When Yevgeny Prigozhin’s plane crashed on Aug. 23, he was not only the founder of the private Russian military company Wagner Group but also the head of a business empire that funded the group’s activities. Subject to sanctions by the United States, United Kingdom, European Union, and more, however, he would have found conducting business in his own name to be a challenge. That may have been the kickstarter for what Western governments believe to be a family affair.
At the time of his apparent death in the crash, Prigozhin’s wife, mother, and two of his children were under sanctions for their links to his businesses. Prigozhin’s mother, Violetta Prigozhina, took the EU to court and won a judgment in March finding that she was not a current owner of the companies linked to her son at the time of sanctioning and that family relationships alone were not enough to justify including her on the sanctions list. However, five days later, the EU imposed sanctions again, contending that even though she doesn’t own companies associated with Prigozhin anymore, she likely benefited from her links to the business, thereby justifying her inclusion.
But there is one Prigozhin family member who has not been sanctioned so far: his youngest daughter, Veronika Prigozhina, who was a minor at the time other family members were designated. She was made owner of one of the family’s assets, a hotel in St. Petersburg, Russia, the Financial Times reported. It’s a common tactic used by kleptocrats and corrupt officials to control assets without being tied directly to them. In many countries, it is possible for young children — even babies — to be corporate shareholders, and it is rare for minors to be sanctioned for their parents’ actions, creating a neat little workaround. Prigozhin’s practices highlight the importance of monitoring family members in combating corruption and sanctions evasion.
Similar tactics are being employed around the world. In 2022, the Organized Crime and Corruption Reporting Project (OCCRP), a worldwide network of independent media centers and journalists who expose crime and corruption, and its partners identified nearly 300 minors who were shareholders of Luxembourg-based companies as of 2020. They included a Mongolian 1-year-old listed as part owner of a major coal company and three children – one just 3 months old — of an elite Azerbaijani family whose company had won global government contracts and invested in one of the largest banks in Azerbaijan.
Children and other proxies, including spouses and family members, are routinely used to hide assets looted from nations around the world. Hundreds of millions of dollars each year that should be spent on schools, hospitals, poverty-reduction programs, or peace initiatives are going missing instead. By listing children as company shareholders, corrupt politicians and their networks can circumvent government anti-corruption measures, such as prohibitions on conducting business or requirements on declaring assets. They also may use their families to conceal assets misappropriated via their positions, bribery, or other acts of corruption. By not having their names on corporate documents, these corrupt officials are shielded from questioning by government agencies, financial institutions, and the public. If banks and governments can’t identify shareholders’ connections to these high-risk individuals — the beneficial owners — they can’t hold them accountable.
Letter of Credit for 9-Month-Old
Consider a corruption scandal reported on by The Sentry in October 2022 that took place from 2012 to 2015 and resulted in severe shortages of food, fuel, and medicine throughout South Sudan. According to corporate records and a report from South Sudan’s auditor general, a company half-owned by a 9-month-old baby received a letter of credit — a bank’s guarantee that it will provide loaned funds for a purchase or other financial transaction — to import pharmaceutical products into South Sudan. Yet there is no evidence in trade data that the contracted pharmaceutical products were delivered.
The result was catastrophic. During that period, hospitals and clinics had to operate without essential medicine to treat rampant deadly illnesses such as malaria. The baby-on-board tactic was designed to obscure the beneficiary of this ultimately murderous scam: The baby’s mother was none other than the wife of the head of the South Sudan Drug and Food Control Authority, which oversees pharmaceuticals. And while the auditor general’s findings were presented to parliament in South Sudan in 2015, no action was taken. To date, no one has been held accountable, and there have been no prosecutions for corruption related to this case.
The use of child shareholders works because corrupt actors can take advantage of an information gap: it can be difficult to determine whether a shareholder is related to an official. There are very few authoritative lists of government officials’ family members, or even searchable public registries for companies. In addition, cultural norms about family names are not consistent globally, and there is no easy way to confirm family connections using names alone. In some countries, such as Myanmar and parts of Indonesia and India, shared family surnames don’t exist. In Myanmar, an astrology-based system is used — a person’s name, to some extent, depends on the day of the week on which they were born.
Even so, there are basic steps that would help stamp out this kind of corruption. At a bare minimum, all governments should publish databases of their own senior government officials, elected or appointed, and their family members and close associates, and they should encourage other governments to do the same. These lists should follow the definition of “politically exposed persons” (those entrusted with a prominent public function) and their family members and close associates, from the Financial Action Task Force (FATF), the international body that sets standards for anti-money laundering controls, and Article 52 of the United Nations Convention Against Corruption. If these lists are made publicly available, citizens can hold their governments accountable when politically connected family members have stakes in important companies.
Certainly this may have privacy consequences for the family members of political figures or government officials, but they should do everything in their power to prevent even the appearance of conflicts of interests, and that includes sharing their own and their family members’ financial interests. Often family members and their identities are already public and those who are able to conceal their family members sometimes use corrupt means to do so. Current lists, where they exist, are inconsistent and incomplete and result in unfairly distributed privacy and security ramifications, affecting some — but not all — politically exposed persons. According to the World Bank, more than 160 countries already have a form of financial disclosure system, which would have similar privacy ramifications, with 65 percent requiring information on family members. A commitment by governments to both transparency and the physical and privacy protection of their top officials would close a clear loophole for politicians to engage in corrupt activities.
Improve Screening
Second, financial institutions need to improve their screening processes for family members of politicians and government officials. At present, customer screening often relies on third-party data providers that lack good information on familial ties. Reliable information on family members should be a priority for future investment, and financial institutions should insist that their data providers compile expanded data sets on family members. By processing the transactions of these family members, financial institutions risk facilitating any number of crimes, from grand corruption to bribery. In short, financial institutions must be able to make informed decisions on individuals with whom they conduct business.
Finally, civil society should collaborate and share data, including with governments and the private sector, to expand the universal data set for all parties. Civil society is often the first to reveal acts of corruption and expose the corporate networks of elites and their families. By embarking on investigations with a data mindset, investigators can store data points they naturally come across as part of their investigation, such as aliases and family members. This deep data, which is not often published as part of reports or articles, can multiply the impact of investigative findings and, when it is shared with principled governments and those in the private sector who are in a position to act, can improve the ability of the public of hold bad actors accountable.
The EU signaled the importance of considering family members as proxies in June, expanding its regime of sanctions against those responsible for or contributing to Russia’s war against Ukraine to unequivocally target “immediate family members” of “leading Russian businesspersons.” According to the Council of the European Union, one of two legislative bodies in the EU made up of ministries from EU member states, “leading Russian businesspersons have engaged in a systematic practice of distributing their funds and assets amongst their immediate family members and other persons, often in order to hide their assets, to circumvent the restrictive measures and to maintain control over the resources available to them.”
It was another acknowledgement that criminals and corrupt officials rarely put ill-gotten assets in their own name. It’s the first rule of money-laundering. The EU’s recognition of the urgency to close the family member loophole is to be applauded, and now is the time to do that comprehensively. Those interested in legitimate, principled governance cannot continue to be fooled by babies on boards.