Friday, January 13, 2012

Confiscating the Dividends of Crime

In legal terms, the dividends paid by criminal enterprises are the proceeds of crime and can be confiscated by the courts. Yet strangely, this never happens. Governments take a hands-off approach to the people with the money.

Until now. The United Kingdom’s Serious Fraud Office recorded a court-approved settlement yesterday recovering dividends paid to the parent company of a company whose deals were already the subject of criminal convictions. Importantly, the laws under which it did this are in place in most other countries.

There were the predictable howls of protest from the financial community. In the future, they point out, innocent investors could lose substantial sums of money they earned from criminals. The forcefulness of this response is not a bad thing. Shareholders and rating agencies, to date, have rarely stopped to ask whether corporations are conducting business legally. Billionaires and pension funds freely invest in criminal and legitimate enterprises alike. Now that could change.

If shareholders begin to pay some attention to questions of legality, it will limit criminals’ ability to use the corporate shell for money laundering. Dividends from criminal enterprises may be a fully legal form of money laundering, but people who participate in this kind of scheme should at least face the risk that they may not be able to keep their ill-gotten gains.