Charitable foundations used to steal govt funds

A NEW World Bank report details the extent of corruption in the Philippines, where its says charitable foundations and organizations are being used to embezzle government funds or the proceeds from corruption.

The 285-page report, The Puppet Masters: How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It, released over the weekend, discusses how corrupt people have used corporate and financial structures to hide money trails.

The report is based on research, including an analysis of 150 grand corruption cases and an examination of the practices of 40 jurisdictions and their company registries in collecting, updating, and providing access to beneficial ownership information of legal entities.

The report cites cases in the Philippines extensively, particularly those involving the Marcos and Estrada families that allegedly have used foundations to conceal money.

Globally, the report says, corruption costs at least $40 billion a year—money siphoned off and stashed away in the world’s financial centers and tax havens.

The report, released by the World Bank’s Stolen Asset Recovery Initiative and the United Nations Office on Drugs and Crime, says most large-scale corruption cases involve using legal entities to conceal ownership.

The report explains how corrupt public officials and their associates conceal their connection to ill-gotten funds by exploiting legal and institutional loopholes that allow opacity in companies, foundations and trust-like structures.

The report also lists obstacles to investigating and establishing the origin and ownership of stolen assets: the difficulty of identifying where legal entities operate and have business relationships, lack of access to information on beneficial ownership, and the use of complex and multi-jurisdictional corporate structures.

“We need to put corporate transparency back on the national and international agenda,” said Emile van der Does de Willebois, the World Bank’s senior financial sector specialist who led the research team.

“It is important for governments to increase the transparency of their legal entities and arrangements and at the same time improve the capacity of law enforcement.”

The report says roughly 13 percent of the grand corruption investigations involved the misuse of 41 foundations, Anstalten, or other nonprofit corporate vehicle types that were identified as foundations.

“Approximately half originated in Liechtenstein, although this number was skewed by the scheme of Ferdinand and Imelda Marcos of the Philippines, which alone accounted for 15 Anstalten,” the report says.

The report also cites the case of former President Joseph Estrada and his Erap Muslim Youth Foundation Inc., which was formed in 2000 to “foster educational opportunities for the poor and underprivileged but deserving Muslim youth and students of the Philippines and support research and advance studies of youth Muslim educators, teachers and scientists.”

However, the report cites a ruling by the Sandiganbayan anti-graft court in September 2007 that found that some $4.3 million of the $11.6 million in protection money that the former President had collected from jueteng or illegal gambling operators were secretly deposited into the foundation’s bank accounts.

While Estrada was considered the foundation’s chairman emeritus, he did not serve on its board and he was not a signatory to its bank accounts.

As a result, Estrada’s lawyers argued that it was “impossible” for him to use the foundation for money laundering because “he was not a signatory … [and] its treasurer was the chairman of the bank who would not allow his name to be used in money laundering.

Nonetheless, relying on the testimonial and documentary evidence of witnesses, the Sandiganbayan held that the funds deposited in the foundation’s account could be traced to the illegal jueteng collections, and ordered the money forfeited.

On Oct. 25, 2007, former President Gloria Macapagal-Arroyo pardoned Estrada, restoring his civil rights but maintaining the Sandiganbayan’s forfeiture order.

The World Bank report advises policymakers on how to effectively address the problem of corrupt payments made through opaque companies.

It recommends that more detailed information be collected in corporate registries, and that providers of legal, financial and administrative (incorporation and management) services to legal entities more effectively conduct due diligence on those controlling corporate entities. –Roderick T. dela Cruz, Manila Standard Today