Can be the Most Difficult Aspect of Anti Money Laundering Procedures
Whilst in theory it is simple in practice obtaining information about the beneficial ownership of clients can be extremely difficult. This is particularly so where the ultimate beneficial owner appears to be based in a jurisdiction which allows anonymity. Countries such as Panama and the British Virgin Islands create real problems when trying to carry out customer due diligence for clients.
Most countries with effective money laundering systems base their regulations around the recommendations of the Financial Action Task Force (FATF). FATF issued a consultation paper in June 2011 with a view to making amendments to their recommendations, which had been endorsed by more than 180 countries and jurisdictions.
The first area that they address is that of beneficial ownership. The introductory paragraph refers to the generally low level of compliance with the requirements to identify beneficial owners. FATF does not intend to amend its recommendations on beneficial ownership but will seek to clarify how countries are to implement the requirements and what types of measures should be used to ensure that beneficial ownership information is available.
So what exactly do our Money Laundering Regulations require in terms of beneficial ownership? For all clients which are legal persons or legal arrangements, you must record the details of all beneficial owners, and on a risk sensitive basis obtain sufficient information about identity to satisfy yourself that you know who the beneficial owners are.
In terms of companies, LLPs and partnerships a beneficial owner is anyone who owns or controls (whether through direct or indirect ownership or control, including through bearer share holdings) more than 25% of the equity, capital, voting rights or entitlement and profits. It also includes anyone who actually exercises control over the management of the entity, irrespective of any percentages held.
In the case of a trust or any other legal entity or arrangement a beneficial owner is anyone who benefits from at least 25% of the property of the entity or arrangement. Where the individuals have yet to be determined, then the beneficial owner is the class of person in whose interests the entity or arrangement is set up or operates. The definition also includes any individual who exercises control over at least 25% of the property or arrangement.
Let us take a family trust for example. If anyone is entitled to at least 25% of the assets of the trust then he or she is a beneficial owner. However, so are the trustees (or some of them) since they exercise control over the funds. It may be that the trust is for anyone descended for the initial settlor, in which case the class of beneficiaries (i.e. all descendents) is a beneficial owner.
If we consider a charity whose objects clause is the relief of poverty in inner cities in the UK, then that class of people become the beneficial owners. However, the trustees are also beneficial owners.
If your client is a limited company you can usually identify the shareholders, and hence the beneficial owners, from a company search. Where your client is owned by another company you apply the "more than 25%" test to that other company. You need to continue tracing the ownership through any intermediate group companies until you get to the top of the tree. You are looking for someone whose effective ownership of your client is more than 25%. As we indicated above, the problem comes when that "top of the tree" is a company or trust that operates in a jurisdiction which offers anonymity.
Whilst it may be appropriate in certain circumstances feel client to seek anonymity from the world at large. This should not apply to you as the professional adviser. Even if your client does not know who ultimately owns the business, he or she should know where to obtain that information. If your client does not know who owns a business, or claims not to know, then the regulations are explicit: you cannot take on the client. If the company is already a client then you must cease acting.
In the longer term, the FATF review may be able to help by requiring jurisdictions like Panama and the British Virgin Islands to make information available for AML purposes.
However, in the meantime, firms who continue to act for clients without appropriate information on beneficial ownership are breaching the regulations. This might be identified during a regulatory visit by those firms' supervisory authorities, which could potentially give rise to disciplinary action. However, the more worrying possibility is that the client is involved in money laundering or terrorist financing and the first indication that you get is when you are contacted by the police or other law enforcement agency. Sadly, by then it's a bit late to get the necessary AML information in place.
SWATUK can provide a range of training and support to help ensure your firm remains up to date and compliant with the Money Laundering Regulations.
Email membership@the2020group.com for further information,
