A COLLEAGUE IN the anti-money laundering field recently remarked that in attempting to discover the beneficial ownership of some companies, it often seems like when you peel back a layer of identity and you think you are going to see what you should be seeing, there is often another layer to be shed; this could continue indefinitely to the point where you want to give up in frustration.
It brought to mind the ancient art of the striptease. However whereas the striptease performer’s ultimate objective is to provide a heightened sense of euphoria via delayed gratification and ultimate revelation, an evasive beneficial owner has the opposite objective.
Beneficial ownership has taken the spotlight as regulators in Europe and the United States (US) seek to introduce more tools in addition to Foreign Account Tax Compliance Act, Common Reporting Standards and other anti-money laundering rules which are designed to discover on the one hand who may laundering money and on the other who are placing what assets offshore.
The push toward transparency in beneficial ownership has accelerated since the publication of the “Panama Papers” leak in 2016. Notwithstanding the anti-money laundering benefits, Caribbean countries also see in these pincher style movements, the attempt to erase the tax benefits available to companies incorporating in offshore jurisdictions.
These initiatives have as usual had a knock on effect on Caribbean jurisdictions which have to a large extent bent over backwards to accommodate the demands of these regulations.
A perception that the Caribbean is not adhering to the regulations frequently results in blacklisting by regulators in Europe and the US It is one of drivers of “de-risking” which presents an existential threat to Caribbean economies.
In international business relations perceptions can often outweigh reality. In the John Grisham novel The Whistler, the villain is a corrupt judge who takes millions skimmed from the casino business on an Indian reservation in the US. She uses some of the cash to purchase a villa in Barbados in addition to depositing millions in valuables at a bank here; she makes several chartered trips to Barbados and the island is mentioned several times in the novel. The creation of best-selling fiction requires the willing suspension of disbelief on the part of the reader.
When a best-selling novelist chooses Barbados as a believable location for some critical aspects of the plot, it says a lot about the extent to which the popular perception of the Caribbean and Barbados as locations to hide legal or illegal assets has become mainstream. That is why it is important for us to recognise how dangerous it is to allow false perceptions to go unchallenged and to continue efforts to keep Caribbean jurisdictions clean.
Without doubt the vast majority of the world’s corporations are formed for legal purposes and conduct legal business. However the rise of corruption, white collar crime, the illegal drug trade and tax evasion has seen a rapidly increasing tendency to subvert corporate entities for illicit activity.
An Organisation for Economic Cooperation and Development report Behind The Corporate Veil – Using Corporate Entities For Illicit Purpose states: “It is extremely difficult to quantify with any precision the extent of misuse of corporate vehicles for illicit purposes. Nonetheless, a number of reports and surveys have concluded that corporate vehicles are used extensively in criminal activities. For example, a recent survey conducted of EU member states indicated that almost every criminal act, including economic crimes, involves the use of legal persons”
Beneficial ownership seeks to establish where both ownership and control reside in corporate vehicles. A prima facie ownership may not be the same as control.
In October 2014 the Financial Action Task Force (FATF) issued FATF Guidance – Transparency And Beneficial Ownership, which states in part: “The availability of beneficial ownership information assists competent authorities by identifying those natural persons who may be responsible for the underlying activity of concern or who have information to further the investigation.
This makes corporate vehicles less attractive for criminals.”
A beneficial owner is defined as “beneficial owner refers to 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.”
There are three issues which are essential to the establishment of an effective beneficial ownership regime; ownership, control and transparency.
In the next article we will look at these vital issues.
Louis Parris is a Certified Anti-Money Laundering Compliance Audit Professional, Consultant and Publisher of the Caribbean Banking Intelligence AML Compliance Newsletter. Email: louisp@caribsurf.com