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#Anti Money Laundering

Beneficial ownership: A new era of openness? (United Arab Emirates)

International Compliance Association

4MLD , AML , beneficial ownership , corruption , Dubai , FATF , MENAFATF , UAE

Beneficial ownership is a phrase likely to leave the average person baffled and probably not very bothered. But it’s a concept set to attract much more interest over the coming months and years, thanks to the Fourth Anti-Money Laundering Directive (4MLD), and the central registers of beneficial owners that it will introduce.

Whilst 4MLD will not impact the United Arab Emirates (UAE), the global spotlight has certainly been cast on the topic of beneficial ownership.

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.

In itself, there’s absolutely nothing wrong with beneficial ownership. Someone has to be the ultimate owner, and most will have entirely 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 is very attractive indeed to those involved in financial crime.

Central registers

The international focus on secrecy over corporate ownership and control, and the part it plays in financial crime, has been growing in intensity among politicians and anti-corruption campaigners for more than a decade.

As far back 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, it is 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’.

What is happening in the UAE?

Back in 2008, the Middle East and North African Financial Action Task Force (MENAFATF) published its Mutual Evaluation on the UAE, advising that it was only partially compliant with Recommendation 33 - transparency and beneficial ownership of legal persons - now Recommendation 24; re-named after revision of the 40 Recommendations. The report advised that it found:

  • little evidence of how authorities were confirming that registered shareholders were beneficial owners
  • that there were a lack of procedures to provide access to information on beneficial ownership on companies registered in the Jebel Ali free zone (a designated area in the city of Jebel Ali in which companies are taxed very lightly or not at all to encourage economic activity)
  • there was doubt over the extent to which nominee shareholders are used to conceal foreign ownership of domestic companies.

By November 2014, MENAFATF had carried out its 7th follow-up report. The UAE had 6 previous follow-up reports from 2010 to June 2014 because of the result of the findings of the first Mutual Evaluation (ME). However, due to the significant progress the country has made in addressing the AML/CFT deficiencies highlighted in previous reports, MENAFATF decided to move them from regular follow-ups to biennial updates, with the next possible ME onsite in March/April 2019.

This 7th follow-up report highlighted government action taken to address the issue of partial compliance with Recommendation 33. It states that to increase the transparency levels with regards to beneficial ownership, the Ministry of Economy issued a Ministerial Decree that lays out which measures are to be ‘applied by the branches of companies and institutions established abroad and in free zones as they are required to verify the identity of the beneficial owners’

The Jebel Ali Free Zone Authority (JAFZA) also created a commercial register which has the information and documents of the companies and investors in the free zone. It has also set procedures to obtain information on ownership, including information on ‘the actual beneficiary of the natural and legal persons, mother companies in foreign countries for all bodies working in Jebel Ali Zone.’

The actions taken by the UAE also appear to be mirrored in its position on the Corruption Perception Index with it moving from 28th in 2011 to 23rd place in 2015. This improvement just shows that the positive work that the government are doing to improve transparency in the UAE is working.

At the Anti-Corruption Summit in London in May this year, the UAE joined the group of 29 countries where lists of beneficial owners are composed and shared between governments. This is yet another positive step in the right direction.

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 the US and Europe pushing the agenda, 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. It will be interesting to see if progress in the UAE continues in line with this global agenda.

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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