Louis Parris (FILE)
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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: firstname.lastname@example.org