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Money laundering scandals like the Troika Laundromat and the Danske Bank have brought to the forefront the matter of financial transparency concerning Ultimate Beneficial Ownership (UBO). While the FATF has focused almost exclusively on the role of legal persons, with its publication of Best Practices on Beneficial Ownership for Legal Persons, more recently it also took a stand against the role of shell firms in disguising beneficial ownership.

The recent findings of the Basel AML Index based on FATF data, reveal that information on ownership structures is largely unavailable to regulators and law enforcement authorities. This makes it difficult to regulate money laundering and other financial crimes. The Danske Bank scandal, which continues to unfold even after several years of its first exposé, is a perfect example of how lack of beneficiary information obstructs legal enforcement.

FATF’s 2014 Beneficial Ownership Framework laid the foundations of financial transparency

The 2014 FATF recommendations are a milestone in anti-money laundering guidance, as they set in motion the need for transparency in ownership. The document mentions what constitutes a beneficial owner (BO), and lays down effective mechanisms for tackling the problem of beneficial ownership and its role in money laundering.

The FATF also recommended a multi-pronged approach, many of which are now being adopted by various Regulators.

We examine some of the legislations that tackle the issue of beneficial ownership.

USA’s Corporate Transparency Act (CTA) 2019 tied to Beneficial Ownership

This October 22nd, the U.S. House of Representatives passed the Corporate Transparency Act of 2019, which requires each person who forms a legal entity in the U.S. to disclose the beneficial owners to the FinCEN. The minimum disclosure requirements are mentioned in the Bill, to be filed annually with any updates in its list of BOs. The CTA defines “beneficial ownership” for the Bill, and provides for civil and criminal penalties for wilful non-disclosure or deceit.

This will prevent the misuse of shell companies for money laundering and additionally help build a national database for compliance under the Bank Secrecy Act.

UBO

The European Union (EU) sets the deadline of 22nd November for filing beneficial ownership details

Companies in the EU member countries that are incorporated on or before 22 June 2019 have until 22 November 2019 to disclose beneficial ownership details with the RBO (Registrar of Beneficial Ownership of Companies and Industrial & Provident Societies). Whereas entities incorporated after 22 June 2019, have five months from the date of incorporation to file the same.

This is under the 4th Anti-Money Laundering Directive (4AMLD) designed to fight money laundering and terrorist financing. The 4AMLD requires EU member states to set up registers of the ultimate beneficial owners (UBOs) of legal entities. The earlier deadline of 26 June 2017 has now been finally and irrevocably extended to 22 November 2019.

India brings in a paradigm change in corporate law to provide for beneficial ownership transparency

Faced with a slew of money laundering scandals to the tune of billions of dollars, the Indian government adopted some of the recommendations of the FATF to check the misuse of multi-layered corporate entities for money laundering and other illegal activities. It brought changes in its regulatory framework by making amendments to Sections 89 and 90 of the Companies Act, 2013.

A definition of ‘beneficial interest’ was inserted, and the requirements for disclosure and filing for ‘significant beneficial owners’ were laid down vide the Companies (Amendment) Act, 2017. Under the Rules, companies are to disclose their BOs and submit personal information in the format provided. The rules came into effect on 13 June 2018, with companies required to disclose their list of BOs within 90 days from the date. The stringent requirements may have come under severe criticism, but it is part of the government’s efforts to curb decades of unfettered bribery, corruption, insider dealings, tax crimes, and terrorist financing.

Ultimate Beneficial Owner (UBO)

Cayman Islands participates in the FATF fight against money laundering by requiring BO Register

The Cayman Islands financial centre is not a member of the FATF.  Despite this, it joined the global efforts of tackling the menace of ML/TF last month, by making it mandatory to provide beneficial ownership information by companies incorporated in the Cayman Islands. Plans to build a register of owners and make it available to the public by the year 2023 are in place.

The UAE joins the global crackdown on ML/TF with the UBO Regulations

The Dubai International Financial Centre (DIFC) issued the declaration of UBO Regulations on 12 November 2018, by which entities currently registered with the DIFC are required to maintain a Register of UBOs and comply by 12 February 2019. The penalty for non-compliance is a fine of up to US$ 25,000 or a potential disqualification from the DIFC registry.

In a remarkable deviation from the EU, which requires the Register of BOs to be made public, the UAE is keen to protect the identities of UBOs. UBO details of DIFC registered entities will not be stored in any central database, and instead maybe stored in a secret vault accessed by private keys.

Interestingly, although the Gulf Cooperation Council (GCC) is a full member of the FATF, the individual member countries of the GCC which includes the UAE, are not members. UAE established the anti-money laundering law only in late 2018, and subsequently, has been continually evaluating and improving its obligations on the AML/CTF front.

Peru enacts laws for beneficial ownership declaration

In light of billions of dirty cash flowing through Peru’s largest banks, Peru’s financial regulator has taken a mammoth step in increasing transparency of ownership by defining beneficial owners as those who hold even 10% of an entity’s capital. This obligation also extends to funds, investment funds, trusts, trusts and joint ventures with Peruvians. As of 2 August 2018, it is mandatory for legal entities to identify and report their ultimate UBOs to the UIF-Peru.