Our new mini-series shines the spotlight on the current Financial Action Task Force (FATF) beneficial ownership review process. Part 1 presented the particular issues the organisation has recently sought input on, part 2 examined the five recommendations submitted by Transparency International as a response to the FATF invitation, this article – part 3 – looks at the FATF response to the submissions received, and part 4 will recap a number of recent high-profile examples of why beneficial ownership transparency is so important.
From June to August 2021 the Financial Action Task Force (FATF) sought input on potential amendments to its recommendation 24 (R.24) which deals with beneficial ownership transparency, and the accompanying interpretive note. That process having concluded, the FATF analysed the views received from various stakeholders, including organisations such as Transparency International, the International Federation of Accountants, and Open Ownership, on potential amendments, which are intended to reinforce R.24, ensure greater transparency of the beneficial ownership of legal persons, and urge action to mitigate the risks.
With the conclusion of the FATF plenary that took place from 19 to 21 October 2021, the organisation has now released a draft of the proposed amendments. The organisation is seeking views on several more issues before it finalises the amendments.
Tougher global beneficial ownership rules are on the cards, says FATF, to stop criminals from hiding their illicit activities and dirty money behind shell companies. To this end all countries will need to have a beneficial ownership registry or an equivalent system in place. This, says the watchdog, will ensure that authorities have efficient access to adequate, accurate and current information on the true owners of companies operating in their country.
Companies will also be required to have information available about who their ultimate beneficial owners are, as “this is crucial to investigators who, for example, might need to quickly find out the real owner of a company – even if hidden behind a chain of holding companies or nominees.”
Furthermore, beneficial ownership information will have to be up to date.
And for the first time, FATF says, authorities will have to assess and mitigate the money laundering and terrorist financing risks associated with foreign companies, to which their countries are exposed.
In addition to closing beneficial ownership loopholes, there are proposals for banning new bearer shares, and for strengthening disclosure requirements for existing bearer shares and nominee arrangements. This will stop these facilities from being used to hide money laundering.
“The new rules, if adopted, will be a major step to preventing corruption by ensuring authorities can check the ownership of companies in the course of public procurement,” says FATF. “They will help trace the funds of criminals and terrorists, and prevent tax avoidance and tax evasion.”
Revisions to R.24 are outlined below, with the current text in black. All proposed amendments are coloured in red, with additions underlined and deletions struck out.
Recommendation 24. Transparency and beneficial ownership of legal persons
Countries should assess the risks of take measures to prevent the misuse of legal persons for money laundering or terrorist financing, and take measures to prevent their misuse. Countries should ensure that there is adequate, accurate and timely up to date information on the beneficial ownership and control of legal persons that can be obtained or accessed rapidly and efficiently in a timely fashion by competent authorities, through either a register of beneficial ownership or an alternative mechanism. In particular, cCountries that have legal persons that are able to should not permit legal persons to issue new bearer shares or bearer share warrants, and take measures to prevent the misuse of existing bearer shares and bearer share warrants. Countries, or which allow nominee shareholders or nominee directors, should take effective measures to ensure that nominee shareholders and directorsthey are not misused for money laundering or terrorist financing. Countries should consider measures to facilitate access to beneficial ownership and control information by financial institutions and DNFBPs undertaking the requirements set out in Recommendations 10 and 22.
For the proposed amendments to the interpretive note, download the full draft, or read it below.
