Oligarchy

OLIGARCHIC CLICKBAIT

A wealthy Saudi royal has fallen out with his co-investors in a luxury resort development or, as Bloomberg put it in a headline that calls to me like vodka to an alcoholic: “Saudi Prince Locked in $5 Million Fight Over ‘James Bond Island.’” A day may come when I’ll be able to resist finding out what’s going on here, but it is not this day.

The Bahamas has almost 700 islands, of which only a few dozen are inhabited. Since Bahamians don’t make much of anything that anyone else wants (seriously, I spent two hours scouring the market for presents for my kids and ended up buying three small “rum cakes” that tasted just like ordinary sponge cakes, and cost me $25), they sell what they do have — sun, sand, competitive offshore services, and overpriced confectionary to guilty-feeling fathers who abandoned their families for a week. What the Bahamas do have, however, is plenty of real estate, which — if you spend more than $500,000 on it — comes with the attractive bonus of Bahamian permanent residency, and thus the country’s highly competitive zero tax rate.

As of this moment, around 20 Bahamian islands are advertised as for sale on the website of specialist estate agency “Vladi Private Islands,” including Big Darby Island (a snip at $35 million), or the more entry-priced Cat Cay. The names, incidentally, are negotiable. When Hog Island was bought by A&P heir Huntington Hartford in the 1950s, he re-branded it as Paradise Island. It is now home to many of the country’s more boujee resorts, something that would surely not have happened if it had retained its original porcine moniker.

Anyway, back in 2015 Vladi put the 220-acre island Cave Cay on the market for $90 million (the Guardian featured it in their Surreal Estate section, which appears to be where the “James Bond” connection comes from), promising “stunning natural beauty, a protected and private, deep-water harbor and marina with floating cement dock system and 35 dock slips, plus a 2,800 ft. private airstrip.”

• “The island is available ‘as is,’ and features unspoiled beaches, lush vegetation, elevations of up to 40 ft. capturing breathtaking views, and a vast excess of compacted sand that can be sold to nearby islands if desired,” the listing said.

It either did not sell or was flipped shortly thereafter, because another listing — this time complete with more photos — came online four years later. Prince Sultan bin Salman bin Abdulaziz Al Saud was attracted by the prospect, along with other people putting in money via a Floridian company. A Bahamian government minister said last year the prince and his co-investors would be spending $550 million to develop the island to create “a luxury mixed-use hotel resort, residences and marina” but, alas, there is trouble in this corner of paradise.

The prince feels he’s been made to unfairly pay $5 million that was not demanded of his co-investor, Cave Cay General Partner Ltd, of the British Virgin Islands, and so it has all ended up in the Court of Chancery in Delaware. In summary: a Saudi royal has gone to a Delaware court to sue the Florida-based owners of a British Virgin Islands company, over investment in a Bahamian island set to offer the ultimate in “barefoot luxury” to foreign tourists. There may be a cost of living crisis for us lot down at the bottom, but there surely isn’t at the top. But then, there never is.

• In case you’re worried this could impact your holiday plans, do not be alarmed. Cave Cay LP denies any wrong-doing and is plowing on regardless with its plans.“The project’s investment and development timelines remain unchanged, as the default of one investor does not impact the long-term plans of the unique luxury development in the Bahamian Exuma islands,” it said. And I for one am relieved to hear that.

MORE IMPORTANT BUT LESS FUN

The end of January was the deadline for all offshore companies owning property in the U.K. to register their owners or suffer the consequences!

• “There is nowhere for the criminals and corrupt elites to hide. We will be using all the tools at our disposal, including fines and restrictions, to crack down on foreign companies who have not complied,” said Business Minister Lord Callanan.

Spoiler: there is somewhere for them to hide, about which more in a minute.

Attentive readers of this newsletter will already be familiar with the strange and turbulent history of the Register of Overseas Entities, so here’s a very brief recap.

1. For decades, oligarchs and others bought U.K. properties via used anonymous offshore companies to hide their identities.

2. David Cameron, when he was prime minister, promised to do something about this as part of an anti-corruption drive.

3. He lost the Brexit referendum, and no one else in power was interested in driving out oligarchs, so they all accidentally on purpose kind of forgot all about it.

4. Russia attacked Ukraine last February and the British government wanted to do something about oligarchs.

5. This was something.

6. So the government did it.

The legislation zoomed through parliament in a matter of days last spring, and the register became live in August. The deadline for registration has now passed, as of last week, so we can see what the results have been, thanks to the good folks at Open Ownership who’ve crunched the numbers. Much of it is unsurprising: the most common jurisdictions of origin for property-owning shell companies were the British Virgin Islands, Jersey, the Isle of Man, and Guernsey, which are all bits of Britain that aren’t British enough to count as British. Then came companies from the usual “countries most likely to deny they’re tax havens”: Luxembourg, the Seychelles, Hong Kong, Panama, and Cyprus.

