United States: FATF Report To The G20 Beneficial Ownership-September 2016

The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard.

For more information about the FATF, please visit the website:

www.fatf-gafi.org

Executive Summary

The G20 Finance Ministers and Central Bank Governors called on the Financial Action Task Force (FATF) and the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) to make initial proposals on ways to improve the implementation of the international standards on transparency, including on the availability of beneficial ownership information, and its international exchange.

The FATF will work on the following proposals on reinforcing implementation of the existing international standards relating to transparency and beneficial ownership:

  • Ensure the emphasis on beneficial ownership in the FATF peer review follow-up processes is effective to apply peer pressure to countries to accelerate their implementation of the FATF Standards in this area.
  • Deliver clear and consistent recommendations to countries on how to improve implementation of the beneficial ownership requirements during assessment processes.
  • Enhance cooperation between the FATF and the Global Forum to further ensure the coherence and mutual reinforcement of work to improve transparency in relation to beneficial ownership, including through identifying examples of effective implementation.

In addition, the FATF proposes the G20 to lead by example by:

  • Issuing a public commitment by G20 members to meet the FATF Standards on beneficial ownership.

These initial proposals were developed by the FATF, building on the extensive work it has already done on beneficial ownership, and reflect discussions with the Global Forum. Another report focusing on the Global Forum's ongoing work on the same topic will be submitted to the G20 separately.

The FATF is an inter-governmental body comprised of 37 members which sets internationally-recognised standards (the FATF Recommendations) to combat money laundering, and the financing of terrorism and proliferation. The FATF leads a global network of 198 jurisdictions which have all committed to implementing the FATF Standards and undergoing peer reviews to evaluate their level of technical compliance and the effectiveness of their implementation. Beneficial ownership is a core aspect of the FATF Standards, and an important focus of its peer review and related follow-up processes.

I. Introduction

In April 2016, the G20 Finance Ministers and Central Bank Governors asked the FATF and the Global Forum to make initial proposals by their next meeting on ways to improve implementation of the international standards on transparency, including on the availability of beneficial ownership information and its international exchange. In response to this request, the FATF is submitting this report to update the G20 on the FATF's ongoing work on transparency of and timely access to beneficial ownership information, and to set out initial proposals for further work which will be discussed at the next FATF Plenary meeting to be held in Paris, France on 19 to 21 October.

II. International standards on transparency of beneficial ownership

  • FATF issued the first international standards on beneficial ownership in 2003

The FATF has a long history of taking action to facilitate transparency and timely access to beneficial ownership information on legal persons and legal arrangements. In 2003, the FATF became the first international body to set international standards on beneficial ownership which focused on legal requirements for financial institutions and other gatekeepers to collect and verify information on the ownership of legal persons and arrangements, and on measures to ensure that reliable information on their beneficial ownership is available to investigators. Over 190 jurisdictions subsequently committed to implementing those standards and underwent peer reviews (mutual evaluations) for their compliance with them.

The FATF's third round of evaluations focused primarily on assessing countries' implementation of the technical requirements on transparency. The results showed some weaknesses, including lack of clarity about how the transparency requirements could be applied in practice, insufficient measures to prevent the misuse of bearer shares and nominees, and accurate and adequate beneficial ownership information not being available in a timely manner. Countries found to have serious deficiencies in their AML/CFT frameworks were subjected to a rigorous follow-up process. This pressure generated positive change and now many countries have put in place solid legal frameworks requiring their financial institutions and other professions and businesses to collect beneficial ownership information about their customers.

As well, the FATF continued to study the issue of beneficial ownership in the context of money laundering and terrorist financing risks, methods and trends, and has issued several reports aimed at raising global awareness of these issues.

  • FATF strengthens its standards on beneficial ownership in 2012

In 2012, the FATF strengthened its standards on beneficial ownership, to give more clarity about how countries should ensure information is available, and to deal with vulnerabilities such as bearer shares and nominees. The revised standards also clearly distinguish between basic ownership information (about the immediate legal owners of a company or trust), and beneficial ownership information (about the persons who ultimately own or control it). They also clarify that having accurate and up-to-date basic information about a legal person or legal arrangement is a fundamental prerequisite for identifying the ultimate beneficial owners, and require countries to provide international cooperation in relation to ownership information. In total, 198 jurisdictions subsequently committed to implementing the FATF's strengthened standards on beneficial ownership, and undergoing peer reviews to assess their compliance.

To facilitate these efforts, the FATF followed up by issuing Guidance on Transparency and Beneficial Ownership in 2014 to further clarify what the FATF Standards require. This guidance paper gives a step-by-step guide on how to access publicly available information on corporate vehicles, and establish procedures to facilitate information requests from foreign counterparts. The FATF continues to issue sector-specific guidance papers aimed at helping financial institutions and other gatekeepers to implement the FATF Standards, including the beneficial ownership requirements. The FATF's ongoing work to facilitate information sharing more generally will also improve transparency and timely access to beneficial ownership information. A full list of relevant FATF publications on beneficial ownership is annexed for reference.

III. Implementation of the existing standards on beneficial ownership: lessons learned

The FATF is now assessing countries' implementation of the revised 2012 standards, and applying a follow-up process to make sure any problems are addressed. Crucially, FATF assessments review whether the international standards are being applied effectively, not just whether countries' laws include the relevant provisions. This places the FATF at the forefront of international peer review bodies, and enables us to identify any gaps or problems with the international standards or with how they are implemented.

