Beneficial ownership: Corporate striptease (Part 2)

LOUIS PARRIS,

Added 18 June 2017

louis-parris-10-minute-manager

Louis Parris (FILE)

THERE ARE THREE issues which are essential to the establishment of an effective beneficial ownership regime; ownership, control and transparency.

The Financial Action Task Force (FATF) guidelines recommend that in respect of corporate vehicles, share ownership thresholds should be established. They do not stipulate what it should be but suggest 25 per cent as reasonable. Most countries in Europe and the United States (US) have established a minimum threshold of 25 per cent.

Barbados has adopted an even more stringent approach. The anti-money laundering/countering of terrorist financing guideline issued by the Central Bank of Barbados (December 2016) states: “If the company is a private, identity should be sought on persons with a minimum of ten per cent shareholding”.

It is important to note that financial institutions are required to utilise lower thresholds depending on the perceived quantum of risk being presented.

Beneficial ownership regulations have both an ownership prong and a control prong. Whilst ownership may be evidenced by various registration documents, the area of control is somewhat like the smoke and mirrors in the strip tease metaphor.

Control may include indirect control which may extend beyond legal (direct) ownership and may include devices such as shareholder’s agreements, and the exercise of dominant influence or power to appoint senior management. There may be collusion between shareholders to increase the level of control by a person through formal or informal agreements. The person pulling the strings may have no identifiable share ownership at all.

There may be informal control through other means such as personal connections to persons that possess ownership or the natural person(s) responsible for strategic decisions that fundamentally affect the business practices or general direction of the legal person.

The permutations by which the actors behind the veil may exercise control are multiple and that is why the issue of beneficial ownership is such a difficult issue for financial institutions who wish nothing more than to be able to book the business. It is the reason financial institutions place such a great emphasis on know your customer procedures.

The third leg of the beneficial ownership regime is the issue of who should have access to beneficial ownership information and where that information should be held. FATF wants a virtual open door policy but provides some flexibility on how beneficial ownership information is made available. FATF preference is for the maintenance of central beneficial ownership registers that are open to those who need the information and it is easy to see why this would be the most efficient and transparent solution.

There has been considerable pushback however; objections revolve around loss of confidentiality and ceding of jurisdictional competitive edge. Within the scope of the FATF guidelines, various countries have adopted varying models.

The United Kingdom (UK) instituted a central register in 2016. Their centralised register will be open to the public as it is argued that the more eyes which can see the information, the greater the likelihood this would result in more accurate information being submitted to the registry. It is further argued that such an approach benefits not just the host country but any country wishing to do business with UK affiliated companies and that this in turn will be a huge deterrent to corruption and bribery and will therefore benefit all parties.

The US is leaning toward legislation that would require beneficial ownership information to be reported to the Financial Crimes Enforcement Network (FinCEN), essentially creating a registry of beneficial ownership information.

Cayman Islands have opted for a disaggregated system which leaves the beneficial ownership information intact with the service providers but which can be accessed by regulators through a dedicated platform. The platform will also provide UK authorities with access since Cayman is a dependent territory. However the information will not be public. Most Caribbean countries will probably follow the Cayman disaggregated model with access to regulators and government agencies.

The risk profile of a particular country now places heavy reliance on the extent to which the beneficial ownership regime has been effectively deployed. In the struggle to maintain correspondent banking relationships it is a key factor.

In the next article, we will look at some the main ways in which corporate vehicles can be misused.

Louis Parris is a Certified anti-money laundering (AML) compliance audit professional, consultant and publisher of the Caribbean Banking Intelligence AML Compliance Newsletter. Email: louisp@caribsurf.com

JOIN THE DISCUSSION

Dos and Donts


Welcome to our discussion forum here on nationnews.com. We encourage lively debate, but we also urge you to take note of the following:

  • Stay on topic – This helps keep the thread focused on the discussion at hand. If you would like to discuss another topic, look for a relevant article.
  • Be respectful – Meeting differences of opinion with civil discussion encourages multiple perspectives and a positive commenting environment.
  • Do not type in capitals – In addition to being considered “shouting” it is also difficult to read.
  • All comments will be moderated – Given the volume of comments each day, this may take some time. So please be patient.
  • We reserve the right to remove comments – Comments that we find to be abusive, spam, libellous, hateful, off-topic or harassing may be removed.
  • Reproduction of comments – Some of your comments may be reproduced on the website or in our daily newspapers. We will use the handle, not your email address.
  • Do not advertise – Please contact our Advertising Department.
  • Contact our Online Editor if you have questions or concerns.
  • Read our full Commenting Policy and Terms of Use.
comments powered by Disqus

VIDEO

FRONT COVER OF TODAY'S NEWSPAPER

POLL

Have you started taking recycled bags to the supermarket to cut down on the use of plastic bags?

Yes
No

INSTAGRAM

CARTOON