There is also a useful list of sanctioned individuals, who own property via shell companies, including Igor and Olga Shuvalov, whose duplex apartment overlooking the Thames we liked to highlight on our kleptocracy tours; plus Alexander Frolov, Vladimir Potanin and lots of non-Russians.

These are early days for the registry, so I don’t want to be too critical of it, but I am alarmed to see that it appears to replicate the flaws of the U.K.’s existing Companies House, which is notorious for publishing obviously wrong information. Graham Barrow has scanned through some entries on the new registry and already found two Liberian companies that inexplicably have a postcode in the Isle of Man, which is indicative of an alarmingly slapdash attention to detail. If that is replicated more widely, these entries won’t be of much use to anyone.

It is also worrying that only 19,510 companies had declared their owners, out of a registered total of 32,440. It is possible that many of the outstanding declarations are stuck in Companies House’s inbox, but it does suggest their owners weren’t exactly trembling with fear at the prospect of being prosecuted for filing late.

My main concern, however, is something I addressed in this newsletter last year and in the Guardian last week, which is that offshore shell companies are only a fraction of the problem. Far more properties are owned by trusts, which do not have to publicly declare their beneficiaries, and so remain a way for rich and powerful people to hide their assets from scrutiny.

A new Economic Crime Bill, currently inching its way through parliament, would provide extra powers and resources to Companies House (“up to 20 million pounds,” according to this statement) so hopefully the age of obviously fake information in company filings will soon be a thing of the past. I know that at least one MP is seeing if it’s possible to amend this Economic Crime Bill to make trusts as transparent as shell companies. Fingers crossed that it’s not too late.

On the subject of Corporate Transparency, the U.S. registry is ever closer to reality, which is important news since the U.S. has long been an outlier in terms of the murkiness of company ownership. In December, FinCEN published its final regulations around how the registry will work.

• “In this next step, the proposed rule would provide the highest standards of security and confidentiality while ensuring that the new beneficial ownership database is highly useful to law enforcement agencies in its efforts to combat financial crime. As we drive toward full implementation of the Corporate Transparency Act, we move closer to exposing criminals, corrupt actors, and anyone trying to hide ill-gotten gains in the United States,” said FinCEN Acting Director Himamauli Das.

Of course, while celebrating progress in the U.K. and U.S., we also need to remember that late last year the EU’s highest court decided that rich people’s right to privacy outweighed citizens’ right to know who owns the companies that their governments incorporate. The three U.K. Crown Dependencies (Jersey, Guernsey, and the Isle of Man) took the opportunity to delay their own plans to open up company ownership as a result, and I’m sure other countries will do the same. Two steps forward, three steps back.

SARS

I had some very interesting emails in response to last week’s section on Suspicious Activity Reports, the compliance reports that financial professionals send to regulators that are also known as Suspicious Transaction Reports (SARs or STRs, both are correct). I was particularly interested by this report from Jim Richards and Alison Jimenez, analyzing the situation in the United States.

In 2002, regulators received 281,000 SARs; and in 2021, they received 3,070,000 — a ten-fold increase. Yet, over the same period, the number of criminal cases into financial crime fell from 8,100 to 5,100. That means the number of SARs filed to the authorities for every criminal case fell from 35 to 602.

• “The private sector is pulling its weight in the fight against financial crime. It appears that the public sector is not. Something needs to change,” Richards writes. I agree with him, governments everywhere are forcing private companies to pay for the burden of tackling financial crime, while themselves failing to resource investigative or prosecutorial agencies. Do better, governments!

One point I hear again and again is irritation from people who file SARs that they don’t get better feedback from the agencies they send them too, and thus cannot judge whether the substantial resources they commit to compliance are or are not a complete waste of money. Obviously, the Department of Justice can’t be expected to personally respond to more than three million reports, but it could be better at sending out statistics to show that SARs had actually been useful.

The report in the last paragraph has an interesting table on page 28 comparing resourcing in the four big Anglophone economies: FinCEN has just 272 employees, to deal with its 3,000,000 SARs; the equivalent body in Canada has 355 people to deal with barely a tenth as many reports; and in Australia, 405 people dealt with just 265,000 SARs. Its authors failed to find equivalent figures for Britain, but the report I quoted in the newsletter last week says the U.K.’s Financial Intelligence Unit is expanding to 201 employees, while it last year had to deal with 901,000 SARs.

So, in Australia, there were 654 SARs per Financial Intelligence Unit employee; in Canada, there were 1,037; but in the US, there were 8,824. The U.K. figures are not directly comparable but last year the equivalent was 4,483 reports per employee. It’s hardly surprising that the U.S. and the U.K. are struggling to process all the reports their FIUs received. They employ too few people to do the job.

WHAT I’M READING

I’ve been sent a more than usually high number of advance copies of books at the moment, and I’m tearing through Wasteland by Oliver Franklin-Wallis, a head-expanding voyage through the global trash industry. It’s going to do well.