AML POLICY
Money laundering, terrorist financing, evading taxes, bribery, corruption, abuse of human rights and even modern-day slavery differ in their nature, but they have some things in common: They destroy people’ s lives, undermine the common values in our societies and they are facilitated by a lack of transparency.
Global money laundering transactions are estimated at 2 to 5 percent of global GDP. 1 The cost of corruption equals more than 5 percent of global GDP, with over $ 1 trillion paid in bribes each year. 2 More than $ 12 trillion has been siphoned out of Russia, China and other emerging economies into the secretive world of offshore finance. 3 Criminals hide behind a veil of complex and anonymous corporate structures, funneling dirty money into the legitimate financial market, evading taxes and enjoying the proceeds of crime, yet remaining untraceable to law enforcement agencies.
Anyone with experience in the compliance field will be familiar with these facts. There is no shortage of data that illustrate the scale and cost of the problem. The Financial Action Task Force’ s( FATF) 40 Recommendations published in 2004 addressed the connection between business secrecy and financial crime. The World Bank’ s Stolen Asset Recovery report of 2011(“ The Puppet Masters”) showed that of 150 corruption cases worth over $ 50 billion in illicit assets, nearly all involved the use of the companies with concealed ownership. But to your friends and family, the 2016 media blast around Panama Papers may have come as a revelation. It may have been the first time most civil society realized what the compliance world had known for decades. Such discoveries of the scale and pervasiveness of financial crime are needed for society to demand the changes necessary to effectively fight financial crime. As members of society, we can demand change from our political representatives for better regulations and their enforcement.
As part of the compliance environment, it is our duty to the rest of society to help prevent all forms of financial crimes. Thus, the requirement to uncover the true persons behind legal entities is key. However, the prevailing secrecy in corporate vehicles makes it often an impossible task for financial institutions( FIs) and designated non-financial businesses and professions( DNFBPs) to comply with antimoney laundering( AML) and anti-bribery and corruption( ABC) regulations and effectively identify the beneficiaries of legal entities.
Who is the UBO?
There is no universal definition of“ beneficial owner.” Various bodies, governments and institutions differ in their interpretations. FATF, which sets the global standards in money laundering efforts, defines a beneficial owner as“ the natural person( s) who ultimately owns or controls a customer and / or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.” 4 With regards to the owning threshold, FATF does not provide a clear answer and only provides 25 percent as an example.
How civil society can drive the change
With numerous large-scale corruption and tax avoidance scandals reaching the mainstream media every month, civil society is now more than ever aware of how the lack of transparency in corporate structures can have a negative effect on the economy and how, through anonymous entities, stolen assets can be transformed into luxurious villas, private jets and fast cars. Increased engagement against business secrecy from charities and non-profit organizations, but also journalists’ groups working against corruption, has helped to build momentum. For example, a special report by Reuters in 2012 highlighted how one high street coffee shop chain avoided paying taxes on profits in the U. K. through a complex corporate structure. This led to a widespread media debate and in turn to customers boycotting the chain. Not only did the action have an enormous negative impact on the company’ s reputation, but it also forced it to make changes to its tax maximization practice in the U. K. 5
Abuse of the housing market
Various organizations, including Transparency International, Global Witness, Tax Justice Network and ClampK, have been leading successful campaigns to reveal the misuse of corporate vehicles and the funneling of“ dirty money” into the U. K. housing market. Abuse of the market directly impacts property prices in the country’ s capital, making housing unaffordable to the working class. The U. K.’ s National Crime Agency reported that as much as 100 billion pounds in tainted cash passes through the U. K. each year, with significant sums invested in London’ s thriving high-end housing market. 6 The civil society’ s pressure has had a definite influence on the delivery of the government’ s commitment to introduce the updates into the Criminal Finances Bill. The new regulation
1
The International Monetary Fund, http:// www. imf. org / external / index. htm
2
World Economic Forum, https:// www. weforum. org /
3
Tax Justice Network, https:// www. taxjustice. net /
4
“ Transparency and Beneficial Ownership,” FATF Guidance, October 2014, http:// www. fatf-gafi. org / media / fatf / documents / reports / Guidance-transparency-beneficial-ownership. pdf
5
Sylwia Wolos,“ Business Transparency in the Fight Against Financial Crime,” Thomson Reuters, December 2, 2015, https:// blogs. thomsonreuters. com / answerson / business-transparency-financial-crime /
6
Juliette Garside,“ Hundreds of Properties Could Be Seized in UK Corruption Crackdown,” The Guardian, October 13, 2016, https:// www. theguardian. com / business / 2016 / oct / 13 / properties-seized-assets-corrupt-cash-crackdown-criminal-finances-bill-tax-haven
ACAMS TODAY | SEPTEMBER – NOVEMBER 2017 | ACAMS. ORG | ACAMSTODAY. ORG 73