Friday November 9, 2018
Friday November 9, 2018
The Financial Action Task Force (FATF) published a recent report that looked into the techniques employed by criminals to conceal the ownership and control of illicitly obtained assets by using a combination of layering and direct ownership chains. In many cases the beneficial owner will maintain some level of direct control over a scheme, usually involving a family member or business associate, but it is imperative that they are able to conceal their own identity.
The report explained that schemes designed to obscure beneficial ownership often employ a ‘hide-in-plain sight’ strategy by leveraging global trade and commerce infrastructures to appear legitimate. However, this visibility does not equate to transparency, and many of the tools that were designed to encourage business growth and development, such as limited liability corporations and nominee directorship services, can be used to facilitate money laundering, tax evasion, and corruption. The globalisation of trade and communications has only increased this threat, and countries now face the challenge of enforcing national laws in a borderless commercial environment.
Let’s take a closer look at how these legal arrangements and professional intermediaries help criminals conceal their wealth and illicit assets.
One of the key elements used to conceal beneficial ownership is through an incorporated company with no operations, business activities or employees, commonly known as a shell company, through which illicit money can be passed. Layers of ownership linked to the shell company will be put in place, with intermediaries and third parties, which can include spouses and children as well as other personal or business associates, who will exercise control of it on behalf of the beneficial owner.
Trust and company service providers
The use of professional intermediaries is also quite common in concealing beneficial ownership. For example, a trust company or a legal professional can assist a criminal by establishing legal arrangements and bank accounts through which criminal funds can be moved. Legal trust accounts offer a means to disguise beneficial ownership too, and the legal professional privilege can also offer a significant barrier to authorities trying to recover beneficial ownership information.
Trust and company service providers (TCSPs) represent a significant proportion of the professional intermediaries who are establishing legal persons and legal arrangements on behalf of their clients. They were also found to be more likely to provide services to clients internationally, which plays conveniently into the hands of anyone looking to conceal beneficial ownership overseas. TCSPs who were found to be complicit in their involvement, were identified as being more wilfully blind than fully complicit. This is because their services are vulnerable to exploitation by criminals (and potentially other professional intermediaries) involved in an illicit scheme.
Designated non-financial businesses
Designated non-financial businesses and professions (DNFBPs), e.g. casinos, real estate agents and dealers in precious metals/stones, can also help to add a layer of concealment to the beneficial ownership details, which will assist the criminal in concealing their identity. More often than not, the DNFBPs will get involved knowing they are playing a role in the concealment of the proceeds of crime, however, occasionally they may be unwitting participants. This highlights the important need for more effective regulation of DNFBPs, as well as professional intermediaries, to encourage increased awareness in the sector, and to reduce the likelihood of some of these becoming unwittingly involved.
Some of the ways in which these vulnerabilities can be addressed have been identified by the FATF report and include:
A broad theme underlying all of these issues is information, including possible ways to improve the reliability, access and mechanisms to share that information more effectively at domestic and international levels.
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