Anti-money laundering: In pursuit of the hidden owners

This text was crossposted from Transparency Internarional EU’s blog. The author is Neil Clark.

On 10 January, advocates from the Transparency International EU Office attended a presentation unveiling the results of Project BOWNET. Carried out with financial support from the Prevention of and Fight against Crime Programme of the European Union, the project aimed at understanding the feasibility of developing an intelligent system able to search and integrate information on the beneficial ownership of legal entities (typically companies) in order to prevent and combat money laundering.

So, who or what are beneficial owners and why are they important in the context of anti-money laundering? Beneficial owners are the real people who own and control legal structures such as companies, trusts and foundations. Their names might not appear on business registers or on bank accounts but they are the ones who have ultimate control over funds. Considerable research has been done showing how criminals, corrupt regimes and tax evaders use companies and other legal structures, fronted by nominees, to conceal their ill-gotten gains. Eurodad’s new report “Secret Structures, Hidden Crimes” highlights excellently how money launderers and tax evaders abuse legal structures and hide behind opaque ownership structures to carry out their crimes.

But the risks associated with the anonymous ownership of legal entities isn’t just a concern for NGO’s. Global organisations like the World Bank, OECD and the World Economic Forum have also set alarm bells ringing.

BOWNET’s research laid bare just how little information European business registers hold on beneficial owners. Across the EU, 76.9% of business registers hold no information on beneficial ownership at all. Added to that, interconnections between registries – both public and commercial – is lacking; registries have no harmonised data format and rarely permit effective searching, whilst coverage of unlimited companies, foundations, trusts, associations was also deemed unsatisfactory. No wonder law enforcement agencies like Europol find their investigations so frequently confounded.

However, the BOWNET analysis showed that a great deal might be done by better exploiting and consolidating what information is already out there. They showed it was possible to develop an effective search engine that collects data from different EU Member State Business Registers and commercial Business Information Providers, that could also provide analytical tools and visualisations.

The Directive on the Interconnection of business registers shows that the EU is making the right noises in this regard. This, however, is insufficient in itself.

In its forthcoming proposals concerning the 3rd EU Anti-Money Laundering Directive, DG Internal Market should follow the recommendations of the Financial Action Task Force and as a bare minimum compel Member States to require companies – since they are best placed to understand their own beneficial ownership – to hold and up-date information on their beneficial owners and to make this information available to competent authorities and entities covered by the Directive.

There also needs to be an effort on the part of national governments. To permit greater transparency of information TI recommends the establishment of national corporate registries incorporating beneficial ownership information that are reliable, detailed and up-to-date. This information should be disclosed in a timely manner when requested by competent authorities.