R&C: Could you outline why an understanding of ‘beneficial ownership’ is an essential part of a financial institution’s (FIs) anti-money laundering (AML) programme? What role does the concept play in money laundering?

Parfitt: Knowing the identity of the real, flesh-and-blood individual who benefits from a transaction is key to AML programmes. This is because the beneficial owner is usually concealed if the transaction is illicit. The Financial Action Task Force (FATF) standards define ‘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”, and differs from the definitions of ‘beneficiary’ and ‘beneficiaries’, which can include both natural and legal persons and arrangements. An example would be recipients of charity, humanitarian aid, trust benefit or insurance policies. Hiding beneficial owners depends on opaque relationships, which can be achieved in different ways, for example by generating complex ownership structures, falsifying activities, using bearer shares, nominee directors, professional intermediaries, and so on. It is essential that FIs understand this, as it is where actual AML risks reside. Cases involving these techniques are the ones that most often get missed and lead to FIs being investigated and fined by the regulator.

Jan-Mar 2019 Issue

Acuris Risk Intelligence