  • Results of the FATF evaluations conducted to date

As reported to the G20 in July 2016, the FATF has identified some significant implementation challenges on beneficial ownership based on recent peer reviews. Nine FATF members have been assessed since the FATF Standards were strengthened in 2012. Only two of those nine countries were found to have a substantial level of effectiveness in preventing the misuse of legal persons and arrangements. Major improvements are required in the other seven countries assessed. Some specific problems have been identified, including:

  • Insufficient accuracy and accessibility of basic information relating to company registration;
  • Less rigorous implementation of customer due diligence (CDD) measures by key gatekeepers such as company formation agents, lawyers, and trust-and-company-service providers;
  • Lack of sanction on companies which fail to update information held by national company registries, or to keep information about their shareholders or members up-to-date; and
  • Obstacles to information sharing such as data protection and privacy laws which impede competent authorities from getting timely access to adequate, accurate and up-to-date basic and beneficial ownership information.

The large-scale misuse of legal persons and arrangements which was exposed in April 2016 focused attention on the need to strengthen controls against the misuse of corporate structures. Our analysis to date does not point to specific gaps or inadequacies in the international standards. Rather, it is becoming clear that some countries (including G20 members) have not yet fully or effectively implemented the FATF Standards on preventing the misuse of legal persons and arrangements. It is therefore imperative for countries to fully and effectively implement the FATF Standards in order to close the gaps in their national systems with regard to legal persons and arrangements.

  • Synergies with the work of the Global Forum

The Global Forum's core mandate is focused on improving transparency and exchange of information for tax purposes through its peer review process. To date its peer reviews have been in relation to the Exchange of Information on Request Standard and have incorporated a focus on legal ownership rather than beneficial ownership information. In that context, it has also identified a number of areas for improvement in relation to the access to, and availability of, legal ownership information for tax compliance purposes. The Global Forum recently commenced a new round of reviews based on new Terms of Reference which now require that all jurisdictions have access to information regarding the beneficial ownership of entities and legal arrangements (as defined by the FATF) operating in their jurisdiction to allow for its international exchange for tax compliance purposes. The Global Forum has also recently adopted the Automatic Exchange of Information Standard, which also incorporates the FATF's definition of beneficial ownership information, and requires financial institutions to identify and report beneficial ownership information to their tax authorities for onward exchange in relation to certain financial accounts. The Secretariats of the FATF and the Global Forum have had some preliminary discussions concerning the synergies between their respective assessment processes.

IV. Initial proposals to reinforce the implementation of international standards

The existing FATF Standards provide a robust framework for ensuring that adequate and accurate beneficial ownership information is available to the competent authorities in a timely manner. However, the results of the peer review process show that many countries still struggle to implement the existing requirements effectively. For that reason, the FATF will work on the following proposals on reinforcing implementation of the existing international standards relating to transparency and beneficial ownership.

Ensure the emphasis on beneficial ownership in the FATF peer review follow-up processes is effective to apply peer pressure to countries to accelerate their implementation of the FATF Standards in this area.

The FATF process for assessing country compliance has proven to be an effective driver for countries to improve their implementation of AML/CFT measures, including those related to beneficial ownership. The related follow-up processes are particularly rigorous and give the FATF a broad range of tools for applying pressure to countries to make the necessary changes to their systems. As a result since the last round of evaluations, many countries have put in place sound legal frameworks requiring financial institutions and other gatekeepers to collect beneficial ownership information on customers who are legal persons or legal arrangements. The FATF will ensure the emphasis on beneficial ownership in the peer review follow-up processes is effective to apply peer pressure to countries to accelerate their implementation of the FATF Standards in this area.

Deliver clear and consistent recommendations to countries on how to improve implementation during assessment processes.

The FATF and its global network of assessment bodies assess compliance with beneficial ownership requirements as they apply in the context of implementing AML/CFT measures. The Global Forum is also an assessment body which assesses compliance with beneficial ownership requirements as they apply in the context of transparency and exchange of information for tax purposes.

Although the scope of FATF and Global Forum assessments differ, it is important to ensure that countries receive clear and consistent recommendations on how to improve their implementation of the international standards on beneficial ownership for AML/CFT purposes (in the case of FATF) and for tax purposes (in the case of the Global Forum). This minimises confusion on the part of assessed countries about what steps they need to take to improve implementation, and facilitates consistent peer pressure and technical assistance which could increase the traction of both bodies' recommendations to countries overall.

The FATF Secretariat and Global Forum Secretariat will map where the respective standards and assessment processes coincide, consider ways to promote clear and consistent recommendations to countries.

Enhance the cooperation between the FATF and the Global Forum to further ensure the coherence and mutual reinforcement of work to improve transparency in relation to beneficial ownership, including through identifying examples of effective implementation.

Some practical challenges recur in the context of different legal and administrative systems, for example: how to ensure the accuracy of ownership information held in a company registry, or how to enable ownership information to be exchanged between fiscal and law enforcement authorities, in both directions.

The FATF Secretariat has taken stock of recent research on the misuse of corporate structures to identify the most important methods and vulnerabilities, looking at the risks posed by different types of legal persons and arrangements, and the challenges related to identifying their beneficial owners. The FATF Secretariat is also conducting a horizontal review of fourth round mutual evaluations to identify specific obstacles to effective implementation, and best practices in overcoming those obstacles. This analysis will enable us to identify priority issues where further work may be needed. Proposals for further work on specific problems will be considered by the FATF Plenary in October 2016, including identifying ways to sustain cooperation between the FATF and Global Forum in the long term and potential options for joint work to be conducted by the FATF and Global Forum members.

In the meantime, the FATF Secretariat will continue its technical discussions with the Global Forum on issues relating to the exchange of beneficial ownership information for tax purposes with a view to ensuring a common understanding of the FATF Standards on beneficial ownership information and how they apply in the broader context of AML/CFT.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions