Title Page
Unmasking Control: A Guide to Beneficial Ownership Transparency
Editors
Richard Berkhout Francisca Fernando
Copyright Page
© 2022 International Monetary Fund
Cover design: IMF CSF Creative Solutions Division
Cataloging-in-Publication Data
IMF Library
Names: Berkhout, Richard, editor. | Fernando, Francisca, editor. | International Monetary Fund, publisher.
Title: Unmasking control : a guide to beneficial ownership transparency /Editors Richard Berkhout, Francisca Fernando.
Other titles: A guide to beneficial ownership transparency
Description: Washington, DC : International Monetary Fund, 2022. | Includes bibliographical references and index.
Identifiers: ISBN 9798400208041 (paper)
Subjects: LCSH: Persons (Law). | Money laundering – Law and legislation.
Classification: LCC K625 .B47 2022
DISCLAIMER: The views expressed in this book are those of the authors and do not necessarily represent the views of the IMF’s Executive Directors, its management, or any of its members. The boundaries, colors, denominations, and any other information shown on the maps do not imply, on the part of the International Monetary Fund, any judgment on the legal status of any territory or any endorsement or acceptance of such boundaries. All information presented herein is accurate as of press date.
Recommended citation: Berkhout, Richard, and Fernando, Francisca, eds. 2022. Unmasking Control: A Guide to Beneficial Ownership Transparency. Washington, DC: International Monetary Fund.
ISBN: 9798400208041 (paper)
9798400208140 (ePub)
9798400208188 (PDF)
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Contents
Foreword
Acknowledgments
Preface
Editors and Contributors
Abbreviations and Acronyms
Glossary
1 Introduction
2 Key Concepts Related to Transparency of Legal Persons
Beneficial Ownership and the International Standards
Types of Legal Persons
Vulnerabilities and Threats of Legal Persons
Risk Assessments of Legal Persons
3 Practical Implementation of Beneficial Ownership Requirements
Key Concepts of Beneficial Ownership
Sources/Mechanisms for Beneficial Ownership Information
The Life Cycle of a Legal Person
4 Other Applications for Beneficial Ownership Information
Overview
5 Policy Considerations and Regulatory Impact
Stakeholders
Appendix 1. Basic and Beneficial Ownership Information Checklists
Appendix 2. FATF Standards, Recommendation 24, Transparency and Beneficial Ownership of Legal Persons
Appendix 3. Beneficial Ownership Requirements in Other Aspects of the Financial Action Task Force Standards
Appendix 4. Useful Resources
Index
Foreword
The IMF has been concerned for some time with the lack of transparency of companies’ and other types of legal persons’ beneficial ownership information. Not knowing the identity of the beneficial owners—that is, the persons who own and control legal persons—allows criminals to misuse these entities to hide their identities and the criminal origins of their assets, and to enjoy the proceeds of crimes. This negatively affects countries’ economies.
Revelations from data leaks such as the 2016 Panama Papers, the 2017 Paradise Papers, and the 2021 Pandora Papers have spotlighted the abuse of legal persons for money laundering and terrorist financing purposes. They also raised awareness of the importance of beneficial ownership transparency, an issue now at the forefront of the international agenda.
The IMF’s Executive Board has endorsed the Financial Action Task Force’s (FATF) international standards for anti– money laundering and combating the financing of terrorism, which include beneficial ownership requirements (as part of the FATF’s 40 Recommendations). These standards were issued in the early 2000s, and much guidance has been provided on this topic over the years, but implementing beneficial ownership requirements effectively is still a challenge for many countries. The FATF recently enhanced its beneficial ownership requirements in March 2022.
This issue is particularly relevant to the IMF because countries that fail to implement these measures effectively can expose themselves and other countries to money laundering, terrorist financing, and other inherent risks and may be unable to protect the integrity of their financial systems. This exposes countries to broader macroeconomic risks, and it is in countries’ economic interest to take steps to enhance the transparency of beneficial ownership information.
Clearly, beneficial ownership information not only is important for the overall effectiveness of countries’ frameworks for anti– money laundering and combating the financing of terrorism, but also supports other important policy agendas and initiatives. For example, countries can use beneficial ownership information to improve the business environment, ensuring that legal persons are not misused to avoid tax responsibilities. Access to beneficial ownership information can support anti-corruption efforts (preventing public officials from hiding illicit wealth) and limit opportunities for abuse in awarding public procurement or extractive contracts. A comprehensive system for holding beneficial ownership information can support national security initiatives, for example, by ensuring that designated persons do not continue to operate under a new name, even in the territory of the sanctioning state.
