Beneficial Ownership
Action Item: Require that the beneficial ownership and control of companies, trusts and foundations be readily available on public record to facilitate effective due diligence.
Background: The flow of illicit money including tax evasion, the proceeds of corruption, criminal cartels and a host of other global ills can be traced to the lack of information about the beneficial owners of corporations, trusts and foundations. Often located in some 70 secrecy jurisdictions around the world, these entities can absorb, hide, and often transfer wealth instantaneously outside the reach of the law enforcement and tax agencies of the countries whose laws are broken. In many instances, the illicit activities of these entities do not benefit the local population and they frequently have no legitimate business purpose. Furthermore, beneficiaries of these activities often remain secret. In effect, these entities operate in a world distinctly separate from, but utilizing the framework of, the legitimate global economy.
As the collapse of Enron showed, multinational corporations (MNCs) can have thousands of subsidiaries hidden throughout the world. Convoluted, multi-jurisdictional structures of this kind are used commonly as a way of siphoning off and transferring illicit funds. However, even a few related companies located in different secrecy jurisdictions can create an often impenetrable ownership chain that makes uncovering the true nature of transactions and tracing beneficial ownership and the origin of funds difficult, and often impossible, for investigators.
Illicit financial flows are not aberrations but part of a broad structural problem that spans the globe. In order to address these ills, jurisdictions around the world must ensure that they maintain a current list of the beneficial owners of corporations, limited liability companies, and other legal persons and structures created under their laws and make those lists public. The FATF requirements for establishing beneficial ownership as part of the customer due diligence process must be rigorously implemented globally. Anti-money laundering laws in each jurisdiction must be absolutely explicit that banks identify all beneficial owners, and that such owners must be a natural (i.e., real) person or listed corporation, not a nominee corporation or disguised trust.
Benefit: Providing beneficial ownership information is of extreme importance, because it will give investigators the tools they need to help identify, prosecute those individuals responsible for the illegal actions of [their] corporations and deter future illegal activity. Banks will be in a better position to fulfill their regulatory requirements and determine the credit worthiness of potential customers. In addition, current and potential investors will have an enhanced understanding of the workings of the corporations in which they invest.
Executing Authority: Financial Action Task Force and G20 and G20 Countries.
