30 July, 2018
Global information leaks such as the Panama Papers in 2015, have only boosted the public’s awareness of beneficial ownership concealment: using legal vehicles and structures to disguise the ownership and control of illicit assets.
These schemes, designed to obscure beneficial ownership and appear legitimate, often possess complex legal ownership structures and shell companies to create distance between the owner and money laundering, tax evasion and corruption.
But what are the methods and techniques commonly used to conceal beneficial ownership?
The Financial Action Task Force (FATF) recently released a report analysing 106 case studies on how people, processes and techniques are used to conceal beneficial ownership.
3 Key Concealment Techniques
There are 3 broad techniques in the concealment beneficial ownership: complex ownership and control structures, using individuals and financial instruments to obscure asset ownership and falsifying records.
1. Generating Complex Ownership and Control Structures
Although complex ownership and control structures are not unlawful and often serve legitimate purposes, using shell companies, front companies and trusts enhance the anonymity by adding additional layers of complexity. Case studies found that more than half of examples submitted used complicated ownership structures, where control was affected through both direct and indirect control.
The splitting of company incorporation and asset administration over different countries, takes advantage of the difficulty banks face when conducting due diligence on foreign companies whilst also making a company’s beneficial owner less clear.
Many cases involved shell companies to open bank accounts in foreign jurisdictions and in some cases, several accounts were opened in different countries for companies incorporated in foreign jurisdictions – speeding up the transfer of funds globally.
2. Using Individuals and Financials to Obscure the Relationship Between the Beneficial Owner and The Asset
In addition to complex ownership and control structures, formal and informal nominees and professional intermediaries (such as lawyers and accountants) are represented when it comes to creating a misleading view of a business ownership or control structure.
The report showed a relatively even split between formal and informal nominees, with criminals favouring the use of informal nominees as they can be close family (i.e. spouses) therefore, having more control over decision making. However, professional service providers were assessed to greatly enhance the sophistication of schemes, meaning more illicit wealth could be moved and concealed.
In some cases, declaring multiple beneficiaries on one account attempted to confuse financial instructions, making it more difficult to connect suspicious transactions back to beneficiaries.
Although bearer shares and bearer share warrants are in decline, the inability to accurately ascertain and monitor the owner of a bearer share, means they have been regarded as a significant risk, particularly in relation to the concealment of beneficial ownership.
3. Falsifying Activities
Activities such as false loans and false invoices, are commonly used to disguise beneficial ownership and unlike the techniques above, are deemed criminal because of their intent to commit a crime through deception. Case studies involved the payment of illegitimate business invoices, followed by third-party loan – channelling the funds to the original company/individual or a close family member (commonly a spouse of child).
One organisation also engaged in the manipulation of their company prospectus and annual report by including false and misleading information. This allowed the organisation to qualify for a listing on stock exchange, reducing their due diligence requirements as listed organisations are already subject to transparency requirements. Therefore, by falsifying information, this can support activities designed by obscuring beneficial ownership, including using the company as a ‘front company’.
The concealment of beneficial ownership remains a challenge for many financial institutions as schemes are designed to employ a “hide in plain sight” strategy. However, visibility does not equate to transparency and this report highlights the importance of domestic and global access to reliable and accurate information on beneficial ownerships.
On 11 May this year, the Financial Crimes Enforcement Network (FinCEN) enforced new Customer Due Diligence Requirements for Financial Institutions (CDD Rule).
The rule adds a new requirement for these covered financial institutions to identify and verify the identity the natural persons (known as beneficial owners) of legal entity customers who own, control, and profit from companies when those companies open accounts.
Transparency in beneficial ownership information is already set for transformation, with regulations such as the 4AMLD and 5AMLD working with many European countries to provide central registers on Ultimate Beneficial Ownerships (UBO). Mandatory access to UBO registers creates transparency in uncovering beneficial ownerships, as regulations continue to shift towards accurate, current and up-to-date information.
To learn more about UBO availability in your area, get in touch with email@example.com for your free UBO update.
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To speak to us about your UBO compliance challenges and how we can help, get in touch at firstname.lastname@example.org
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