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State of Financial Crime 2023 Report

FATF Publishes Updated Guidance on Beneficial Ownership for Legal Persons

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Following February’s plenary, the Financial Action Task Force (FATF) issued new guidance relating to beneficial ownership (BO) for legal persons. In addition to explaining how to identify, design, and implement appropriate measures to prevent the misuse of legal persons, the report provides specific advice relating to the recently revised “Recommendation 24”. Requirements relating to wire transfers and virtual assets (VAs) are also discussed. 

The updated guidance follows a commitment by the FATF in July 2021, where the watchdog announced it would prioritize work related to increasing the effectiveness of global anti-money laundering (AML) measures. To do this, the FATF outlined several focus areas centered around strengthening a culture where best practices are quickly identified and shared to help drive effectiveness. One focus is completing and amending guidance on BO information for legal persons. 

FATF Recommendation 24

Prior to any revisions, Recommendation 24 required firms to establish the legal BO of companies and other corporate structures to mitigate the risk of those entities being used for money laundering and terrorist financing. In March 2022, the FATF confirmed changes to Recommendation 24, introducing additional requirements for countries to maintain adequate, accurate, and up-to-date information on the beneficial ownership of legal entities.

The updated standards mean:

  • Member states should ensure they implement a public beneficial ownership register (or similar mechanism) to facilitate access to BO information 
  • Firms should take a “multi-pronged approach” and collect BO information from multiple sources. For example: 
    • A bank account register that identifies legal persons holding bank accounts, payment accounts, and other financial services 
    • A public authority holding information on a company with which a legal person has a continuous business relationship
    • A system with credit bureau information that collects and maintains updated information of legal persons having borrowing relationships with financial institutions
  • Countries should follow a risk-based approach and consider the risks of legal persons in their countries – not only considering risks posed by domestic legal persons but also those posed by foreign legal persons with sufficient links with their country

According to the FATF, the revisions will help prevent organized criminal gangs from using anonymous shell companies and other businesses to hide their dirty money and illicit activities. 

Wire Transfer and Virtual Asset Requirements

In chapter 17 of the report, the FATF outlines the relationship between BO obligations and other recommendations, specifically those related to wire transfers and VA requirements. In the case of wire transfers, firms are reminded that beneficial owners must be identified and verified as a part of the customer due diligence (CDD) process, as outlined in Recommendation 10 of the FATF standards. Furthermore, Recommendation 16 requires firms to employ additional measures such as collecting “originator information” and ensuring this information accompanies a wire transfer.

Regarding VAs, the FATF encourages virtual asset service providers (VASPs) to obtain and verify customer and beneficial ownership information “before or during the course of establishing a business relationship.” This fulfills CDD obligations under Recommendation 10.

The Freedom for Eurasia study

On March 14, 2023, a study by Freedom for Eurasia was published, focusing on how the President of Uzbekistan’s daughter, Gulnara Karimova, used “professional enablers” to spend £200 million on properties from London to Hong Kong. According to the report, these funds were obtained through bribery and corruption, and yet the ease with which Karimova obtained UK property was “concerning”.

The study revealed that Karimova’s boyfriend, along with other alleged associates, were listed in official documents as the beneficial owners of various properties, when they were just proxies. This was also the case for companies Karimove set up in the UK, Gibraltar, and the British Virgin Islands, which were ultimately used as instruments through which to launder hundreds of millions of dollars. 

While the BBC notes that this story “raises fresh doubts about the UK’s efforts to tackle illegal wealth,” the FATF’s updated, more stringent BO guidance should enable firms to tackle the problem more effectively. 

Key Takeaways

At the plenary, the FATF also announced further updates would be made to Recommendation 25 to ensure a “balanced and coherent” set of standards. Compliance staff should ensure they stay up-to-date with any proposed revisions mentioned in future consultations opened by the Paris-based body.

To learn more about the key takeaways from February’s plenary session, read our coverage here.

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Originally published 16 March 2023, updated 17 March 2023

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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