In the interpretive notes for Recommendations 24 and 25, the FATF provides three approaches for legal entity beneficial ownership transparency: company- based
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The FATF Recommendations
If a financial institution suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity, or are related to terrorist financing, it should be required, by law, to report promptly its suspicions to the financial intelligence unit (FIU)
Date founded: 1989
GUIDANCE ON TRANSPARENCY AND BENEFICIAL - FATF
countries in their implementation of Recommendations 24 and 25, as well as Recommendation 1 as it relates to understanding the ML/FT risks of legal persons
FATF RESPONSE TO THE PUBLIC CONSULTATION ON THE
In June 2009, the FATF began its review of the FATF Recommendations on anti- money Recommendations 24 and 25, including the Interpretative Notes), and
THE CONSOLIDATED FATF STANDARDS ON INFORMATION
financial institutions and DNFBPs undertaking the requirements set out in Recommendations 10 and 22 R 24 Competent authorities should be able to obtain,
[PDF] FATF Recommendation 24: Regulation and Supervision
See also: The full text of the 40 Recommendations, glossary and interpretative notes Return to the FATF 40 Recommendations page Recommendation 24 B
[PDF] APPROACHES TO BENEFICIAL OWNERSHIP - IFAC
In the interpretive notes for Recommendations 24 and 25, the FATF provides three approaches for legal entity beneficial ownership transparency: company- based
[PDF] Appendix A Compliance with Financial Action Task Force on Money
As shown by an evaluation of 159 countries (24 FATF member countries and 135 Recommendation 5: Customer Due Diligence and Record-Keeping
the forty recommendations - OECDorg
and terrorist financing into compliance with the new FATF Recommendations, 24 Designated non-financial businesses and professions should be subject to
[PDF] A Beneficial Ownership Implementation Toolkit - Publications - Inter
defines and describes the FATF recommendations on transparency with FATF Recommendation 24 provides a range of mechanisms to ensure that beneficial
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APPROACHES
TO BENEFICIAL
OWNERSHIP
TRANSPARENCY:
The Global Framework
and Views from theAccountancy Profession
About Chartered Professional Accountants of Canada Chartered Professional Accountants of Canada (CPA Canada) represents the Canadian accounting profession, both nationally and internationally. Operating in the highly complex and global accounting ecosystem, CPA Canada is a convener, facilitator, contributor and disseminator of information that advances the profession. The organizati on works closely with the provincial, territorial and Bermudan CPA bodies to champion best practices that bene?t business and society. With more than 217,000 members, CPA Canada is one of the largest national accounting bodies in the world. The organization supports the setting of accounting, auditing and assurance standards, advocates for e conomic and social development in the public interest, and develops leading-edge tho ught leadership, research, guidance and educational programs.More information is available at cpacanada.ca
About IFAC
IFAC, with its member organizations, serves the public interest by enhanci ng the relevance, reputation and value of the global accountancy profession. IFAC"s purpose is achieved through three strategic objectives: contributing to and promoting the development, adoption and implementati on of high-quality international standards; preparing a future-ready profession; and speaking out as the voice for the global profession. IFAC is comprised of more than 175 members and associations in more than 130 countries
and jurisdictions, representing almost three million accountants in publ ic practice, education, government service, industry and commerce.More information is available at www.ifac.org
APPROACHES TO BENEFICIAL OWNERSHIP TRANSPARENCY
3 The scale of nancial crimes is enormous, with global estimates rangi ng fromUS$1.4 trillion to US$3.5 trillion annually.
1Underlying these trillions of dollars is
criminal activity that damages human wellbeing and harms economies and s ocieties throughout the world. The strong connection between nancial crimes such as money laundering and activities such as the illegal drug trade, corrupti on and human trafcking makes the ght against them all the more urgent. Uncovering and ghting illicit nancial ows requires information on who owns, controls or ultimately benets from any business involved in potentially illegal activities: namely, the benecial owners. By concealing and/or disguising the benecial owners of their assets, lawbreakers hide their activities, their proceeds of crime and their real identities. Whereas anonymity aids and abets money launderers, tax evaders and others, the transparency of benecial ownership information shines a light on the natural persons in control of legal structures, regardless of their purpose. Timely access to accurate benecial ownership information plays a crit ical role for law enforcement and other authorities in identifying, preventing and prosecuting money laundering, terrorist nancing and tax evasion, among other nancial crimes. For nancial institutions and other professional services providers, such as lawyers and accountants, access to timely and accurate benecial ownership inform ation provides a valuable resource for conducting initial and ongoing customer due diligence. International standards for anti-money laundering (AML) establish a framework for transparency of benecial ownership information. Jurisdictions around the world are examining the extent to which, how, and by whom, benecial ownership information is collected, centralized, reviewed and published, consistent with the global framework. In recent years, several countries have established centralized benecial ownership registries, with varying degrees of access by the public. As policymakers continue to consider these developments at the global an d national levels, this report seeks to ground the discussion with evidence-based and practical perspectives, including those of professional accountants who are engaged with benecial ownership information. This report reviews how existing and new models for registries are meeting international standards and reecting the evolving landscape. Through this research, we hope to inform the discussions in many jurisdictions as they assess effective approaches to the transparency of benecial ownership information. As leaders in the global accounting community, we know that the accountancy profession, with its strong public interest mandate, is a committed partner in the ght against nancial crime. We are eager to continue to demonstrate how our profession, working alongside government, law enforcement and other stakeholders, can best work to combat money laundering and other nancial crimes. The ght against nancial crime is too important not to get it rig ht. JOY THOMASMBA, FCPA, FCMA, C. Dir.
