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Transparency International Beneficial Ownership Report

April 01st, 2016 - Posted by Sam Hemmant in Anti-Bribery And Corruption, Anti-Money Laundering

High-profile corruption scandals, such as the recent case involving Fédération Internationale de Football Association (FIFA) officials, often share a key characteristic: those responsible utilise a complex web of companies, trusts and other legal entities to transfer, store, and ultimately hide illicitly sourced money.  This method is exploited by criminal elements to obscure the real identity of the person or persons that ultimately benefits from a financial transaction.

Best practice in the absence of a global framework

Despite the lack of a global standard for transparency in beneficial ownership, a variety of national, trans-continental and global entities have contributed towards policy and best practice.  At a Summit in November 2014, leaders from the Group of 20 (G20) major economies - including Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States, and the European Union (EU) - adopted a framework to combat the issue of beneficial ownership transparency, describing the issue as "high priority".

A year after the G20 Summit, Transparency International issued a report - 'Just for show?  Reviewing G20 Promises on Beneficial Ownership' - which "assesses the extent to which G20 members are fulfilling their legal and regulatory commitments implicit in the G20 principles one year after their adoption".

Included in the report is an individual summary for each G20 member, which provides detailed analysis on each nation to help identify which additional legal provisions should be adopted.  The individual reports can be found on the Transparency International website.

Mixed results

Transparency International delivered a mixed report on the efforts of the G20 nations, with 15 out of 19 G20 countries demonstrating either an average or weak legal framework for implementing the G20 Framework.  The report made a number of criticisms of the progress G20 countries had made, however all G20 countries scored well on at least one principle, and each of the principles is implemented well by at least one country.

Three G20 countries – Argentina, France, and Italy – were rated as having a 'strong framework', and specific factors for each country were pointed out, including:

  • Argentina's adoption of a new law that will require legal entities and arrangements to disclose beneficial ownership information upon registration
  • France's regulatory actions taken on trusts, and obligations of financial institutions and designated non-financial businesses and professions (DNFPBs), such as accountants, trust and company service providers, real estate agents and casinos
  • Italy scored reasonably well across most principles, but fell down on its approach to beneficial ownership visibility in trusts.

The majority of G20 countries fall into the 'average framework' category for a variety of reasons, and Australia, Brazil, Canada, China, South Korea, and the US fell into the 'weak framework' category.  No country was rated 'very weak' when scores were averaged across all G20 principles, however, all but three G20 members (the EU, Italy, and the UK) did score 'very weak' against at least one of the ten principles.

UK leads the way

The only G20 country issued with a 'very strong framework' rating in the Transparency International report was the UK.  The UK scored 100 per cent on four out of the 10 G20 principles, scoring particularly highly on its improved access to beneficial ownership information.

This is predominantly due to the introduction of the Small Business, Enterprise and Employment Act 2015, which implements the Persons of Significant Control (PSC) register.  The new register, which becomes a legal requirement for companies and limited liability partnerships from 6th April 2016, establishes a central public registry to contain up-to-date information on all UK companies, identifying the individuals with significant control.

The UK must go the distance

Although the UK scored highest, Transparency International's assessment only covered domestic law.  Beneficial ownership standards for legal entities and trusts incorporated in British Overseas Territories and Crown Dependencies - including the British Virgin and Cayman Islands – are weaker, and according to the report "threaten to undermine the UK's implementation to the G20 principles as a whole."

The UK still needs to do much more to ensure that the Overseas Territories and Crown Dependencies are not used as a safe haven for money laundering and low corporate visibility.

A comprehensive global framework to combat the issue of beneficial ownership transparency is still a long way off, and additional work must be carried out to close the gaps in jurisdictions falling down in the report.  The key to success will be nations working together to align their approaches.  The Transparency International report concludes: "Corruption and money laundering are global challenges.  It is only with collective, global collaboration that we will find the solutions to tackle them."

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