The Concealment Of The Beneficial Owner And The FATF-FAFT Guideline

An interesting study on companies that hide and omit the identity of their real owners through stratagems such as Chinese boxes has been published in recent days by the international research organization Transcrime. Trusts in countries such as the Netherlands, Luxembourg, Malta, and Cyprus have the highest concentration of opaque companies, at risk of criminal activities and international money laundering. Among the cities, London stands out.


According to what is indicated in the report entitled "Datacros project," Developing A Tool to Assess Corruption Risk factors in firms' Ownership Structure, a project co-funded by the Internal Security Fund-Police of the European Union and coordinated by the research center Transcrime (an institution of the Catholic University of Milan) which also collaborates with several international police authorities and Europe as the French Anticorruption Authority (Agence Française Anticorruption), the Spanish Police (Cuerpo Nacional de la Policia) and investigative journalists belonging to the consortium Irpi. In particular, the document published states that one European company out of 100 has partners from countries at risk, i.e., "subjects on a blacklist or grey list in the fight against AML/CFT and lack of tax cooperation." For example: in Luxembourg (8.7%), Cyprus (8.5%), Malta (5.1%). Higher than average values are also found in specific regions: in London (higher values in specific areas), in Belgium, and in the Netherlands. Italy ranks 25th out of 29 countries analyzed, with 0.26% of companies linked to countries at risk. 


The project places great importance on highlighting how the interest in maintaining anonymity produces illicit economic advantages for states and individuals, leading to major problems in the areas of economic surveillance and public safety and order. 


To make it difficult to identify the real ownership, with the consequent risks that the companies are vehicles for illegal activities and money laundering, there is the issue example of the "Chinese boxes" (Company Holding): the creation of many companies belonging to a single company aimed at constituting the known corporate forms of "paper mill companies." The story of a construction company in Romania controlled through 28 intermediate levels of small companies scattered throughout Europe and with dubious owners is a real investigative event. 


In this sense, the GAFi-FAFT international guidelines provide several limits and tools in the identification of holders. These legislative packages must be implemented with homogeneity, timeliness, and completeness by the States, providing an active collaboration in this sense.


- Shares are held by partners, shareholders, and directors who own at least 25% of the company shares.

- Synchronization of PEP's (politically exposed persons) lists

- Anti-terrorist lists, international UN, and EU. 


Unfortunately, many states have not yet implemented the so-called "Register of beneficial owners" in their domestic legislation. In some states, there are plans to include additional sections in this register in which holders of wallets, blockchain service providers, and holders of currency exchange companies will be registered.


 It is also worth mentioning the two macro-categories of lists, the Red List and the recently updated FATF Black List.


- RED LIST 

The above category includes under the jurisdiction of the FATF Group all those states with a high deficit in applying financial countermeasures for AML/CFT risks: República Popular Democrática de Corea (North Korea), Irán.


- BLACK LIST 

The above category includes under the jurisdiction of the FATF Group all those states with a high deficit of application to financial countermeasures for AML/CFT risks, although they have already activated legislative and operational paths to the mitigation of AML/CFT financial risks. Albania, Barbados, Botsuana, Burkina Faso, Camboya, Filipinas, Islas Caiman, Haiti, Jamaica, Malta (grey list), Mauritania, Marruecos, Myanmar, Nicaragua, Paquistán, Panamá, Senegal, Sudán del Sur, Syria, Uganda, Yemen, Zimbabwe. 


Note: From the States registered in the above lists, it is necessary to take into account also individual subjects at "high risk" present in the UN and EU Blacklists (CFSP anti-terrorism lists), such as bodies, associations, and groups dedicated to the activity of terrorism and the financing of terrorism.


Written by Dimitri Barberini

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