This week, the Financial Action Task Force (FATF), an intergovernmental body dedicated to providing regulatory frameworks to governments around money laundering and terrorist financing, published its most extensive guidance around transparency and beneficial ownership to date. Since the release of the updated FATF 40 recommendations in 2012, these two topics were commonly considered the biggest changes within the recommendations. Thus they carry a good deal of importance, and concern, for global governments, which are struggling with specific ways to ensure their national and local anti-money laundering regulatory frameworks would meet the 2012 FATF guidelines — especially considering the fact that corporate ownership structures for corporations have become so complex over the last decade.
These newest guidelines cover a few basic areas to help guide AML frameworks from both a prescriptive and strategic approach. First, the guidelines provide requirements for specific information that should be gathered as part of an on boarding process for corporations and on what to do should it prove to be impossible to identify the ultimate beneficial owner.
The guidelines also provide further recommendations on how to handle “indirect ownership” or “indirect control” issues of corporations which has been a growing problem. This is an important step change to traditional due diligence on the ownership structure as some entities, while not “owned” by an individual, the individual could have significant say in the business of the entity. FATF is effectively saying you need to ensure you know who owns the company as well as who controls the company.
From a governmental side, the framework also provides guidance for countries on methods for financial institutions within their borders to verify information on entities. This includes everything from creating their own publicly available company registries to vet entity name and owners against (like the companies house registry in the UK) to requiring entities to always maintain an up to date holding structure of their organization which can be shown to financial institutions and/or regulators when required. This framework is a significant step in the corporate transparency movement to meet record-keeping guidance surrounding ultimate beneficial ownership.
Overall, this week’s guidance is a significant step by FATF in helping governments around the world to effectively create and implement AML regulatory standards.