Anti-laundering bodies cite role of professional service providers in hiding ‘beneficial ownership’

Two international bodies charged with combating financial crime last week issued a report outlining the role lawyers, accountants and other “professional intermediaries” actually play in helping to hide the true, or “beneficial” owners of shell companies and other entities criminals use to disguise their assets.

The report – a collaborative effort by the global anti-money laundering, standard-setting Financial Action Task Force (FATF) and the Egmont Group of national Financial Intelligence Units (FIUs) – examined more than 100 cases of criminal activity involving hidden beneficial owners.

Their goal was to document the real-world role that professional intermediaries – commonly known in AML parlance as designated non-financial businesses and professions, or DNFBPs – play in hiding the true ownership of legal entities. Although the report’s findings are not surprising, some may find it useful as a risk-assessment tool.
“The purpose of the report is to help national authorities including FIUs, financial institutions and other professional service providers in understanding the nature of the risks that they face,” the report states.

The report decried the fact that many countries still have not issued rules requiring these professionals to report suspicious activity. It also called on nations to do more to educate DNFBPs regarding the money laundering potential of the services they provide because a number of case studies suggested unwitting involvement as well as willful blindness.

“The lack of supervision in these countries is a major vulnerability, and professionals operating in countries that have not implemented appropriate regulations for DNFBPs represent an unregulated ‘back-door’ into the global financial system,” the 190-page report states.

The United States has not issued AML regulations for such professionals despite consistent criticism from the FATF for more than a decade. As the report notes, resistance from professionals, including lawyers who say such rules would erode attorney-client privilege, have derailed efforts to regulate DNFBPs in some countries. It adds, however, that the AML regimes of others have not yet matured to the
point of placing obligations on non-financial professionals.

The report also includes indicators of potential efforts to hide beneficial ownership – such as the use of entities formed in jurisdictions known for the opaqueness of their legal structures – and outlines steps that can be taken to identify clandestine shell companies, for instance by using Google Maps to view the properties the entities use as their addresses.

A U.S. Treasury rule requiring banks to collect information about the beneficial owners of legal entity accounts came into force in May. However, a legislative proposal that would have required shell companies to report their ownership to Treasury did not even make it into the final version of a bill introduced this year aimed at tweaking the Bank Secrecy Act, the primary U.S. AML law.

A veteran BSA compliance officer at one of the largest U.S. banks said complicit lawyers and accountants as well as politicians are permitting the concealment of beneficial ownership.

“It is a problem easily solved with courage, cooperation, and conviction,” said Jim Richards, who earlier this year left his position as the BSA officer at Wells Fargo and now is a consultant. “The U.S. is already making serious headway, but the only way to truly make a difference is to have an accessible, central database of accurate, complete, and current beneficial ownership information.”

Richards, a former prosecutor, added that “most other countries have included lawyers and accountants in their AML regimes.” “The U.S. could and should do more,” he said.

Produced by Thomson Reuters Accelus Regulatory Intelligence 27-Jul-2018
Published 24-Jul-2018 by Brett Wolf, Regulatory Intelligence

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