Research carried out for this report shows that these cases of “grand” (that is, largescale) corruption are not untypical. Such cases can be found around the world, in both industrial and developing countries, whether as the place that the proceeds originate from or as the place they eventually end up. A review of some 150 cases carried out as part of this study showed that they shared a number of common characteristics. In the vast majority of them,
--a corporate vehicle was misused to hide the money trail;
--the corporate vehicle in question was a company or corporation;
--the proceeds and instruments of corruption consisted of funds in a bank account;
and
--in cases where the ownership information was available, the corporate vehicle in question was established or managed by a professional intermediary.

This report casts light on how corporate vehicles are misused to conceal the proceeds of grand corruption. It describes how providers of legal, financial and administrative (management) services—including banks, financial institutions, lawyers, accountants, and other professionals that are known as trust and company service providers (TCSPs)—can be employed to facilitate such schemes. While this report focuses on the use of front companies and the abuse of corporate opacity to conceal corruption, the weaknesses highlighted in this report are not specific to corruption. There is evidence of similar misuse of legal entities, legal arrangements as well as charities, in the context of other criminal and illicit behaviors, including escaping international sanctions and the funding of terrorist organizations.

Suppose you want to give someone some money, and because it is for an illegal purpose, you do not want anyone else to know about it. What would you do? You could hand it over in cash—but that might be difficult if it were a large sum of money or if the recipient lived a long way away. Alternatively, you could transfer funds from your bank account to the recipient's—but then your respective banks would know about it. And they might tell the police, or at least they might offer information if the police came knocking. So your ideal solution would involve a bank account that you control, but that no one can link to you—or at least only with the greatest difficulty.
That, in a nutshell, is the starting point for this study: people who are trying to find ways of sending or receiving funds or assets while concealing their involvement. The funds in question derive from bribery, embezzlement of public funds, or other forms of corruption. In the past, people hid their involvement with funds through anonymous bank accounts or accounts in fictitious names. This option, however, is becoming increasingly less available. So now the preferred method is to use a legal entity or arrangement, known (in the terminology of the Organisation for Economic Co-operation and Development [OECD]) as a “corporate vehicle.”

In Part 2, we focus on the beneficial owner(s)—the person (or group of people) who have an interest in or control over ill-gotten gains (property or financial assets) and who are trying to conceal the fact through the misuse of corporate vehicles.

This study revealed that, in the vast majority of grand corruption cases we analyzed, corporate vehicles—including companies, trusts, foundations, and fictitious entities— are misused to conceal the identities of the people involved in the corruption. Of these corporate vehicles, the company was the most frequently used. Investigators confirmed this misuse, noting that locating information about the person who is in control of a corporate vehicle was essential to any large-scale corruption investigation, and indeed, to almost any large-scale organized-crime investigation. Despite the widespread misuse of corporate vehicles for criminal purposes (including corruption, financing terrorism, money laundering, and fraud), most countries have no coherent strategy to tackle this problem. This chapter identifies the types of corporate vehicles used to conceal the identity of the person involved in the corruption and other obstacles that investigators may face. An overview of each of these corporate vehicles is given in appendix C.

The Case of Former President Augusto Pinochet (Chile)[a]
Former Chilean president Augusto Pinochet funneled illicit proceeds through foreign corporate vehicles that named his family members and other close associates as the owners and controllers. For instance, Meritor Investments Ltd., Redwing Holdings, and a trust numbered MT-4964 were foreign corporate vehicles beneficially owned by Pinochet’s son, Marco Antonio Pinochet Hiriart and his daughter Ines Lucia Pinochet. Bank accounts were also opened under the names of these two persons, as well as another daughter of Pinochet, Maria Veronica Pinochet. Oscar Custodio Aitken Lavancy, an attorney who had ties to Pinochet, controlled six other corporate vehicles involved in the scheme. Pinochet’s family members and Aitken effectively served as front men for Pinochet, allowing him to disassociate his name from the scheme while maintaining control over the assets.
Note: a. Facts confirmed in U.S. Senate Committee on Governmental Affairs, Permanent Subcommittee on Investigations, “Money Laundering and Foreign Corruption: Enforcement and Effectiveness of the Patriot Act, Case Study Involving Riggs Bank,” Report prepared by the Minority Staff of the Permanent Subcommittee on Investigations (July 15, 2004), available at http://hsgac.senate.gov/public/files/ACF5F8.pdf (last accessed August 14, 2011). more