Therefore, the IMF is keen to continue assisting its membership in enhancing the transparency of beneficial ownership information available within countries. IMF staff have been increasingly addressing these issues in the context of IMF surveillance, lending, and capacity building. To support our ongoing work in this area, the IMF’s Legal Department wrote this guide to assist countries in effectively implementing the FATF international standards for anti– money laundering and combating the financing of terrorism. The guide also aims to strengthen our members’ economies and mitigate the inherent risks resulting from a lack of beneficial ownership transparency by building on the recent revisions to the standards to enhance the transparency of legal persons. We hope it will be a useful tool for countries planning to implement comprehensive systems for holding adequate, accurate, and up-to-date beneficial ownership information.
Bo Li
Deputy Managing Director
International Monetary Fund
Acknowledgments
Many people have taken the time to support this work, and to contribute and share their expertise with us. We are very grateful to them.
In particular, we would like to thank Rhoda Weeks-Brown (General Counsel and Director of the IMF’s Legal Department) and Yan Liu (IMF Deputy General Counsel) for their support and Nadim Kyriakos-Saad (IMF Assistant General Counsel) for his oversight of this project.
We would also like to extend our special thanks to the members of the IMF Legal Department’s Financial Integrity Group Transparency of Beneficial Ownership Working Group for all their contributions to this project: Adrian Wardzynski, Grace Jackson, Heena Gupta, Indulekha Thomas, Ivana Rossi, Santiago Texido Mora, and Robin Sykes contributed their expertise on relevant issues, reviewed several iterations of this book, and conducted research to support its drafting.
This project also benefited from the insightful comments of Tanna Chong (Financial Action Task Force Secretariat), Maira Martini (Transparency International), Tymon Kiepe (Open Ownership), Thom Townsend (Open Ownership), Lindsey Marchessault (Open Contracting Partnership), and Andres Knobel (Tax Justice Network).
Several current and former colleagues also supported this project through review and contributions during different stages of development, including Arz Murr, Elizabeth Ebeka, Brendan Crowley, Christophe Waerzeggers, Cecilia Marian, Chady El Khoury, Emmanuel Mathias, Eric Robert, Jay Purcell, Jane Duasing, Kohei Noda, Kathleen Kao, Ke Chen, Marjorie Henriquez, Nadine Schwarz, Steve Dawe, and Yara Esquivel Soto.
We would also like to gratefully acknowledge the support of Rafaela Calomeni and Rosemary Fielden, who provided excellent administrative support; the IMF Legal Department’s Resource and Information Management Unit for their budgetary support; and the IMF’s Communications Department, and in particular Lorraine Coffey, for their work in managing all the aspects of production of this book.
Finally, none of this would have been possible without the support of the donors to Phase II and III of the IMF’s AML/CFT Thematic Fund who funded this important project: Canada, France, Germany, Japan, Korea, Luxembourg, the Netherlands, Norway, Qatar, Saudi Arabia, Switzerland, and the United Kingdom.
Preface
Identifying who ultimately owns or controls companies and other types of corporate structures (the beneficial owner) is a key financial integrity measure that also has important governance and transparency objectives and is relevant for macro-economic and financial stability. Improved beneficial ownership transparency helps countries better understand on whose behalf money is moved and assets are owned, which in turn helps these countries to tackle illicit financial flows and prevent the laundering of proceeds of crime, including corruption.
The IMF’s Legal Department has long recognized the relevance of this issue and is actively working to provide advice to our member countries in enhancing their frameworks for beneficial ownership information. We have raised these issues in the IMF’s annual surveillance discussions with its member countries in cases where lack of transparency of companies is considered to have macro-critical impact in a country, and have supported including structural reforms related to beneficial ownership transparency in select IMF lending programs. In the context of our pandemic-related emergency financing, we called for countries to commit to publish beneficial ownership of companies awarded public procurement contracts, and we are providing technical assistance and training to help countries implement beneficial ownership transparency. We have also worked with the Financial Action Task Force—the international standard setter for anti– money laundering and combating the financing of terrorism—to update beneficial ownership requirements, most recently in March 2022.
This book is a guide for practitioners, other relevant stakeholders, and interested parties to support their efforts in establishing comprehensive frameworks for holding beneficial ownership information. We will also use it to further our own work in this area, including providing more targeted technical assistance and training on this topic.
I am grateful to the donors of the AML/CFT Thematic Trust Fund for their generous contribution to this project, all the external reviewers and contributors who shared their experiences with us, and the outstanding staff of the Legal Department, who continue to make important contributions on these important issues.
