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Concealment of Beneficial Ownership - FATF-GAFI.ORG

Concealment of Beneficial OwnershipJuly 2018of Financial Intelligence Units GroupEgmont The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard. For more information about the FATF, please visit This document and/or any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. The goal of the Egmont Group of Financial Intelligence Units (Egmont Group) is to provide a forum for financial intelligence unites (FIUs) around the world to improve cooperation in the fight against money laundering and the financing of terrorism and to foster the implementation of domestic programs in this field.

Concealment of Beneficial Ownership July 2018 of Financial Intelligence Units Group Egmont

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Transcription of Concealment of Beneficial Ownership - FATF-GAFI.ORG

1 Concealment of Beneficial OwnershipJuly 2018of Financial Intelligence Units GroupEgmont The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard. For more information about the FATF, please visit This document and/or any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. The goal of the Egmont Group of Financial Intelligence Units (Egmont Group) is to provide a forum for financial intelligence unites (FIUs) around the world to improve cooperation in the fight against money laundering and the financing of terrorism and to foster the implementation of domestic programs in this field.

2 For more information about the Egmont Group, please visit the website: Citing reference: FATF Egmont Group (2018), Concealment of Beneficial Ownership , FATF, Paris, France, 2018 FATF/OECD Egmont Group of Financial Intelligence Units. All rights reserved. No reproduction or translation of this publication may be made without prior written permission. Applications for such permission, for all or part of this publication, should be made to the FATF Secretariat, 2 rue Andr Pascal 75775 Paris Cedex 16, France (fax: +33 1 44 30 61 37 or e-mail: Photocredits coverphoto Thinkstock Concealment OF Beneficial Ownership 1 2018 | FATF Egmont Group Report TABLE OF CONTENTS ACRONYMS .. 3 EXECUTIVE SUMMARY .. 5 Specialist and professional intermediaries .. 6 Anti-money laundering obligations and supervision .. 8 Issues for consideration.)

3 9 INTRODUCTION .. 11 METHODOLOGY .. 13 Horizontal Study of Enforcement and Supervision .. 14 DEFINITION OF Beneficial OWNER .. 16 STRUCTURE OF THE REPORT .. 18 SECTION 1 MISUSE OF LEGAL PERSONS AND ARRANGEMENTS .. 20 Legal persons .. 20 Legal arrangements .. 23 SECTION 2 TECHNIQUES USED TO OBSCURE Beneficial Ownership .. 25 Generating complex Ownership and control structures .. 26 Using individuals and financial instruments to obscure the relationship between the Beneficial owner and the asset .. 35 Falsifying activities .. 42 SECTION 3 VULNERABILITIES OF PROFESSIONAL INTERMEDIARIES .. 46 Continuum of complicity .. 48 OVERVIEW OF COMMONLY EXPLOITED INTERMEDIARIES .. 50 Legal Professionals .. 50 Accountants .. 52 Trust and Company Service Providers .. 54 Other Intermediaries .. 56 OVERVIEW OF VULNERABILITIES .. 58 Establishing legal persons and arrangements.

4 58 Establishing and selling shelf companies .. 60 Directorship, trustee, virtual office, and mailbox services .. 61 Facilitating transactions through trust accounts or client accounts .. 63 Facilitating the purchase or sale of real 64 Client advocacy and brokerage services .. 66 2 Concealment OF Beneficial Ownership 2018 | FATF Egmont Group Report Providing services to clients and intermediaries domiciled internationally .. 68 Providing advice on tax compliance .. 70 Legal professional privilege and client 71 Limited AML/CFT obligations or insufficient awareness and compliance .. 73 SECTION 4 ENVIRONMENTAL VULNERABILITIES .. 76 Jurisdictional vulnerabilities .. 76 Vulnerable business practices .. 82 SECTION 5 CONCLUSIONS AND ISSUES FOR CONSIDERATION .. 86 ANNEX A. REFERENCES .. 93 ANNEX B. HORIZONTAL STUDY: ENFORCEMENT AND SUPERVISION OF Beneficial Ownership OBLIGATIONS.

