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The United States has stepped up its anti-money-laundering
practices after taking some heat.
In the Financial Action Task Force's 2016 mutual evaluation, the
group found: Lack of timely access to adequate, accurate and
current beneficial ownership (BO) information remained one of the
fundamental gaps in the US. [1]
As a result, the United States recently passed the Corporate
Transparency Act. It aims to increase transparency on ultimate
beneficial ownership disclosure to law enforcement, the Financial
Crimes Enforcement Network (FINCEN).
New and existing corporations and LLPs must now disclose
beneficial ownership information to FINCEN. Corporations are also
responsible for disclosing changes from the previous year and can
be subject to civil and criminal action for submitting incorrect
information.
In alignment with FINCEN's CDD rules, financial institutions are
obliged to identify and verify the identity of any individual who
owns 25% or more of a legal entity and an individual who controls
the legal entity.
The new US act requires minimum disclosure, including:
Name
Date of birth
Current address
Driver's license or non-expired passport number of the
beneficial owner
Technology can help corporations disclose and transfer
beneficial ownership information to FINCEN to comply with the new
requirements.
Uploading and storing encrypted data and documents that allow
for exchange of information and reporting of changes as part of an
auditable platform can simplify and streamline the beneficial
ownership disclosure process. (See more below.).
we will nonetheless have to wait until implementation takes
place to see how FINCEN will handle the storage and data security
of all private data being disclosed.
The new act excludes a list of corporations from disclosing
their beneficial ownership information to FINCEN. These include,
but are not limited to:
Publicly listed companies
Regulated insurance companies
Other regulated financial institutions that are subject to
other disclosure requirements
US businesses with more than 20 employees and $5m in gross
sales receipts
While the act aims to increase transparency of beneficial
ownership disclosure, it also limits its access with one main
purpose - helping FINCEN's enforcement. In Europe, the creation of
registers has taken a different direction and access to beneficial
ownership information and data privacy of individual information
are key.
UBO registries in EU:
The new US act attempts to align with other global initiatives,
such as the ultimate beneficial ownership (UBO) registries
developed in Europe with the implementation of the 4th and 5th
AMLD. Such regimes are, however, different in the United States and
Europe.
US entities are required to disclosed information directly to
law enforcement. In Europe, member estates are responsible for
creating a centralised registry to share information with law
enforcement, but registers are also accessible by third
parties.
The 4th AMLD established for the first time the requirement for
member estates to create in-country UBO central registries. But the
directive left to each member estate determination as to how to
implement them. Access to the registry information was left to
government authorities with a "legitimate interest."
The 5th AMLD introduced further enhancements and expanded access
to third parties. The Directive establishes that member states
shall ensure that the information on the beneficial ownership is
accessible "in all cases to competent authorities, obliged
entities, within the framework of customer due diligence and member
of the general public that are permitted to access at least the
name, the month and year of birth and the country of residence and
nationality of the beneficial owner as well as the beneficial
interest held."[2]
The Directive also includes trusts and similar arrangements as
obliged entities to disclose beneficial ownership information,
however access to trust information is limited to individuals with
legitimate interest on the trust. The Directive leaves to each
member estate determination of the level of transparency disclosure
for this typology, taking into consideration privacy laws that
protect individuals' rights.
Member states were required to set up beneficial ownership
registers for corporate and other legal entities by 10 January 2020
and for trusts and similar legal arrangements by 10 March 2020.
Central registers should be interconnected via the European Central
Platform by 10 March 2021.
To comply with the new requirements, member states have enacted
national laws to introduce the definition of ultimate beneficial
ownerships to include any natural person(s) who ultimately owns or
controls at least 25% of an entity.
In the United Kingdom, the government introduced in 2016 the
People with Significant Control (PSC) register to include
information about individuals who own or control companies,
including their name, month and year of birth, nationality and
details of their interest in the company. UK companies (except
listed companies) need to declare this information when issuing
their annual confirmation statement to the corporate registry. This
information is free to access under companies' houses.
Other countries, such as Germany, have created UBO registers not
available to third parties. However, the requirement to disclose
ownership information was already established for companies to
disclose through their companies/trade register and is publicly
available.
Technology can help companies to disclose their
requirements:
The new disclosure rules can be tricky. But, as discussed above,
digital tools can help streamline the process.
IHS Markit supports the industry's largest community of
financial institutions - including investment managers and brokers
- by exchanging and managing documentation and regulatory data
centrally through the Counterparty Manager platform. This supports
the fulfilment of KYC, credit, legal and tax obligations.
Users of the platform can create representations of their
entities (including identification information and activity
status), centrally upload documents and permission information to
counterparties with which they have a relationship for that
entity.
[1]
FATF mutual evaluation on United States' measures to combat money
laundering and terrorist financing, 2016;
https://www.fatf-gafi.org/publications/mutualevaluations/documents/mer-united-states-2016.html
Posted 19 November 2020 by Marisol Lopez Mellado, Global Head, KYC Services, S&P Global Market Intelligence
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
