FATF reports

The Financial Action Task Force (FATF) has published proposals on how to improve the implementation of international standards on transparency, including the availability of beneficial ownership information. The report follows a request from G20 finance ministers and Central Bank governors at their meeting in Washington D.C. in April. It suggests that many countries have still not effectively implemented the FATF's requirements on beneficial ownership, and makes suggestions on how both the FATF and individual countries could address this problem.

Failure to implement beneficial ownership requirements

The FATF strengthened its standards on beneficial ownership in 2012, and the new report says these provide a "robust framework" for countries to ensure that adequate and accurate beneficial ownership information is made available to the authorities in a timely way. But it says there have been "significant implementation challenges" for individual countries as they attempt to enforce these standards. Only two of the nine countries to have been assessed by the FATF since 2012 were found to have a "substantial level of effectiveness" in implementing the standards.

The report therefore makes some recommendations to the FATF and to individual countries:

- FATF investigators should place a larger emphasis on beneficial ownership when they follow up with a country after an investigation into its compliance regime. The report notes that the FATF has a "broad range of tools" to encourage countries to make changes.

- Beneficial ownership recommendations made by international bodies such as the FATF and the Global Forum on Transparency and Exchange of Information should be "clear and consistent" so that countries are not confused about how to implement beneficial ownership requirements.

- G20 members should "lead by example" by implementing the FATF standards on beneficial ownership and reviewing barriers to information sharing such as data protection and privacy laws.

G20 increasing its focus on beneficial ownership

The report is the latest indication of the G20's increasing commitment to ensuring its members comply with requirements to identify the ultimate beneficial ownership of companies and assets.  In its Anti-Corruption Action Plan for 2017-18, which was released last month, the leaders said they would "fully implement" both the FATF's recommendations and the G20's own High Level Principles on Beneficial Ownership Transparency. This report is intended to help them fulfil that pledge.

These repeated commitments by 20 of the world's leading economies should warn companies hoping to do business in these major markets that they need to ensure they know the beneficial ownership of their clients and suppliers, and implement a strong compliance regime.

Growing legacy of Panama Papers

Although beneficial ownership is not a new issue, and the FATF strengthened its standards four years ago, it has certainly risen up the agenda of politicians and the media since the revelations in the Panama Papers in April. The 11.5 million documents leaked from the law firm Mossack Fonseca revealed how some companies and individuals hide their ownership of assets and bank accounts by setting up complex corporate structures in offshore jurisdictions such as Panama. The FATF's report made reference to the Panama revelations, noting that they have "focused attention on the need to strengthen controls against the misuse of corporate structures".

Just last month, the European Parliament opened a year-long inquiry into the Panama findings. A committee will investigate "alleged contraventions and maladministration in the application by the EU Commission or member states of EU laws on money laundering, tax avoidance and tax evasion". Every week there are media reports on the various investigations into alleged financial crime by individuals and companies exposed in the Panama Papers. The international focus on hidden beneficial ownership shows no signs of slowing down, so it has never been more important for companies and individuals to strengthen their compliance processes to avoid committing financial crime.

What can you do?

Not every instance of beneficial ownership leads to corruption, but the Panama Papers show that it can hide tax evasion, money laundering and terrorist financing. Last month, Karen E Gray, Senior Entity Due Diligence and Monitoring Specialist at LexisNexis, led a Webinar to advise companies on due diligence strategies for managing the risk of beneficial ownership. That webinar can be downloaded for free here.

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