President & CEO, CPA Canada
KEVIN DANCEY
CM, FCPA, FCA
CEO, IFAC
FOREWORD
1 ACCA and EY. Economic crime in a digital age. January 2020.APPROACHES TO BENEFICIAL OWNERSHIP TRANSPARENCY
4Executive summary
5The Global framework
7The FATF standards
7Customer due diligence requirements
8Approaches to bene?cial ownership information
10Company-based benecial ownership registers
10Centralized benecial ownership registries
11Using existing information
15Perspectives from the accountancy profession
16Accountants as information users
17Accountants and information accuracy
17Accountants on costs versus benets
18Data privacy concerns
18The role of technology
19Linking to other data sources
20Conclusion
21CONTENTS
APPROACHES TO BENEFICIAL OWNERSHIP TRANSPARENCY
5 The ght against money laundering, corruption and tax evasion requires the participation of a number of stakeholders, including accountants, as wel l as strong legal frameworks and accurate and timely information. Information on ben ecial ownership has been identied as a key factor in ghting these nancial crimes. A large number of accountants routinely interact with benecial ownership information as part of their day-to-day activities. This makes the legal framework around benecial ownership information of direct relevance to the accountancy profession, as it is for all other participants in the ecosystem, including law enforcement, regulators, nancial institutions, lawyers and notaries.At the global level, the
recommendations of theFinancial Action Task Force
(FATF) are the internationally endorsed standards for ghting money laundering and terrorist nancing. Effective implementation of the 40 FATF recommendations by national governments increases transparency and enables countries to successfully take action against illicit use of their nancial systems. The recommendations address transparency and benecial ownership of legal persons (such as corporations and l imited liability companies) and arrangements (such as trusts) as part of a comprehensive framework to ght money laundering and terrorist nancing. The FATF recommendations provide governments and policymakers with principles for benecial ownership transparency based on an outcomes-focused approach. This acknowledges the varying domestic political, economic and historical cir cumstances, and accordingly facilitates their implementation. However, it also raises questions as to which approach is most effective in achieving the goal of ghting money laundering. Jurisdictions around the world are grappling with questions regarding the extent to which, how, and by whom, benecial ownership information is collected, reviewed and made available. Central to this discussion is the concept of bene cial ownershipEXECUTIVE SUMMARY
Accountants routinely interact
with bene?cial ownership information as part of their day-to-day activities. This makes the legal framework around bene?cial ownership information of direct relevance to the accountancy profession.The FATF recommendations
provide governments and policymakers with principles for benecial ownership transparency based on an outcomes-focused approach. This acknowledges the varying domestic political, economic and historical circumstances, and accordingly facilitates their implementation.Who is a bene?cial owner?
