At the start of 2017, our Partnership For Conflict Crime and Security Research-funded project into transnational organised crime began to gather momentum, with a project meeting in Rotterdam to set our research agenda for the coming 18 months. In this post, Nicholas Lord explains the focus of our research on seeking to better understand how transnational organised crime groups misuse what are known as ‘corporate vehicles’ in the concealment, conversion and control of illicit finances – that is, monies generated for, and from, criminal enterprise.

‘Corporate Vehicles’ and Illicit Finance

A ‘corporate vehicle’ is a legitimate, and otherwise legal, business entity, such as a Limited company, trust, foundation, or partnership, that is commonly used in business to structure a range of commercial activities and/or in the control and movement of wealth and assets. For instance, it is argued that such structures permit businesses to incorporate companies in low or no tax regimes, provide flexibility in global markets, and reduce the level of regulation, particularly when set up in offshore financial centres that offer great secrecy, either by concealing the origin of the money or the identity of – what has become known as – the ultimate beneficial owner. Large flows of monies move through the global financial system in this way and this has become a central feature of business in market-based economies.

Recent international developments, such as the Panama Papers leak, have demonstrated how organised crime groups and rich individual and corporate elites, may misuse such business structures to globally manage finances and wealth generated through illegal, unlawful and unethical behaviours. 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’.

Furthermore, other high-profile financial scandals involving both illegitimate and legitimate actors and enterprises, have led the project team to re-consider the focus of the project. Cases including the role of HSBC in facilitating the tax noncompliance of wealthy elites, the failures of Deutsche Bank in preventing money laundering in Russia, or the emergence of the City of London as a centre for the concealment of ‘dirty money’, particularly in the property market, have encouraged us to think more broadly in terms of transnationally organised illicit finance.

Re-framing Our Scientific Inquiry: Analysis of the Organisation of Serious Crimes for Gain

Consequently, we have re-organised our thinking to widen the conceptual parameters of the project, thinking not narrowly in terms of ‘organised crime’ and ‘organised crime groups’, but to reformulate our empirical inquiry around the organisation of serious crimes for profit.

By doing this we have created a more inclusive focus, straddling the boundaries of what are frequently referred to as white-collar and corporate crime in addition to organised crime – though the criminal behaviours of legitimate occupational actors and businesses can of course also be ‘serious and organised’. With this in mind, our research is guided by three primary questions:

1. How, why and under which conditions do those involved in (transnational) criminal enterprise for profit use corporate vehicles for the concealment, conversion and control of illicit finance?
2. Are there discernible patterns, trends and features in the selection, creation and use of corporate vehicles for illicit purposes?
3. What are the legal, enforcement and policy conditions that govern the creation and use of corporate vehicles and are there legal/criminogenic asymmetries across the EU and which conditions are more or less conducive to managing illicit finance?

Addressing these questions will provide multiple stakeholder groups, such as law enforcement and regulators, with (1) a comprehensive understanding of how, why and under which conditions corporate vehicles are used 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 (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.

Scope of Our Research

In the project, we are focusing on two jurisdictions: the UK and the Netherlands, but thinking also in terms of the EU and the wider global context. For instance, how do legal asymmetries across the EU generate opportunities for managing illicit finance? How might developments in the US under the Trump administration, or in post-Brexit UK, impact upon the response to criminal money?

Such questions are the forefront of our analysis. Underpinning these questions is the need to understand the legal and social conditions that are conducive to the movement of illicit finance and the specific characteristics of the opportunities that arise in these circumstances. Understanding the opportunities for, and the actual mechanisms of, moving illicit finance virtually untraceably by channelling finances through corporate vehicles is important for law enforcement and regulation.

Both legitimate and illegitimate actors and organisations are implicated as direct perpetrators in these behaviours. However, we also recognise the role of ‘facilitators’ and ‘enablers’, and the extent to which actors, in order to conceal their illicit finance, must engage in some form of collusion and/or cooperation with external, legitimate actors such as accountants, notaries, lawyers and other professionals may be required.

So what?

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. That said, remarkably little is know about the dynamics around how the organised crime groups and those implicated in serious crimes misuse such licit corporate entities and who assists them. This project will address this.

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