Global Financial Integrity

Are International Institutions Failing to Grasp the Big Picture on Beneficial Ownership?

Everyone Should Be Able to Determine with Whom They Are Doing Business, Writes GFI’s Heather Lowe

On Monday of this week, the Financial Action Task Force (FATF), the body setting international anti-money laundering standards, published new Guidance on Transparency and Beneficial Ownership, detailing a variety of ways in which countries can comply with FATF Recommendations 24 and 25 (which relate to transparency and beneficial ownership of legal persons and arrangements) and sending the message that complaining about the difficulty of compliance is no longer an option.  FATF consulted with the Organization for Economic Cooperation and Development (OECD) on this publication, recognizing that identification of the beneficial owners of legal entities and arrangements is not only a money laundering issue, but a fundamental element of the OECD’s new multilateral automatic exchange of financial information.  What neither FATF nor the OECD appears to have yet grasped, however, is that beneficial ownership – knowing who is ultimately behind a company – is a matter of sound business practice.  Everyone should be able to determine with whom they are doing business.

That lack of understanding was evident on page 21 of the Guidance, where FATF made it clear that it was supportive of countries choosing to create publicly accessible registries for information, as the UK is in the process of creating.  FATF stated that:

“although this is not required by the FATF Recommendations, some countries may be able to provide public access to information through a searchable online database.”

The rationale behind this, they say, is that it:

“would increase transparency by allowing greater scrutiny of information by, for example, the civil society, and timely access to information by financial institutions, DNFBPs and overseas authorities.”

While we civil society folks appreciate what appears to be an attempt by FATF to demonstrate that they have heard civil society’s drumbeat on this issue, unfortunately what this shows is that they have not yet understood the variety of reasons for that drumbeat.

Kenya’s Removal from FATF’s Gray List Doesn’t Mean Much

Don’t get too excited about Kenya’s removal from the Financial Action Task Force’s (FATF) gray list.

The FATF list of “high risk and non-cooperative jurisdictions” is a list of countries that the organization believes to be doing very little in the global fight against money laundering and terrorist financing. The list is based off a series of 40 recommendations that it expects countries to abide by to reduce money laundering and terrorist financing. These recommendations include, among other things, the regulation of banks and other financial institutions. Countries that do not adequately address these expectations are placed on the black or gray list based on varying degrees of compliance.

In 2010, FATF placed Kenya on a list of high risk countries for delays in enacting laws to tackle criminal financial activity as well as a failure to track money laundering.