transparency and Register Reform: Consultation on options to enhance the role of Companies House and increase the transparency of UK corporate entities'. The research team made recommendations for improving the enforcement landscape. The consultation closed in August 2019 but the outcome is yet to be published, most likely due to significant political change in the subsequent time period.
First Year Of Impact 2019
Sector Government, Democracy and Justice
Impact Types Policy & public services

 
Description Presentation at the Victoria University, Wellington, New Zealand (October 2017): 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact Liz Campbell was invited to speak about our PaCCS research. Liz presented on '(Dirty Cash) Money Talks: Concealing (and Revealing) Beneficial Ownership'.
Year(s) Of Engagement Activity 2017
 
Description Blog Post - Corporate vehicles and the organisation of serious crimes for profit: key definitions and legal asymmetries 
Form Of Engagement Activity Engagement focused website, blog or social media channel
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Public/other audiences
Results and Impact Blog post on corporate vehicles and the organisation of serious crimes for profit - key definitions and legal asymmetries
Year(s) Of Engagement Activity 2017
URL http://www.projects.law.manchester.ac.uk/corporate-vehicles/key-definitions-legal-asymmetries/
 
Description Blog Post - Researching the Use of Corporate Vehicles in the Organisation of Serious Crimes for Gain 
Form Of Engagement Activity Engagement focused website, blog or social media channel
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Public/other audiences
Results and Impact Blog post on Researching the Use of Corporate Vehicles in the Organisation of Serious Crimes for Gain.
Year(s) Of Engagement Activity 2017
URL http://www.projects.law.manchester.ac.uk/corporate-vehicles/key-definitions-legal-asymmetries/
 
Description Blog Post - THE START OF A NEW RESEARCH PROJECT: STUDYING THE USE OF CORPORATE VEHICLES IN THE ORGANISATION OF SERIOUS CRIMES FOR GAIN 
Form Of Engagement Activity Engagement focused website, blog or social media channel
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Public/other audiences
Results and Impact Blog post on THE START OF A NEW RESEARCH PROJECT - STUDYING THE USE OF CORPORATE VEHICLES IN THE ORGANISATION OF SERIOUS CRIMES FOR GAIN
Year(s) Of Engagement Activity 2017
URL http://www.crimeur.nl/the-start-of-a-new-research-project-studying-the-use-of-corporate-vehicles-in-...
 
Description Blog Post - Trouble in Paradise: Corporate Vehicles and Contemporary Tax Avoidance 
Form Of Engagement Activity Engagement focused website, blog or social media channel
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Public/other audiences
Results and Impact Blog post on - Trouble in Paradise: Corporate Vehicles and Contemporary Tax Avoidance
Year(s) Of Engagement Activity 2017
URL http://blog.policy.manchester.ac.uk/posts/2017/11/trouble-in-paradise-corporate-vehicles-and-contemp...
 
Description Expert Group Meeting: Corporate Vehicles and Illicit Finance (Manchester) 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact The purpose of the Expert Group Meeting (EGM) was to bring together, and facilitate dialogue between, informed actors from varied stakeholder backgrounds on key objectives identified as part of a research project entitled 'The Misuse of "Corporate Vehicles" in the Organisation of Serious Crimes for Gain'. The purpose of the EGM was to support and guide the approach outlined in the above paragraph. The meeting sought to engage with the prioritisation of issues, concerns, and questions on the phenomenon of corporate vehicles. The meeting was held under the Chatham House Rule.
Year(s) Of Engagement Activity 2017
 
Description Guest lecture Fiscal Law, Erasmus School of Law. 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Public/other audiences
Results and Impact Guest lecture by Karin van Wingerde on 'Crime and taxes' as part of the Fiscal Law programme at the Erasmus School of Law, Rotterdam.
Year(s) Of Engagement Activity 2018
 
Description Interviews with Transparency International, 2019 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Third sector organisations
Results and Impact Nicholas Lord and Karin van Wingerde interviewed by Transparency International, an anti-corruption NGO, to discuss policy on how to respond to corporate vehicles misuse in the UK and the Netherlands.
Year(s) Of Engagement Activity 2019
 
Description Invited Presentation at Organised Crime Workshop at Birkbeck University of London 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact Prof Liz Campbell gave an invited presentation on 'Corrupt Assets and the Misuse of Legal Structures: a critique of Transparency' as part of the workshop entitled 'Organised Crime and the Move towards Legal Markets: Comparative Perspectives' on 29 May 2018.
Year(s) Of Engagement Activity 2018
URL http://www.bbk.ac.uk/law/downloads/Organised%20Crime%20Programme.docx/view
 
Description Invited Presentation at Transnational Law Summit 2018 at King's College London (April 2018, London): 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Public/other audiences
Results and Impact Liz Campbell gave an invited presentation on 'From Panama to Paradise & Beyond: Illicit Financial Flows, Tax Justice and Global Development'.
Year(s) Of Engagement Activity 2018
 
Description Invited Talk at the University of Queensland, Australia 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact Invited talk by Liz Campbell entitled "Corporate Vehicles and Organised Crime: Concealing and Managing Illicit Assets'.
Year(s) Of Engagement Activity 2017
 
