The Panama Papers that revealed under-the-table business dealings of many of the world’s political and business elites, who have had offshore “shell companies” created in their names, have caused quite a stir across the world.
Such companies have long existed in Taiwan and they have indirectly helped cover up a number of major financial crimes, such as the cases of Pacific Electronic Wire and Cable, Procomp Informatics and Chinatrust Financial Holding.
The problem lies in the government’s failure to build an effective information management system for shell companies. It needs to be understood that the biggest difference between a shell company and a regular one is that the former does not have an actual fixed place of business. Rather, the application and maintenance of all company information are handled by a “secretary company” that is not required or obligated to report such information to the government.
The problem is, even if people know that a shell company should be investigated when a financial crime is exposed, they do not know which secretary company is responsible for keeping the shell company’s information. As a result, conducting an investigation is usually wrought with difficulties, while financial criminals continue to hide behind shell companies.
To prevent tax evasion and financial crimes, many nations are demanding that shell companies disclose information about their owners.
In Taiwan, when doing business with regular companies domestically, such information can be accessed through the government’s company information inquiry system.
However, when doing business through offshore shell companies, people are unable to know exactly where their secretary companies are, or who their ultimate beneficiaries are, which does not make sense.
For the past few years, the Financial Supervisory Commission has been demanding banks and securities firms put “know-your-customer” procedures into practice, so that they can indirectly obtain information about shell companies’ ultimate beneficiaries through an investigation of clients’ lines of credit.
Still, as the Chinese saying goes: “The person who tied the bell on a tiger’s neck is responsible for removing it.”
Shell companies are established by business owners using secretary companies. Why are banks and securities firms held responsible for information and background checks on the business owners?
The best way to solve the problem is to pass laws regarding shell companies. When engaging in any business affairs domestically, from opening an account to doing business with local companies, all shell companies should report their information to government agencies in advance. The agencies should then disclose the information online and provide information about the companies, such as the date of establishment, location of secretary companies and the identities of final beneficiaries.
By doing so, the government can remove the veil over shell companies to prevent them from becoming accessories to criminal activities.
Chuang Chia-wei is a prosecutor at the Changhua District Prosecutors’ Office.
Translated by Eddy Chang
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