Rhoda Weeks-Brown
General Counsel and Director
Legal Department
International Monetary Fund
Editors and Contributors
Editors
Richard Berkhout is a deputy unit chief with the Financial Integrity Group of the IMF’s Legal Department where he is overseeing anti-money laundering, combating the financing of terrorism (AML/CFT), and other illicit finance topics in relation to all IMF workstreams. Before joining the IMF, he was a senior policy analyst at the Financial Action Task Force (FATF) Secretariat, responsible for FATF’s mutual evaluation program, standard setting, and leading assessments. Before that, he was with the Ministry of Finance of the Netherlands as a senior policy advisor at the Financial Markets Directorate. He holds a Master’s degree in law and political science from the University of Leiden in the Netherlands.
Francisca Fernando is a counsel with the Financial Integrity Group of the IMF’s Legal Department, working on AML/CFT and financial integrity– related issues in the context of IMF technical assistance, surveillance, lending, and policy work. Before joining the IMF, she worked in the Financial Market Integrity Unit of the World Bank Group and for the Stolen Asset Recovery Initiative of the World Bank Group and the United Nations Office of Drugs and Crime. She holds a Master of Laws from the University of Toronto, a Bachelor of Laws from the London School of Economics and Political Science, and is called to the Bar of England and Wales.
Contributors
Alexander Malden is a research officer with the Financial Integrity Group of the IMF’s Legal Department. Before joining the IMF, he worked as a governance officer at the Natural Resource Governance Institute. Before that, he was a policy consultant at S&P Global Market Intelligence. He earned a Master of Science from the University College London School of Public Policy and a Bachelor of Arts in international relations from Queen Mary, University of London.
Ian Matthews is a lawyer and consultant specializing in the financial services, supervisory, and beneficial ownership aspects of AML/CFT. Previously, he worked at the Financial Conduct Authority in the United Kingdom as a specialist in international AML/CFT matters. He was co-chair of the FATF’s Evaluations and Compliance Group, which is responsible for overseeing the conduct of the global mutual evaluation process. He is currently a scientific expert for financial issues for the Council of Europe’s MONEYVAL committee.
Jonathan Pampolina is a counsel with the Financial Integrity Group of the IMF’s Legal Department. He previously worked at the Supreme Court of the Philippines and the Department of Interior and Local Government, and practiced litigation in a top-tier law firm in Manila. He earned a Master of Laws from Georgetown University (under a Fulbright Scholarship), a Bachelor of Laws from the University of the Philippines, and an undergraduate degree in management from the Ateneo de Manila University.
Lia Umans is a financial sector expert with the IMF’s Legal Department and an independent consultant with over 25 years of experience in AML/CFT. From 2008 to 2019, she was a policy analyst at the FATF Secretariat where she made crucial contributions to the global AML/CFT assessment process and the FATF’s work on identifying and responding to high-risk and non co operative jurisdictions. Before that, she held various management positions at the Belgian Financial Intelligence Unit and co-chaired the Training Working Group of the Egmont Group of financial intelligence units. She holds a Master’s degree in commercial and financial sciences from the University of Hasselt, Belgium.
Abbreviations and Acronyms
| AML/CFT | anti– money laundering and combating the financing of terrorism |
| BO | beneficial ownership |
| CDD | customer due diligence |
| DNFBP | designated nonfinancial businesses and professions |
| EITI | Extractive Industries Transparency Initiative |
| FATF | Financial Action Task Force |
| FI | financial institution |
| FIU | financial intelligence unit |
| F&P | fit and proper |
| Global Forum | Global Forum on Transparency and Exchange of Information for Tax Purposes |
| LLC | limited liability company |
| LLP | limited liability partnership |
| ML | money laundering |
| OECD | Organisation for Economic Co-operation and Development |
| PEP | politically exposed person |
| TCSP | trust and company service provider |
| TF | terrorist financing |
| TFS | targeted financial sanctions |
Glossary
Accurate: Information (in the context of beneficial ownership information) is considered accurate when it has been verified to confirm its accuracy by checking the identity and status of the beneficial owner using reliable, independently sourced or obtained documents, data, or information.
Adequate: Information (in the context of beneficial ownership information) is considered adequate when it is sufficient to identify the natural person or persons who are the beneficial owner or owners and the means and mechanisms through which they exercise beneficial ownership or control.
Alternative mechanism: An alternative mechanism (in the context of the collection of beneficial ownership information) is another mechanism or form—other than information held by a public authority or body—that allows adequate, accurate, and up-to-date beneficial ownership information to be obtained, held, and accessed in a timely and efficient manner.