The term
bene?cial ownership, along with similar terms such as control persons, has different legal de?nitions in different jurisdictions. This report relies on the general de?nitions provided by the FATF.* For legal persons, a bene?cial owner is a natural person who ultimate ly has a controlling ownership interest in a legal person (with what constitutes a controlling interest determined by the nature of the legal person), either through an ownership interest in the legal person or by other means. For legal arrangements, a bene?cial owner is a settlor, trustee, bene?ciary or any other natural person exercising ultimate effective control over the legal arrangement. *FATF INTERPRETIVE NOTE TO RECOMMENDATION 10APPROACHES TO BENEFICIAL OWNERSHIP TRANSPARENCY
6 registers and registries. This report considers several approaches to benecial ownership transparency and highlights issues for policymakers and other stakeholders. These include company-based benecial ownership registers, centralized benecial ownership registries (with varying degrees of access) and using existing information." For each approach, there are trade-offs that must be made. A key consideration, for example, is the trade-off between cost and accuracy. Without verication, benecial ownership information is less valuable for law enforcement authorities and other users. This is particularly the case when dealing with sophist icated criminal actors motivated by large sums of money. However, there are costs associated with verication, and depending on the size of the jurisdiction, these are potentially signicant. At the same time, advances in technology have the potenti al to bring major efciencies to data verication, as well as data submission, which m ay fundamentally alter the resource requirements around enhanced verication. 2 Privacy concerns also play a signicant role in the discussion, as publicizing ownership information may provide a tool for bad actors to exploit. Limiting the potential risks calls for diligence and care upfront in determining what personal information is needed by competent authorities only and what should be made public. Policymakers should consider issues such as these closely when choosing the appropriate approach for their jurisdiction. Ultimately, the cost-benet analysis for any approach to benecial ownership transparency, such as a public registry, may be different for different jurisdictions. Similarly, it is important to note that the move to a central registry is a signicant change management project. Policymakers may want to consider a phased approach. For example, if a jurisdiction is considering a public registry as the ultimate goal, it may be most effective to prioritize creating an accurate central registry that provides actionable information for law enforcement and other users with regulatory obligations before determining the extent to which the registry should be made public. We have seen this approach in the EU. The Fourth Anti-Money Laundering Directive rst required a central registry. The Fifth Anti-Money Laundering Directive (AMLD5) subsequently required that these registries be made public. Register or Registry?This report adopts the use of
register to refer to records of bene?cial ownership maintained by the corporate entity, and registry to refer to a centralized database of bene?cial ownership information. This approac h is the same as the one set out in the consultation issued by the Government of Canada in February 2020 . When referring to speci?c registries, however, this report will use the proper name (e.g., the UK's PSC Register).Without verication, benecial
ownership information is less valuable for law enforcement authorities and other users.However, there are costs associated
with verication, and... these are potentially signicant.The cost-benet analysis for any
approach to benecial ownership transparency, such as a public registry, may be different for different jurisdictions. 2UK Department for Business, Energy & Industrial Strategy. Corporate Transparency and Register Reform: Consultation on options to enhance the
role of Companies House and increase the transparency of UK corporate entities . May 2019. See p. 20, New technologies can allow the UK to implemen t identity verication in a low-cost and light-touch way."APPROACHES TO BENEFICIAL OWNERSHIP TRANSPARENCY
7The FATF standards
The recommendations of the
Financial Action Task Force
(FATF) are the internationally endorsed global standards for ghting money laundering and terrorist nancing. Since its foundation in 1989 and the initial publication of theFATF Recommendations
in1990, the FATF has expanded from 16
member countries to 39 and has broadened the scope of the recommendations to cover additional areas including terrorist nancing and nancing of the proliferation of weapons of mass destruction. Through the national implementation of the FATF recommendations, as assessed through the mutual evaluations program conducted by the FATF andFATF-style regional bodies
(FSRBs), signicant progress has been made in the ght against money laundering, terrorist nancing and nancing of the proliferation of weapons of mass destruction. Recommendations 24 and 25 address transparency and benecial ownership of legal persons and arrangements. These recommendations require that countries take measures to prevent the misuse of legal persons and arrangements for money laundering or terrorist nancing. Specically, the recommendations require that countries ensure that adequate, accurate and timely information on the benecial ownership and control of legal persons (Recommendation 24) and express trusts (Recommendation 25) can be obtained or accessed in a timely fashion by competent authorities.THE GLOBAL FRAMEWORK
RECOMMENDATION 24
. Transparency and bene?cial ownership of legal persons Countries should take measures to prevent the misuse of legal persons fo r money laundering or terrorist ?nancing. Countries should ensure that there is adequate, accurate and timely info rmation on the bene?cial ownership and control of legal persons that can be obtained or accessed in a timel y fashion by competent authorities. In particular, countries that have legal persons that are able to issue bearer shares or bearer share warrants, or whichallow nominee shareholders or nominee directors, should take effective measures to ensure that they are not
misused for money laundering or terrorist ?nancing. Countries should consider measures to facilitate access to bene?cial ownership and control information by ?nancial institutio ns and Designated Non-Financial Businesses and Professions (DNFBPs) undertaking the requirements set out in Recommend ations 10 and 22.RECOMMENDATION 25
. Transparency and bene?cial ownership of legal arrangements Countries should take measures to prevent the misuse of legal arrangemen ts for money laundering or terrorist ?nancing. In particular, countries should ensure that there is adequate, accurate and timely in formation onexpress trusts, including information on the settlor, trustee and bene?ciaries, that can be obtained or accessed in
a timely fashion by competent authorities. Countries should consider mea sures to facilitate access to bene?cial ownership and control information by ?nancial institutions and DNFBPs undertaking the requirements set out inRecommendations 10 and 22.
