As the recent revelations around the so-called Laundromat multi-billion dollar money laundering scheme have indicated, the use of shell companies by those intent on moving illicit funds is still very much cause for concern.
The use of shell companies to facilitate money laundering is nothing new. The scale of this alleged operation, which reports state moved money through an estimated 5,140 companies, in 96 jurisdictions and is reported to have involved more than 732 accounts at financial institutions, is staggering.
The media has once again seized the opportunity to question how something of this scale could happen. In 2016 we had a similar reaction following the Panama Leaks scandal, which reverberated around the industry as a whole. That case and the smaller Bahamian Leaks which followed may well have gone some way to coloring legislators view on the need to further tightening up AML legislation specifically around identifying company ownership.
So given the up-tick of global AML regulations and directives specifically targeting the opaqueness of company structures and the need for firms to ascertain their ultimate beneficial owners (UBOs), this disclosure of financial crime on such a scale must have set alarm bells ringing across the industry.
Regulations such as upcoming Fourth EU Money Laundering Directive, have an emphasis on identifying UBOs. In 2016 the U.S. regulator FinCEN released its Customer Due Diligence Rule, which added a new requirement under the Bank Secrecy Act’s AML program that financial institutions identify and verify the beneficial owners, behind legal entity customers, shell companies, and other corporate forms. A plethora of similar legislation exists, is being drafted, or strengthened in numerous other jurisdictions in an effort to lessen the possibility of money laundering, and financial crime activities taking place.
Is the future transparent, or cloaked in secrecy?
Have jurisdictions which have traditionally kept this information under wraps now made it available in the form of searchable registries? In an effort to engage business in discussions on how to practically implement beneficial ownership transparency, Thomson Reuters, along with the B-Team, Bank of Montreal, and Deloitte, launched the Open Transparency website at the International Corruption Conference in Panama City in November 2016.
Ascertaining beneficial ownership is a central pillar of any compliance program focused on anti-money laundering due diligence. There are hurdles to overcome such as data privacy legislation which can hinder access to information, and where jurisdictions have been tardy in making available nothing more than cursory details these alone can create significant roadblocks in the compliance process. Finding ways to push through or circumvent these barriers is necessary to ensure confidence in the global financial system.
Do you really know who you’re doing business with?