The Financial Action Task Force (FATF) has published its ‘Report to the G20: Beneficial Ownership’ (the Report) as part of its ongoing work to improve the implementation of international standards on transparency.
In April 2016, the G20 Finance Ministers and Central Bank Governors called on FATF and the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) to make initial proposals by their next meeting on ways to improve transparency in April, including on the availability of beneficial ownership information and its international exchange. The Report is FATF’s response to this request and will be discussed later this week at FATF’s plenary meeting to be held in Paris on 19 to 21 October.
FATF first set international standards on beneficial ownership in 2003 and strengthened these standards in 2012, at which point 198 jurisdictions committed to implementing the FATF standards and to undergo peer reviews to assess their compliance. The standards provide a robust framework for ensuring that adequate and accurate beneficial ownership information is available to competent authorities in a timely manner. FATF subsequently issued Guidance on Transparency and Beneficial Ownership in 2014 to further clarify what the FATF standards require. The standards, which are intended to prevent the misuse of companies, trusts, and other corporate vehicles, are therefore globally recognised and are used in the peer review process of the Global Forum.
The Report sets out FATF’s assessment of countries’ implementation of the revised 2012 standards and details of how it intends to follow up its review to make sure any problems are addressed. The Report concludes that of the nine FAFT members assessed, only two of them were found to have a substantial level of effectiveness in relation to beneficial ownership requirements. Specific problems include:
Insufficient accuracy and accessibility of basic information relating to company registration;
Less rigorous implementation of customer due diligence 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.
With a view to achieving the effective implementation of the standards, FATF intends to work on the following proposals:
To place greater emphasis on beneficial ownership in the follow-up processes to FATF mutual evaluations to ensure that it is effective in applying peer pressure on countries to accelerate their implementation of the FATF standards in this area;
To provide clear and consistent recommendations to assessed countries on how to improve effective implementation of beneficial ownership requirements; and
To enhance co-operation between FATF and the Global Forum to reinforce their respective work to improve transparency relating to beneficial ownership.
FATF will continue to intensively monitor the steps taken by countries to fill gaps in their national systems and improve their effectiveness. As the operational challenges of preventing the abuse of corporate vehicles can only be addressed by individual countries, FATF has proposed that the G20 lead by example by meeting the FATF Standards on beneficial ownership and ensuring that they are properly enforced.