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 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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.