En route to some training in London this week, I travelled up an escalator in Chancery Lane tube station. All the ads alongside were for jewellers in nearby Hatton Garden (note to self: diamonds are BIIIIIG these days) and for local law firms. One of the latter had this quotation advertising its (I presume) divorce settlement services: “Possession is ten tenths of the law.” That’s inflation for you. But it made me think about ownership, particularly when a couple of people later in the day asked about the due diligence around beneficial ownership.
In the February 2012 revision of its Forty Recommendations, the Financial Action Task Force addressed this thorny issue. One of the basic components of due diligence (remembering that the Forty Recs are directed at governments, not at individual institutions), as stated in Rec 10, is “identifying the beneficial owner, and taking reasonable measures to verify the identity of the beneficial owner, such that the financial institution is satisfied that it knows who the beneficial owner is”. So far, so achievable – identify the BO and try to verify that identity. But Recs 24 and 25 take this a giant step further (with 24 dealing with legal persons and 25 with legal arrangements): “Countries should ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities…. Countries should consider measures to facilitate access to beneficial ownership and control information by financial institutions and Designated Non-Financial Businesses and Professionals undertaking the [due diligence] requirements.” Aren’t we talking here about a register of beneficial ownership? And indeed the interpretive notes to the Recs explain that what the FATF has in mind is: “Requiring companies or company registries to obtain and hold up-to-date information on the companies’ beneficial ownership [or] Requiring companies to take reasonable measures to obtain and hold up-to-date information on the companies’ beneficial ownership”.
Now, as a devotee of CDD (try saying that after a sherry trifle), I’m all for public registers and databases – but even I have to admit that this is a big ask. It remains to be seen how the EU member states, including the UK, deal with this requirement should it be adopted wholesale in MLD4 – and doubtless other jurisdictions, keen to adhere to the highest international standards but mindful of their competitive status on the world stage, will be waiting and watching.
I hate money laundering 
Beneficial ownership can still be crap too. My ex has an Australian friend who is the official beneficial owner of a Belgian company. Once in a while he shows up, stays at a fancy hotel and says hello to the board of directors. Back home he lives a modest life. I was once the beneficial owner of a Rolls Royce for a client of my ex, whilst living in a tax paradise. My ex had already a Porsche of another client to his name. There is always someone who can claim official ownership.
I hope diamonds get even “biiiigger”, so I can sell mine. Did you know that set stones hardly have any resale value? I’m advising my daughter to ask for a real investment in stead of an overpriced engagement ring, when time comes (she’s only 15 now).
Dear Claire
This is an excellent reality check for us all – thank you. As you can see, folks, determined launderers like Claire’s ex are well aware of the BO ruse, and can work their way around it. That’s not to say that we shouldn’t make checks on BO – not to do so would make it just too simple for criminals – but make those checks with a healthy dose of cynicism. As always: does it make sense? Does it fit with what I already know about this client, and about other clients like this one?
And the idea of asking a young man to get down on his knees and proffer a “real investment” instead of a ring is just perfect!
Best wishes from Susan