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Risky companies are falling through the cracks for authorities and the private sector, which has prompted the international standards-setting body to change its policy recommendation.
This year, Financial Action Task Force (FATF) unveiled revisions to Recommendation 24 of its standards for countries to implement.
In particular, the recommendation 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.
One new focus is foreign legal persons, which FATF has said countries need to better understand and pay closer attention to.
“At the World Bank, we’re very happy to see that focus on foreign legal persons,” said Emile van der Does de Willebois, financial market integrity chief at the international body, while speaking at a FATF-organised webinar on the matter.
This is due to the multi-jurisdictional nature of financial crime: “This issue almost invariably crosses borders and to think that one country can solve it only in its jurisdiction without taking into account how it is exposed to other entities I think would be foolhardy and not realistic.”
In the course of implementing this new FATF recommendation, discussions revolve around what kind of connections need to be investigated, he continued. “Does it have to be a real connection to the jurisdiction simply or if I as an intelligence unit or law enforcement body see this entity come up again and again, maybe it is a good idea if my country starts to learn about it?”
New revisions also include what FATF calls a “multi-pronged approach” — this means that authorities are advised to use a combination of different mechanisms for the collection of beneficial ownership information to ensure it is available to competent authorities in a timely manner.
“This is one of the most welcome changes in the standards,” said fellow panellist Chiara Bacci, a policy officer at the European Commission.
It will help prevent cases from happening but also ensure that law enforcement is able to act faster when they do arise, she said.
“From an EU perspective, we want these different prongs to function and act as one,” she said.
One solution in the trading bloc’s latest directive is discrepancy reporting, so that in the private sector if the information on transparency registers is not accurate, it must be reported to the authorities.
“This will ensure that law enforcement authorities can act and rely on the information,” she said.
The idea and the concept of registries is great, said Isabelle Scherf, global financial crime compliance chief at the asset management company Fidelity, who was also speaking on the webinar.
“From an industry perspective, we also want to be in a position where we can rely on the data,” she said.
In terms of using the registries, she also emphasised that the concept is welcome. “Some countries have been really open in making it easy for users to actually use them. For example, information is available in English, at least to a large extent, and not just the local language.”
Another welcome element from some authorities is not needing to have a user profile to log in, she said. “This sounds like whining, but realistically speaking, if you have a global business and you’re doing business in 35 countries, that’s another 35 logins that you need all of your team to have and remember.”
“Some countries have done this, but in other cases, it is difficult, even to get permission
Legal entities have become the fallback for criminals. For example, more than 80 percent of the criminal networks active in the EU use legal business structures for their criminal activities, according to research undertaken by Europol.
“This gives you a hint of the magnitude of the phenomenon and how serious it is,” said Bacci.
The world is recovering from the pandemic and the economic system is very weak, she continued. “The risks from organised crime to the legal economy are very significant and in this context, it is truly a priority that we are able to protect the economic system.”
"The transparency of corporate entities is absolutely paramount,” added van der Does de Willebois.
This sort of abuse carries a multi-jurisdictional nature, he continued. “This means that the structure has been devised so that different parts of information are available in different jurisdictions precisely in an effort to frustrate law enforcement.”
For example, an entity will be incorporated in one country with a service provided in another country, as well as assets located in another. In addition, these are typically not one corporate entity but rather a whole host. “This explains why the FATF, as an international body, should take this forward.”
Currently, the problem is that less than half of the countries that partake in FATF have been rated as largely compliant with FATF’s beneficial ownership transparency of legal persons standards.
However, with growing concerns in the West about the influence of Russia in the financial services sector, as well as potential sanctions evasion, many countries, including the UK and Germany, are in the process of reviewing and legislating to improve financial crime prevention.