APPROACHES TO BENEFICIAL OWNERSHIP TRANSPARENCY
8Mutual evaluations
The FATF and the nine FSRBs conduct peer reviews of each member on an ongoing basis to assess levels of implementation of the FATF Recommendations, providing an in-depth description and analysis of each country"s system for preventing criminal abuse of the nancial system. The outcomes of these mutual evaluations are published in mutual evaluation reports.The FATF and FSRBs compile
assessment ratings for each of the 40 recommendations. Compliance with each recommendation is rated as compliant, largely compliant, partially compliant or non-compliant. As of March 31, 2020, full compliance with Recommendations 24 and 25 was very low. Of the 100 assessed jurisdictions, only one received a rating of compliant for Recommendation 24, and just six were compliant with Recommendation 25. At these levels, Recommendation 24 is the FATF recommendation with the single lowest number of jurisdictions rated compliant in the fourth-round mutual evaluations. As for Recommendation 25, only three other recommendations have similarly low levels of compliance The low level of full compliance provides some of the context for the increased focus by policymakers and civil society on the benecial ownership recommendations.Interpreting the FATF Recommendations
The FATF supplements the recommendations with interpretative notes designed to clarify their application. In the interpretive notes for Recommendations 24 and 25, the FATF provides three approaches for legal entity benecial ownership transparency: company-based benecial ownership registers, centralized benecial ownership registries, and the existing information approach. It is important to note that neither the FATF Recommendations themselves nor the interpretive notes call for public benecial ownership registries. The interpretive notes for Recommendation 25 provide that countries should require trustees of any express trust governed under their law to obtain and hold adequate, accurate and current benecial ownership information regarding the trust.Customer due diligence requirements
The FATF framework prioritizes timely access to benecial ownership informa tion by competent authorities and law enforcement. This access, however, also plays a centralrole in the customer due diligence requirements that apply to professionals, including FATF provides three approaches for legal entity bene?cial ownership
transparency: company-based bene?cial ownership registers; centralized bene?cial ownership registries; and the existing information approach. FATF does not call for public bene?cial ownership registries for legal entities or trusts.R.24R.25
Compliant16
Largely Compliant4445
Partially Compliant4535
Non-Compliant1013
Not Applicable01
COMPLIANCE WITH
RECOMMENDATIONS 24 AND 25
APPROACHES TO BENEFICIAL OWNERSHIP TRANSPARENCY
9 accountants, as set out in Recommendations 10 and 22. Both benecial ownership recommendations provide that countries should consider measures to facilitate access to benecial ownership and control information by nancial institutions and DNFBPs undertaking the requirements set out in Recommendations 10 and 22." The recommendations require that nancial institutions and DNFBPs, a category that includes accountants and lawyers, identify and reasonably verify the benecial owner, including understanding the ownership and control structure of legal persons, when establishing business relationships and carrying out occasional transactions above a threshold value. As the recommendations regarding customer due diligence have been adopted in a large number of countries, compliance with these requirements is a routine part of many accountants" work. The potential value of access to benec ial ownership information, preferably centralized, on the part of accountants in furtherance of their customer due diligence obligations was recognized by the Hong Kong Institute of Certied Public Accountants in a 2017 consultation response:For public interest and professional reasons, access should be available to CPA [Certied Public Accountant] practices and
other relevant DNFBPs to facilitate them in complying with their CDD [customer due diligence] obligations under AMLO[the local money laundering legislation], as proposed. This would also be consistent with FATF Recommendations 24 and
25, which contain the statement: Countries should consider measures to facilitate access to benecial ownership and
control information by nancial institutions and DNFBPs undertaking the requirements set out in Recommendations 10
and 22" (i.e., those relating to CDD and DNFBPs). 3The FATF framework prioritizes
timely access to bene?cial ownership information by competent authorities and law enforcement. This access however, also plays a central role in the customer due diligence requirements that apply to professionals, including accountants.RECOMMENDATION 22
. Customer Due Diligence Requirements: DNFBPs Lawyers, notaries, other independent legal professionals and accountants are required to conduct customer due diligence when they prepare for or carry out transactions for a client c oncerning the following activities: buying and selling of real estate; managing of client money, securities or other assets; management of bank, savings or securities accounts; organization of contributions for the creation, operation or management of companies; creation, operation or management of legal persons or arrangements; and buying and selling of business entities. Trust and company service providers are likewise required to conduct cust omer due diligence when they prepare for or carry out transactions for a client concerning the following acti vities: acting as a formation agent of legal persons; acting as (or arranging for another person to act as) a director or se cretary of a company, a partner of a partnership, or a similar position in relation to other legal persons; providing a registered of?ce, business address or accommodation, correspondence or administrat ive address for a company, a partnership or any other legal person or arrangement; acting as (or arranging for another person to act as) a trustee of an express trust or performing the equivalent function for another form of legal arrangement; acting as (or arranging for another person to act as) a nominee shareh older for another person. 3Hong Kong Institute of Certied Public Accountants. Consultation Paper on Enhancing Transparency of Bene?cial Ownership of Hong Kong Companies. March 5, 2017, p. 5.