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The Financial Action Task Force (FATF) has adopted timely amendments to Recommendation 24, considering both the Ukraine-Russia crisis and the Credit Suisse money laundering scandal, and its interpretive note dealing with beneficial ownership.
Recommendation 24 of the standards setter’s regulatory guidance requires countries to prevent the misuse of legal persons for money laundering or terrorist financing and to ensure that there is adequate, accurate and up-to-date information on the beneficial ownership and control of legal persons.
“These amendments represent the outcomes of the two years of work in reviewing the standards,” said FATF in a statement following its plenary meeting.
FATF said that the rules strengthen the international standards on beneficial ownership of legal persons, to ensure greater transparency about the ultimate ownership and control of legal persons and to mitigate the risks of their misuse.
This will significantly strengthen the requirements for beneficial ownership transparency globally, the Paris-based institution said, while also retaining a degree of flexibility for countries that are signed up to go further in refining individual regimes.
Specifically, FATF member countries have agreed to ensure that:
- All countries have a beneficial ownership registry or an equivalent alternative in place.
- Companies hold information that shows the identity of the ultimate beneficial owner.
- Authorities assess and mitigate the money laundering and terrorist financing risks associated with foreign companies, to which their countries are exposed.
- New bearer shares, a type of share that does not need to be registered under a specific person or business, are banned.
Although only the public statement is available currently, FATF has said that once the guidelines are published, it expects all countries to take concrete steps to implement these new standards promptly, and to determine the appropriate sequence and timeframe for implementation at a national level.
Some countries that have signed up to adhere to FATF’s recommendations still lack a beneficial ownership register.
Last year, Transparency International found that although the majority of the EU's 27 member states had created at least a minimum of a private, central beneficial ownership register, Hungary, Italy and Lithuania still had not.
'Significant Misuse'
“These changes respond to the significant misuse of legal persons for money laundering, terrorist financing, and also for proliferation financing in a number of jurisdictions,” said FATF.
Mutual evaluations, which are in-depth country reports that analyse the implementation and effectiveness of measures, show a generally insufficient level of effectiveness in combating the misuse of legal persons for money laundering and terrorist financing globally, and that countries need to do more to implement the current FATF standards “promptly, fully and effectively”.
“These stronger standards are an important first step, but tackling the abuse of legal persons will need constructive and sustained effort by all countries to effectively implement the new standards and respond to risks,” said FATF.
Both the evolving money laundering risks and the widely publicised failures to prevent misuse of legal persons show that the current standards need to be updated, the institution warned.
In recent months, a series of leaks and an investigation across multiple media companies revealed the Suisse Secrets, exposing the hidden wealth of clients of banking giant Credit Suisse that are involved in torture, drug trafficking, money laundering and corruption, as well as other serious crimes.
Accounts included a Filipino human trafficker, executives who looted Venezuela’s state oil company and a billionaire who ordered the murder of his musician partner in Lebanon.
However, criticisms of the Swiss banking system overstated, according to Nihat M. Cingöz, co-head of the financial hub at foraus, a Swiss foreign policy think tank.
“It is based on a truly sad misconception that international media and politicians, quite frequently from the UK and the US for example, present the Swiss banking and finance sector as the origin of badness,” he said.
Recent scandals that we see in the media are related to happenings that are quite old when Switzerland and other countries had a more unregulated environment, he suggested. “This is not the case for a long time now and current Swiss AML rules are quite up-to-date and conform to today’s international standards.”
Indeed, he argued, going off of FATF’s public statement, Switzerland would not need to drastically overhaul its compliance with Recommendation 24. “I’m not saying that things could not be made more transparent or even more efficient in Switzerland, but even without these, the Swiss alternative mechanism seems to fulfil the new R.24 requirements already.”
