Corporate vehicles such as companies, trusts, foundations, partnerships, and other types of legal persons and arrangements can be misused for money laundering and terrorist financing (ML/TF) by disguising the identity of criminals or the true purpose of an account or property held by a corporate vehicle.
The Financial Action Task Force (FATF) established the first international beneficial ownership transparency standards in 2003 in its Recommendation 24. The FATF has recently strengthened Recommendation 24 to better prevent and deter the misuse of legal persons and corporate vehicles for ML/TF.
Revisions to Recommendation 24
The revised Recommendation 24 explicitly requires countries to use a multi-pronged approach for collection of beneficial ownership information to ensure that adequate, accurate and up-to-date information on the beneficial ownership of legal persons is available and can be accessed by the competent authorities in a timely manner.
A multi-pronged approach to beneficial ownership information
A multi-pronged approach using several sources of information is more effective than using a single approach in preventing the misuse of legal persons for ML/TF, as the different approaches supplement each other and ultimately lead to better quality information.
A multi-pronged approach to beneficial ownership information combines information from:
- Companies.
- A registry or alternative mechanism.
- Any other supplementary sources.
It is important to ensure clear responsibilities of the various parties in ensuring that beneficial ownership information is adequate, accurate and up-to-date.
Adequate beneficial ownership information
The Interpretive Note to Recommendation 24 requires countries to have mechanisms in place that ensure that basic information and beneficial ownership information is “adequate”.
Adequate information is defined as information that is sufficient to identify the natural person(s) who are the beneficial owner(s), and the means and mechanisms through ownership, control or other means.
Accurate information – the importance of verification
Following the identification of the beneficial owners, this information should be verified. Verification is a combination of checks and other processes to ensure that the beneficial ownership data is accurate. Verification applies to all prongs of the multi-pronged approach and may require professional expertise to implement.
Verification of the beneficial ownership information could typically involve a review of documents submitted (e.g., share certificates, shareholder register, board meeting resolutions, and power of attorney documents). Verifying beneficial ownership information could also include, depending on the level of risk, manual or automated cross-checks with relevant government and other available databases (e.g., population or national identity registers, taxpayers identification register, vehicles and land registries).
Up-to-date basic and beneficial ownership information
The Interpretive Note to Recommendation 24 states that countries should have mechanisms to ensure that basic and beneficial ownership information is as current as possible, and is updated within a reasonable period (e.g., within one month), following any change or the identification of outdated information.
As a best practice to ensure that information is kept up-to-date, countries may consider requiring companies to periodically validate their beneficial ownership information on a risk-based approach, such as by reviewing or verifying the information that they hold.
Key takeaways
The Financial Action Task Force has strengthened its beneficial ownership transparency standards to prevent and deter the misuse of legal persons and corporate vehicles for money laundering and terrorist financing. The revised Recommendation 24 requires countries to use a multi-pronged approach for the collection of beneficial ownership information to ensure that adequate, accurate, and up-to-date information on the beneficial ownership of legal persons is available and can be accessed by competent authorities in a timely manner.
