The concealment of funds; is it illegal or just immoral? Beneficial ownership identification and verification is now an essential component of KYC; it makes up the very core of the latest anti-money laundering (AML) regulations. Scandals such as the Panama Papers and Monaco based firm Unaoil highlight the absolute need for robust customer due diligence (CDD) and have encouraged heightened transparency with regards to ownership disclosure. Whilst the penalties are clearly identifiable, discerning the complex legal structures designed to conceal Ultimate Beneficial Ownership (UBO) represents a prominent challenge. Confusion over multiple beneficial ownership definitions, a lack of accurate ownership registries and the inability and reluctance of accurate disclosure inevitability hinders the ability to understand the true ownership of entities.
In 2018, the Financial Action Task Force (FATF) released a report discussing its findings around the concealment of beneficial ownership and how such vulnerabilities should be addressed. The report concluded that after an analysis of 106 case studies of various companies, legal persons were a key feature in schemes designed to disguise beneficial ownership. The report found that such individuals who seek to conceal the ownership of their assets, often owned such assets via a combination of direct and in indirect ownership. This was usually facilitated through intermediary companies and third parties that would exercise control of their assets without ultimately owning them, (generally through designated Usufruct shareholders). The FATF also concluded that the services of both lawyers and accountants are rarely used to aid such schemes, usually with companies often relying on a “hide in plain-sight” approach. This significantly debilitates the ability of financial institutions, professional intermediaries, and competent authorities to identify suspicious activities designed to obscure beneficial ownership and facilitate crime.
As a result of the FATF’s report, they concluded key points that would help address such vulnerabilities associated with the concealment of beneficial ownership:
So why are these issues so prevalent? Even though the challenges highlighted are significant, ultimately by addressing the problems surrounding concealment, corporations will have the ability to address the compliance issues of today. Here at Lysis Financial we can work with you to ensure that your organisation has the correct controls and process in place to help mitigate the reputational and operational risks associated with the failure to comply with such financial regulations.
We can provide you with services across Governance, Risk and Compliance, including Section 166 remediation, enterprise-wide risk management frameworks and the design and implementation of client on-boarding and AML target operating models to help you navigate the complexity of the compliance policies and procedures that must be adhered to.
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