According to the Financial Action Task Force (FATF), an intergovernmental driver of financial crime and compliance oversight, a beneficial owner is:
“The natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted.”
The US-based Financial Crimes Enforcement Network (FinCEN) defines a beneficial owner as each of the following:
“Each individual, if any, who, directly or indirectly owns 25% or more of the equity interests of a legal entity customer,” and
“A single individual with significant responsibility to control, manage or direct a legal entity customer.”
FinCEN and FATF have broadly the same policies – FinCEN is just more specific.
The EU’s Fourth Anti Money Laundering Directive (AML4) was built to align with the latest FATF standards so global definitions of beneficial ownership are aligned. Once we can define and track beneficial owners, we can focus on those who are undertaking illegal activities.
As the regulation above demonstrates, there is a strong emphasis on understanding who beneficial owners are. Understanding who controls a company is the first step in investigating whether a company is controlled by people who are engaging in illegal activity – once we can identify companies controlled by bad beneficial owners we can take action against those companies.
The former UK Prime Minister David Cameron called corruption a “cancer at the heart of so many of our problems in the world today” and believes it “traps the poorest in the most desperate poverty”.
The Panama Papers scandal in April 2016 brought beneficial ownership into the public consciousness and the outcry and subsequent interest has fuelled the move towards stamping down further on illegal beneficial owners.
Regulated industries are compelled to follow beneficial ownership regulations and many companies are actively taking steps to understand the third parties they’re dealing with. Companies are now more conscious than ever of the need to avoid working with beneficial owners that are involved in illegal activities.
So, in practice, what typically constitutes an illegal activity by a beneficial owner? Here’s a list of key activities:
o Money laundering
o Corruption
o Bribery
o Drugs Trafficking
o Terrorist Financing
o Modern Slavery
And the list goes on.
"text-align: justify;">UK Lawmakers Double DownSince AML4 came into effect, two further statutory instruments have come into force to combat financial crime.
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on Payer) Regulations 2017 addresses customer due diligence and applies to a wider scope of businesses. Beneficial owners are mentioned in the context of identifying them, identifying changes in beneficial ownership and, in some cases, senior personnel being mentioned as beneficial owners.
In September 2017 the Criminal Finances Act came into force and it places responsibility on businesses to identify major risks and priorities. Being able to identify beneficial owners is a key part of this.
Before a company can start to untangle beneficial owners and their propensity for illegal activities they need to have clean data – this is where Red Flag Alert steps in.
Using Red Flag Alert gives you clear, up-to-date information on who owns a business. For a free consultation on how Red Flag Alert can help you remain compliant, book a demo with our team.