GUIDANCE ON TRANSPARENCY AND BENEFICIAL …

1 FATF GUIDANCE TRANSPARENCY And BENEFICIAL OWneRSHiPOctober 2014 FINANCIAL ACTION TASK FORCE 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 the website: 2014 FATF/OECD. All rights reserved. No reproduction or translation of this publication may be made without prior written permission.

2 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: GUIDANCE ON TRANSPARENCY AND BENEFICIAL OWNERSHIP 2014 1 TABLE OF CONTENTS TABLE OF ACRONYMS .. 2 I. INTRODUCTION .. 3 II. THE misuse OF LEGAL PERSONS AND ARRANGEMENTS .. 6 III. THE DEFINITION OF BENEFICIAL OWNER .. 8 Legal Persons .. 8 Legal Arrangements .. 9 IV. EFFECTIVE MECHANISMS TO COMBAT THE misuse OF LEGAL PERSONS AND ARRANGEMENTS .. 10 V. ENHANCING THE TRANSPARENCY OF LEGAL PERSONS ( ) .. 12 Definition of legal persons .. 12 Scope of Recommendation 24.)

3 12 Understanding the risk associated with legal 13 Basic ownership information .. 13 BENEFICIAL ownership information .. 14 Other measures to enhancing 16 Mechanisms and sources for obtaining BENEFICIAL ownership information of legal persons .. 18 Other measures to enhance the TRANSPARENCY of companies .. 27 VI. ENHANCING TRANSPARENCY OF LEGAL ARRANGEMENTS (RECOMMENDATION 25) .. 29 Scope of Recommendation 25 .. 29 Understanding the risk associated with legal arrangements .. 30 Requirements for trust law countries .. 30 Common requirements for all countries .. 31 Other possible 32 Other requirements and a combined approach .. 33 VII.

4 RELATIONSHIP BETWEEN BENEFICIAL OWNERSHIP OBLIGATIONS AND OTHER RECOMMENDATIONS (CDD AND WIRE TRANSFERS REQUIREMENTS) .. 35 Wire transfers and BENEFICIAL ownership as part of CDD .. 37 Trust and company service providers (TCSPs) .. 37 Issues relating to the legal 37 VIII. ACCESS TO INFORMATION BY COMPETENT AUTHORITIES .. 39 IX. INTERNATIONAL COOPERATION .. 40 X. CONCLUSION .. 42 BIBILIOGRAPHY .. 43 ANNEX 44 Table 1 Recommendation 24 Overview of the basic requirements .. 44 Table 2 Recommendation 25 Overview of the basic requirements & other measures .. 46 GUIDANCE ON TRANSPARENCY AND BENEFICIAL OWNERSHIP 2 2014 TABLE OF ACRONYMS AML/CFT Anti-Money Laundering / Countering the Financing of Terrorism (also used for Combating the Financing of Terrorism)

5 ACWG Anti-Corruption Working Group BO BENEFICIAL Ownership CDD Customer Due Diligence CEO Chief Executive Officer CFATF Caribbean Financial Action Task Force CFO Chief Financial Officer CFT Counter-Terrorist Financing DNFBP Designated Non-Financial Business or Profession FATF Financial Action Task Force FI Financial Institution FIU Financial Intelligence Unit IO Immediate Outcome IN Interpretive Note ML Money Laundering NPO Non-Profit Organisation OECD Organisation for Economic Co-operation and Development PDG Policy Development Group R. Recommendation STaR Stolen Asset Recovery Initiative TCSP Trust or Company Service Providers TF Terrorist Financing UNODC World Bank and United Nations Office of Drugs and Crime GUIDANCE ON TRANSPARENCY AND BENEFICIAL OWNERSHIP 2014 3 GUIDANCE ON TRANSPARENCY AND BENEFICIAL OWNERSHIP (RECOMMENDATIONS 24 & 25) I.

6 INTRODUCTION 1. corporate vehicles1 such as companies, trusts, foundations, partnerships, and other types of legal persons and arrangements conduct a wide variety of commercial and entrepreneurial activities. However, despite the essential and legitimate role that corporate vehicles play in the global economy, under certain conditions, they have been misused for illicit purposes, including money laundering (ML), bribery and corruption, insider dealings, tax fraud, terrorist financing (TF), and other illegal activities. This is because, for criminals trying to circumvent anti-money laundering (AML) and counter-terrorist financing (CFT) measures, corporate vehicles are an attractive way to disguise and convert the proceeds of crime before introducing them into the financial system.

7 2. The misuse of corporate vehicles could be significantly reduced if information regarding both the legal owner and the BENEFICIAL owner, the source of the corporate vehicle s assets, and its activities were readily available to the Legal and BENEFICIAL ownership information can assist law enforcement and other competent authorities by identifying those natural persons who may be responsible for the underlying activity of concern, or who may have relevant information to further an investigation. This allows the authorities to follow the money in financial investigations involving suspect accounts/assets held by corporate vehicles.

8 In particular, BENEFICIAL ownership information3 can also help locate a given person s assets within a jurisdiction. However, countries face significant challenges when implementing measures to ensure the timely availability of accurate BENEFICIAL owner information. This is particularly challenging when it involves legal persons and legal arrangements spread across multiple jurisdictions. 3. The Financial Action Task Force (FATF) has established standards on TRANSPARENCY , so as to deter and prevent the misuse of corporate vehicles. The FATF Recommendations require countries4 to ensure that adequate, accurate and timely information on the BENEFICIAL ownership of corporate vehicles is available and can be accessed by the competent authorities in a timely fashion.

9 To the extent that such information is made available,5 it may help financial institutions (FIs) and designated non-financial businesses and professions (DNFBPs) to implement the customer due diligence (CDD) requirements on corporate vehicles including to identify the BENEFICIAL owner, identify and manage ML/TF risks, and implement AML/CFT controls based on those risks (including 1 This paper uses the term corporate vehicles to mean legal persons and legal arrangements, as defined in the glossary of the FATF Recommendations. 2 FATF (2006), and FATF & CFATF (2010).)

10 3 The term BENEFICIAL owner is defined in chapters IV, and the terms BENEFICIAL ownership information are defined with respect to legal persons and legal arrangements in chapters V and VI respectively. 4 All references in this GUIDANCE paper to country or countries apply equally to territories or jurisdictions. 5 The Interpretive Note to Recommendation 24 at paragraph 13 requires countries to consider facilitating timely access by FIs and DNFBPs to a company s register of its shareholders or members, containing the names of the shareholders and members and number of shares held by each shareholder and categories of shares (including the nature of the associated voting rights).