Transparency International’s open letter to the G20 leaders requiring transparency of ownership ought really to be pushing at an open door. Particularly so, in the light of the Financial Action Task Force’s Recommendations 24 and 25 (published in 2003 and updated in 2012) which require member countries to ensure that accessible information can be obtained and exchanged on beneficial ownership of legal persons and trusts/arrangements.
Doubtless the continued use of shell companies in non-transparent offshore jurisdictions will be considered as an issue but the major failure lies with G20 countries for failing to introduce consistent and transparent ownership requirements in accordance with the Recommendations. FATF recently observed that the implementation of the Recommendations on transparency and beneficial ownership had proved challenging with many countries not collecting or verifying beneficial or legal ownership. Whether this will remain the case after Brisbane remains to be seen but there are some grounds for optimism.
In February 2013, FATF agreed to a new methodology for the assessment of an individual country’s technical compliance with the Recommendations and last month it published new guidance entitled Transparency and Beneficial Ownership. That guidance is here (pdf).
The fundamental requirement for each country is to ensure that adequate, accurate and accessible information exists on the beneficial ownership of all legal persons and legal arrangements.
Extensive guidance is given on the meaning of “beneficial ownership” with the emphasis on the need always to discover the ultimate natural controlling owner.
FATF now requires countries to put in place measures to prevent legal persons and arrangements from being used for criminal purposes by means of accurate and up to date information on beneficial ownership backed up by “dissuasive sanctions.” Detailed guidance is given on determining issues of thresholds and forms of indirect control. Incidentally, the UK Government’s current legislative proposal seeks to introduce a 25% threshold for beneficial ownership disclosure but this has been criticized on the grounds that it can be easily bypassed and there would appear to be no good reason why the 3% stakeholder disclosure rule should not also apply.
Extensive guidance is given on trusts with a requirement that trustees keep accurate and accessible information on beneficiaries and their interests. FATF recommends that countries should keep a central trust registry with accessible and exchangeable trust information kept by the tax authorities, trust providers and advisors. Financial institutions and professional advisors are required to ascertain the identity of beneficial owners. Interestingly, even countries that do no recognize trust concepts will be required to keep information where their own nationals have created foreign trusts of property.
The shortcomings of the FATF Recommendations and guidance, unlike that of America’s Foreign Account Tax Compliance Act, are the lack of effective sanctions for non-compliance. It would be encouraging if G20 leaders committed themselves to introducing a prohibition of any financial transactions with non-compliant countries or a form of withholding regime until compliant. A few major governments and offshore jurisdictions might then be running for cover.
Alistair Craig, a commercial barrister practicing in London, is a frequent contributor to the FCPA Blog.