Description National Radio Interview, the Netherlands 2019 
Form Of Engagement Activity A press release, press conference or response to a media enquiry/interview
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Public/other audiences
Results and Impact Interview with national radio station (NPO Radio 1) in the Netherlands by Karin van Wingerde on the subject of the proceeds of crime, money laundering and the misuse of corporate vehicles.
Year(s) Of Engagement Activity 2019
URL https://www.nporadio1.nl/homepage/14260-geld-afpakken-van-criminelen-lukt-steeds-minder-goed
 
Description Panel at the Cambridge International Symposium on Economic Crime 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Our research team organised a Plenary Workshop at this high-level event. The workshop involved talks from research team members Nicholas Lord and Liz Campbell. Lord and Campbell presented preliminary findings from the project. Lord's presentation was entitled:"Corporate Vehicles and the Organisation of Illicit Finance: What we know and what we need to know". Campbell's presentation was entitled: "The form, nature and (mis)use of corporate vehicles: a changing legal landscape". The workshop also involved expert discussion and comment on our research by Professor Michael Levi (Cardiff University) and Dr Aleksandra Jordanoska (Manchester University).
Year(s) Of Engagement Activity 2017
URL http://www.crimesymposium.org/PDFfiles/2017%20Programme.pdf
 
Description Presentation at American Society of Criminology Annual Conference (Philadelphia) 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact Talk by Nicholas Lord entitled "Corporate Vehicles and the 'Monies' of Corporate Financial Crimes: Some Key Analytical Issues".
Year(s) Of Engagement Activity 2017
 
Description Presentation at European Society of Criminology Annual Conference (Cardiff) 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact Presentation by Nicholas Lord entitled "Corporate Vehicles and Illicit Finance: Organising the 'Monies' of Corporate Crimes".
Year(s) Of Engagement Activity 2017
 
Description Presentation at European Society of Criminology, Sarajevo 2018 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact Nicholas Lord gave a presentation to international academics on 'Demystifying the Corruption Paradox by Exploring Bribery 'At Home': Some Emerging Insights and Issues', at European Society of Criminology Annual Conference, Sarajevo, Bosnia and Herzegovina. This presentation integrated findings from this PaCCS funded project with a second project funded by the British Academy on corruption to consider how corporate vehicles are misused in cases of international corruption. This is an issue raised in our journal article Lord et al. (2018). Approximately 20 people attended the presentation.
Year(s) Of Engagement Activity 2018
 
Description Presentation at European Working on Organisational Crime Workshop (Utrecht) 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact Talk by Karin van Wingerde entitled 'Organising the "Monies" of Corporate Crimes: Corporate Vehicles and the Control of Illicit Finances".
Year(s) Of Engagement Activity 2017
 
Description Presentation at Society of Legal Scholars Conference (Dublin) 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact Presentation by Liz Campbell entitled "The Form, Nature and (Mis)use of Corporate Vehicles: Converting and Controlling Illicit Assets".
Year(s) Of Engagement Activity 2017
 
Description Presentation at the University of Melbourne, Australia (November 2017, Melbourne): 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact Liz Campbell was invited to the University of Melbourne to speak about the PaCCS research. Liz presented on 'The misuse of corporate vehicles: Concealing (and revealing) beneficial ownership'.
Year(s) Of Engagement Activity 2017
 
Description TV Interview on national daily news programme, the Netherlands 2019 
Form Of Engagement Activity A press release, press conference or response to a media enquiry/interview
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Public/other audiences
Results and Impact TV interview by Karin van Wingerde on illicit finance and the misuse of corporate vehicles following release of governmental report in the Netherlands on money laundering.
Year(s) Of Engagement Activity 2019
 
Description Talk at Durham Law School 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Other audiences
Results and Impact Talk by Liz Campbell as part of Durham Law School Seminar Series entitled "A Matter of Trust(s)? The Use of Corporate Vehicles by Organised Crime Groups in the UK".
Year(s) Of Engagement Activity 2017
 
Description Talk at Thirty-Sixth International Symposium on Economic Crime, Cambridge, September 2018 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Liz Campbell gave a talk entitled 'The organisation of illicit assets: transparency and 5AMLD' at the Thirty-Sixth International Symposium on Economic Crime in Cambridge in September 2018. Participants at this event include law enforcement actors, policymakers, regulators, specialist media and postgraduate students.
Year(s) Of Engagement Activity 2018
 
Description Talk at University of Western Australia, October 2018 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Other audiences
Results and Impact Liz Campbell gave a talk on 'Transparency Initiatives and Anti-Money Laundering: Revealing Beneficial Ownership' at the University of Western Australia in October 2018. Mainly attended by academics.
Year(s) Of Engagement Activity 2018
 
Description Talk at the Law Society of Hong Kong, March 2019 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Liz Campbell gave a talk on 'The misuse of corporate vehicles: Concealing (and revealing) beneficial ownership' to the Law Society of Hong Kong in March 2019. Attended mainly by legal practitioners.
Year(s) Of Engagement Activity 2019
 
Description Work in Progress Seminar at the University of Manchester 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Postgraduate students
Results and Impact Nicholas Lord presented on 'Other People's Dirty Money: Professionals and Corporate Vehicles' at a work in progress seminar organised by PGR students at the University of Manchester to gain feedback ahead of submission of the article to the British Journal of Criminology.
Year(s) Of Engagement Activity 2018