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#Anti Money Laundering

Beneficial ownership: A new era of openness? (Sweden)

International Compliance Association

4MLD , beneficial ownership , Sweden

Beneficial ownership is a phrase likely to leave the average person baffled and probably not very bothered. But it’s a concept that seems guaranteed to attract a great deal of international interest over the coming months and years, not least because of the European Union’s Fourth Anti-Money Laundering Directive (4th AMLD) and the central registers of beneficial owners that it will introduce.

The word ‘beneficial’ usually has positive connotations. But put beneficial ownership in the context of corporate anonymity ­– hiding the identity of ultimate owners of companies and other legal entities within complex structures that are almost impossible to unravel ­­­– and it takes on a different complexion, as the recent revelations by the International Consortium of Investigative Journalists in the Panama Papers have demonstrated.

In itself, there’s nothing wrong with beneficial ownership. Someone has to be the ultimate owner, and most will have valid reasons why a corporate structure has been set up in a certain way. But when identifying an ultimate beneficial owner (UBO) becomes a mammoth, multinational detective job, that secrecy becomes very attractive indeed to those involved in financial crime.

Central registers

The Panama Papers have formed another landmark in a series of events intensifying the international focus on secrecy over corporate ownership and control, and the part it plays in financial crime, going back almost two decades.

As long ago as 2001, the Organisation for Economic Co-operation and Development was calling for reform in its report Behind the Corporate Veil: Using Corporate Entities for Illicit Purposes.

Almost every economic crime involves the misuse of corporate entities– money launderers exploit cash-based businesses and other legal vehicles to disguise the source of their illicit gains, bribe-givers and recipients conduct their illicit transactions through bank accounts opened under the names of corporations and foundations, and individuals hide or shield their wealth from tax authorities and other creditors through trusts and partnerships. To prevent and combat the misuse of corporate vehicles for illicit purposes, iti s essential that the authorities in all jurisdictions have the means to obtain and share, on a timely basis, information on the beneficial ownership and control of corporate vehicles established in their jurisdictions.

The Financial Action Task Force (FATF) stepped up the pressure in 2003, including measures in its revised Recommendations to address the transparency and beneficial ownership of legal persons and arrangements and strengthening these in 2012.

By 2013, the G8 had published Action Plan Principles, in line with the FATF Recommendations, to prevent the misuse of companies and legal arrangements, with G8 members committing to publishing national Action Plans on the issue.

A year later, the G20’s High-Level Principles on Beneficial Ownership Transparency included the value of authorities having ‘timely access to adequate, accurate and current information regarding the beneficial ownership of legal persons…for example, through central registries’.

The Fourth Anti-Money Laundering Directive

During negotiations on the 4th AMLD, members of the European Parliament strengthened its measures to include a requirement that member states keep central registers of information on the ultimate beneficial owners of corporate and other legal entities, such as trusts.

Entities must hold ‘adequate, accurate and current information on their beneficial ownership’. The information must be held on a central register in each member state, with features including:

  • unrestricted and timely access to national authorities and financial intelligence units (FIUs)
  • access to obliged entities – those responsible for applying anti money laundering/countering the financing of terrorism rules – for example, banks carrying out customer due diligence
  • access to any person/organisation able to show they have a legitimate interest, such as journalists – as a minimum they will be able to access the name, month and year of birth, nationality, country of residence and the nature and extent of the beneficial interest.

The directive is due to be transposed into national law by June 2017, although the European Commission has now urged member states to commit to doing so by the end of this year.

What is happening in Sweden?

2016 looks set to be a busy year for Sweden, not only does the 4MLD brings pressure from Europe and the Panama Papers drives the international movement, but FATF have scheduled their on-site visit as part of the latest round of mutual evaluations.

Sweden is one of 20 countries that has agreed to automatically share information on beneficial ownership of companies and trusts, as part of the initiative the countries have also committed to establishing the registers as soon as possible. The agreements were confirmed last month with the details yet to be defined on the information to be stored and how it will be shared. There are ambitions of developing an international standard which would complement the steps already taken through the implementation of the Common Reporting Standard (CRS) in tackling tax evasion.

In a statement by the Swedish Ministry of Finance, the government has made a clear commitment to combatting money laundering, tax evasion and tax avoidance. A deadline has been provided on June 2017 for implementation of the register of beneficial owners and the government will push for the register to be implemented globally.

However, Sweden is remaining quiet on the finer points of implementing the register, but it is not expected that it will follow the route of the UK register and be made public.

Sweden has a strong track record on transparency, achieving a top ten place in Transparency International’s Corruption Perceptions Index (CPI) every year since 2006. In the most recent report, Sweden was ranked third place, although Transparency International were keen to point out a recent corruption case in Sweden clearly shows that there is still work to be done. 

With the EU pressing member states to move quickly on the implementation of the 4th AMLD, it will be interesting to see how the form of Swedish register evolves before it is implemented.

What happens next?

The cultural shift involved in bringing certain corporate ownership structures out of the shadows will involve a perhaps lengthy period of adjustment, but with Europe setting the pace, commitments at a wider international level to ending corporate anonymity and the ongoing attention of anti-corruption campaigners, the pressure for reform looks set to continue and grow.

As regulatory regimes evolve, ICA qualifications, including in anti money laundering, financial crime prevention, managing fraud, and governance and risk and compliance, equip professionals around the world with the skills and knowledge they need to keep pace with ongoing change.

 

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