FATF Guidance Clarifies Beneficial Ownership Stance

2014-10-28

■FATF Guidance Clarifies Beneficial Ownership Stance

The Financial Action Task Force, an international body that sets standards for anti-money laundering and counter-terrorist financing, issued guidance for countries on beneficial ownership and for banks on implementing a risk-based approach toward handling customers.

Experts told Risk & Compliance Journal that basics in the guidance documents aren’t that new, but they will help countries implement policies that adhere to the FATF standards. Countries that fail to implement the FATF’s standards run the risk of being labeled as high-risk or uncooperative jurisdictions, making it more costly and difficult for those nations to transact with the banking systems of FATF member states. The body has been periodically issuing guidance since 2012, when it issued a new slate of standards.

“It’s quite helpful to provide criteria for the [FATF] to be satisfied with what a country is doing,” said Robert Palmer, the head of campaigns for nonprofit group Global Witness, which is in the middle of a $1 million effort pushing for corporate transparency on ownership.

Beneficial ownership has been a growing issue, as countries crack down on the abuse of corporate vehicles, such as companies or trusts, for illicit finance purposes like money laundering or financing terrorism. Criminals use the opacity of corporate vehicles to hide their identity, the true purpose of the account and the source or use of funds or property associated with the corporate vehicle, the FATF noted.

In the U.S., the Treasury Department has proposed a rule requiring banks to check who is the ultimate owner of a corporate account upon its opening. For its proposed rule, the U.S. established two “prongs” of ownership criteria–shareholder ownership or control: Any individual who owns 25% or more of the equity interest in an entity, or an individual with “significant responsibility” to control the entity, is considered a “beneficial owner.”

The FATF didn’t set a baseline for a shareholder stake to be considered a beneficial owner, but it instead gave a range of ways in which a country can fulfill its requirement with the standard, including requiring a company to hold its own information or for the country to rely on existing information.

Heather Lowe, legal counsel and director of government affairs for Global Financial Integrity, said the guidance “provided some helpful ideas” on ways a country can comply with the FATF standards. “It will be difficult for a country to say it did not know what it might do in order to comply,” she said.

The guidance on a risk-based approach comes days after the FATF issued a statement on “de-risking,” the increasing phenomenon of financial institutions backing out of business relationships with customers due to potential legal, reputational or regulatory concerns. It said the guidance will provide for flexibility and more efficient use of resources as banks identify the most effective ways to mitigate their individual risks.

“It enables them to focus their resources and take enhanced measures in situations where the risks are higher, apply simplified measures where the risks are lower and exempt low-risk activities. The implementation of the risk-based approach will avoid the consequences of inappropriate de-risking behavior,” the FATF said.

Source: The Wall Street Journal