5 95 ANNEX C. CASE 110 ANNEX D. SOURCES OF INFORMATION AND TECHNIQUES TO DISCOVER Beneficial Ownership .. 172 Tools to identify potential efforts to obscure Beneficial Ownership .. 176 Techniques to identify potential efforts to obscure Beneficial Ownership .. 178 Additional resources .. 180 ANNEX E. INDICATORS OF CONCEALED Beneficial Ownership .. 181 Indicators about the client or customer .. 181 Indicators of shell companies .. 184 Indicators about the transaction .. 185 Concealment OF Beneficial Ownership 3 2018 | FATF Egmont Group Report ACRONYMS ACRA Singapore Accounting and Corporate Regulatory Authority AEOI Automatic Exchange of Information for Tax Purposes AML/CFT Anti-money laundering and counter-terrorist financing APG Asia Pacific Group ATM Automatic teller machine BVI British Virgin Islands CDD Customer due diligence CFTC United States Commodity Futures Trading Commission CSP Corporate service provider DNFBPs Designated non-financial businesses and professions DOJ United States Department of Justice EOIR Standards on exchange of information for tax purposes.

6 The Exchange of Information on Request EUR Euro FATCA United States Foreign Account Tax Compliance Act FATF Financial Action Task Force FATF TREIN FATF Training and Research Institute FinTech Financial technology FIU Financial intelligence unit GIFCS Group of International Finance Centre Supervisors IMF International Monetary Fund IP Internet protocol KYC Know your customer LLC Limited liability companies LPP Legal professional privilege LTD Private company limited by shares MLRO Money Laundering Reporting Officer 4 Concealment OF Beneficial Ownership 2018 | FATF Egmont Group Report ML/TF Money laundering and terrorist financing MSB Money service business OCCRP Organised Crime and Corruption Reporting Project OECD Organisation for Economic Co-operation and Development OFC Offshore financial centres PEP Politically exposed person RegTech Regulatory technology SRBs Self-regulating bodies STR Suspicious transaction report TBML Trade-based money laundering TCSP Trust and company service provider US United States of America USD United States dollars VPN Virtual private network Concealment OF Beneficial Ownership 5 2018 | FATF Egmont Group Report EXECUTIVE SUMMARY 1.

7 Criminals employ a range of techniques and mechanisms to obscure their Ownership and control of illicitly obtained assets. Identifying the true Beneficial owner(s) or individual(s) exercising control represents a significant challenge for prosecutors, law enforcement agencies, and intelligence practitioners across the globe. Schemes designed to obscure Beneficial Ownership often employ a hide-in-plain sight strategy, leveraging global trade and commerce infrastructures to appear legitimate. However, visibility does not equate to transparency, and many of the tools that were designed to encourage business growth and development, such as limited liability corporations and nominee directorship services, can be used to facilitate money laundering, tax evasion, and corruption.

8 The globalisation of trade and communications has only increased this threat, and countries now face the challenge of enforcing national laws in a borderless commercial environment. 2. This joint FATF Egmont Group report takes a global view assessing how legal persons, legal arrangements and professional intermediaries can help criminals conceal wealth and illicit assets. The purpose of the report is to help national authorities including FIUs, financial institutions and other professional service providers in understanding the nature of the risks that they face. 3. Analysis of 106 case studies demonstrates that legal persons, principally shell companies, are a key feature in schemes designed to disguise Beneficial Ownership , while front companies and bearer shares are less frequently exploited.

9 4. Individuals and groups seeking to conceal the Ownership of assets are most likely to exercise control over those assets via a combination of direct and indirect control, rather than strictly one or the other. In a majority of cases, the Beneficial owner used a combination of layering and direct Ownership chains, as well as professional intermediaries and third parties exercising control on their behalf. In a limited number of cases, the Beneficial owner exercised only indirect control and rarely retained direct control through a complicated structure without involving an intermediary. This demonstrates that, in many cases, the Beneficial owner will maintain some level of direct control in a scheme, but will rarely do so without also involving an intermediary or straw man (informal Shell company incorporated company with no independent operations, significant assets, ongoing business activities, or employees.)

10 Front company fully functioning company with the characteristics of a legitimate business, serving to disguise and obscure illicit financial activity. Shelf company incorporated company with inactive shareholders, directors, and secretary and is left dormant for a longer period even if a customer relationship has already been established. Legal arrangements refers to express trusts or other similar legal arrangements. Legal persons refers to any entities other than natural persons that can establish a permanent customer relationship with a financial institution or otherwise own property. 6 Concealment OF Beneficial Ownership 2018 | FATF Egmont Group Report nominee shareholders and directors, such as spouses, children, extended family, and other personal or business associates). 5. Nominee directors and shareholders, particularly informal nominees (or straw men ), are a key vulnerability, and were identified in a large majority of case studies assessed for this report.


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