On October 24, 2019, the Financial Action Task Force (FATF) issued a best practice paper, seeking to provide suggested solutions, supported by cases and examples of best practices for beneficial ownership from delegations. The paper responded to challenges faced by delegations in implementing FATF Recommendation. The results of FATF Mutual Evaluation Reports (MERs) indicate that jurisdictions find it challenging to achieve a satisfactory level of transparency regarding the beneficial ownership (BO) of legal persons.
At present FATF is conducting the fourth round of mutual evaluations of the implementation of the FATF standards on anti-money laundering (AML). FATF mutual evaluations show that jurisdictions using a single approach is less effective in making sure that competent authority can obtain accurate and up-to-date BO information to in a timely manner. Instead, a multi-pronged approach using several sources of information is often more effective in preventing the misuse of legal persons for criminal purposes and implementing measures that make the beneficial ownership of legal persons sufficiently transparent. The variety and availability of sources increases transparency and access to information, and helps mitigate accuracy problems with particular sources.
FATF R.24 requires countries take measures to prevent the misuse of legal persons for ML/TF. Countries should ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities.
Through a multi-pronged approach, competent authorities can obtain access to information on beneficial ownership through different sources. They can also ensure the accuracy of information by cross-checking. Key stakeholders, (including companies, directors, shareholders, obliged parties such as FIs and DNFBPs), can more easily identify incorrect beneficial ownership information in their database by reviewing different registers or requesting information from different sources. This will then trigger the obliged party to seek clarifications from the companies, and if necessary, report suspicious activities to competent authorities. Therefore, this approach encourages key stakeholders to fulfil their obligations through peer interaction and supervision.
As stated in Interpretative Note to R.24, countries should use one or more of mechanisms
- the Registry Approach, which calls for company registries to obtain and update BO information;
- the Company Approach, which requires companies to obtain and hold updated data on their shareholders; and
- the Existing Information Approach, which uses existing data sources, such as tax authorities, financial institutions and Designated Non-Financial Business or Professionals (DNFBPs), information held by other competent authorities on the legal and BO of
companies, and available information on companies listed on a stock exchange, where
disclosure requirements ensure adequate transparency of beneficial
The FATF best practices papers calls on stakeholders to ensure that information on the beneficial ownership of a company is obtained by that company and available at a specified location in their country; or can be otherwise determined in a timely manner by a competent authority.
The FATF has identified some specific obstacles in the following areas to effective implementation , including: a) risk assessment; b) adequacy, accuracy and timeliness of information on beneficial ownership; c) access by competent authorities; d) bearer shares and nominee shareholder arrangements; e) fines and sanctions; and f) international co-operation.
The FATF paper on best practices in obtaining, maintaining and using beneficial ownership will help jurisdictions whose regime falls below the FATF standards, as enumerated in the MERs, take action to upgrade the quality of their implementation practices.
The current issue of the IELR will have an article discussing in more detail the FATF report.