On 25 October 2019, the Financial Action Task Force (FATF) published a report on Best Practices on Beneficial Ownership for Legal Persons (Report), identifying the most common challenges countries face in ensuring that the beneficial owner(s) of legal persons are identified and suggests key features of an effective system. The Report builds on the 2014 FATF guidance for Transparency and Beneficial Ownership as well as the 2012 strengthened Standards, which itself includes a recommendation (Recommendation 24) in connection with beneficial ownership.
The Report recommended that:
- Countries should use one or more of the mechanisms identified within the Report to ensure that information on the beneficial ownership of a company is obtainable and made readily available. The mechanisms are as follows:
- Registry Approach: Companies’ registries are required to obtain and hold up-to-date information on the beneficial ownership of each company.
- Company Approach: Companies are required to obtain and hold up-to-date information on their own beneficial ownership or, alternatively, take reasonable steps to do so proportionate to the levels of money laundering/ terrorist financing risk they present.
- Existing Information Approach: Countries should use existing information available to it to comply with FATF requirements.
- A multi-pronged approach whereby several sources of information is used would often prove to be more effective in increasing transparency and preventing the misuse of legal persons for criminal purposes.
- Using multiple sources will also increase the accuracy of information held on the beneficial ownership of a company by enabling cross-checking and provides for increased pressure on companies to ensure that they fulfil their obligations correctly and honestly.
Key challenges to implementing an effective beneficial ownership system
The Report also lists a series of challenges found in the current system structure for beneficial ownership, providing recommendations to Member States on methods of mitigating these challenges. The challenges identified included the following areas:
- Risk Assessment: Member States were found to have inadequate risk assessments, which on occasion were found to omit certain types of legal persons as well as only considering domestic threats and vulnerabilities,
- Adequacy, accuracy, and timeliness of information on beneficial ownership: Hindrances on the provision of accurate and up-to-date information were found to have included limited communication and coordination among sources of information.
- Access by competent authorities: Competent authorities were found to suffer from inadequate processes which would have allowed them timely access to beneficial ownership information on legal persons. These tended to be obstacles such as information sharing, data protection and privacy laws.
- Fines and sanctions: The Report found that there was a lack of effective, proportionate, and deterrent sanctions.
- The assessments of 25 Member States by FATF since 2012 found more than half of the Member States failing to maintain compliance with Regulation 24 Standards. This was largely due to the weak implementation of the existing standard, as opposed to gaps in the standard itself.