Basic information: This is the minimum information that the international standards for anti– money laundering and combating the financing of terrorism (AML/CFT) require about a legal person, including—but not limited to— its legal ownership, control structure, shareholders, and directors. This information should be publicly available through a company registry.
Bearer shares and bearer share warrants: These are negotiable instruments that transfer ownership or entitlement to ownership in a legal person to the person who holds the physical bearer share or bearer share warrant certificate and any other similar instruments or warrants without traceability.
Beneficial owner: This is the natural person or persons who ultimately own or control a customer and it also refers to the natural person on whose behalf a transaction is conducted. It also includes those natural persons who exercise ultimate effective control over a legal person or arrangement.
Beneficial ownership information: This is the information collected to identify the beneficial owner of a legal person. Beneficial ownership information should be adequate, accurate, and up to date.
Company registry: This is a register of companies incorporated or licensed in a country and normally maintained by or for the incorporating authority. This register typically holds basic information (see definition of “basic information”).
Competent authorities: Competent authorities in this context are considered public authorities with designated responsibilities for combating money laundering, terrorist financing, or proliferation financing. These can include—but are not limited to— a country’s financial intelligence unit; institutions responsible for investigating and prosecuting money laundering and its associated underlying crimes, terrorist financing, and proliferation financing; and authorities that have AML/CFT supervisory or monitoring responsibilities.
Customer due diligence: This is the process for collecting and evaluating information about legal or natural persons to identify and assess and mitigate the risk of conducting a business relationship with them.
Designated nonfinancial businesses and professions (DNFBPs): Designated categories of nonfinancial businesses and professions in this context are entities other than financial institutions that have AML/CFT obligations. These include— but are not limited to— casinos, real estate agents, dealers in precious metals and stones, lawyers, notaries and other types of legal professionals and accountants, and trust and company service providers. Gatekeepers can often be DNFBPs (see definition of “gatekeepers”).
Financial Action Task Force (FATF): The FATF is an intergovernmental body whose purpose is to set standards and promote effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing, and proliferation financing.
FATF Recommendations (the international AML/CFT standards): The FATF developed a series of recommendations recognized as the international standards for combating money laundering, terrorist financing, and proliferation financing.
Gatekeepers: This is often used as a general, colloquial term for financial institutions and DNFBPs. In this guide, this broadly refers to a subset of DNFBPs— including lawyers, notaries, and accountants; trust and company service providers; and in some instances, financial institutions— that offers legal and financial services with respect to the creation, incorporation, and registration and provision of services for legal persons.
Law enforcement authorities: These are authorities responsible for enforcing a country’s laws, such as the police services.
Legal arrangement: These are types of legal constructs such as express trusts or other similar legal arrangements, including depending on the country context, some types of fiducie, treuhand, waqf, and fideicomiso.
Legal person: The FATF defines legal person as any entity other than a natural person that can establish a permanent customer relationship with a financial institution or otherwise own property.
Natural person: A natural person is a human being and is distinguished from a legal person.
Nominator: The nominator refers to an individual (or group of individuals) or legal person that issues instructions (directly or indirectly) to a nominee to act on their behalf in the capacity of a director or a shareholder, also sometimes referred to as a shadow director or silent partner.
Nominee, nominee director, or nominee shareholder: These terms refer to an individual or legal person instructed by another individual or legal person (the nominator) to act on their behalf in a certain capacity regarding a legal person. This can include a nominee director (also known as a resident director) who is an individual or legal entity that routinely exercises the functions of the director in the company on behalf of and subject to the direct or indirect instructions of the nominator. It can also include a nominee shareholder who exercises the associated voting rights according to the instructions of the nominator and/or receives dividends on behalf of the nominator.
Registry: A registry (in the context of this guide) is defined broadly as a mechanism/database that holds information on a legal person. This can include multiple databases if they are interlinked, consistent, and offer centralized access to information. A registry can also be public.
Supervisors: FATF defines supervisors as “designated competent authorities or nonpublic bodies with responsibilities aimed at ensuring compliance by financial institutions and/or DNFBPs with requirements to combat money laundering and terrorist financing.”
Timely access: This is the ability to source relevant information rapidly and efficiently. Access to timely information by competent authorities is important, especially in the context of ongoing investigations or monitoring by competent authorities. For effectiveness, this requires that the information should already be directly accessible.
Up to date: This is information that is as current as possible and is updated within a reasonable period (for example, within one month) after any changes.
Note: Several terms of the key terminology are sourced from FATF (n.d.-a) and FATF (n.d.-b).