The ‘Panama Papers’ was a key driver for the 5th Money Laundering Directive (5MLD) to include that all EU member states will be required to identify beneficial owners of companies and to maintain public registers of these.
The leak ultimately brought to the forefront the lack of transparency surrounding shell companies. The records revealed the multitude of ways in which numerous legal structures were used to obscure the ownership of a company for a myriad of financial crimes such as tax evasion, money laundering, terrorism financing and arms trafficking.
The new public registers will be used to an increase transparency and make it more of a challenge to disguise illicit transactions.
The registers will need to be accurate and verifiable, and to be made public to those with ‘legitimate interest’, although this definition may be widened to make it accessible to all, in the public domain.
The UK has made a start by creating the Persons of Significant Control (PSC) Register, but this falls short of the requirements of 5MLD and consultations are in progress to create a verified register, and also a register of the beneficial ownership of trusts.
The deadline for setting up these central registers is 10th January 2020 and EU member states must ensure they are interconnected to other registers across the EU by 10th March 2021.
In the meantime, regulated firms will need to review their internal processes and policies for collecting Ultimate Beneficial Owner data, and establish they are effective. Companies House is consulting on requiring obliged entities to report any discrepancies when comparing their own checks against the public register.
It is not yet clear exactly what data will be available or what the reporting obligations will be as there is also data privacy considerations that need to be taken into account, balancing the privacy rights of the individual with the public interest in the prevention of money laundering and terrorist financing.
Collecting beneficial ownership information is an immense challenge for regulated companies as the Panama Papers leak highlighted. There is not a simple solution. Many registries around the world simply do not publish beneficial owner information, or else the information is partial and incomplete.
Whilst an obligation for all newly formed entities to self-publish this information on national registers will help in time, currently, there is no process to independently check and verify this information, making it difficult to rely upon for compliance purposes.
Often organisation structures are complex and obscure. As a result, unpacking ownership structures and identifying beneficial owners is a specialist skill requiring experienced and highly trained staff. NorthRow’s Know Your Business solution offers clients instant access to a world of international corporate entity and personal data to help facilitate more efficient client onboarding. NorthRow validates businesses in real-time, in over 100 countries. We can access company shareholder information, financial data, and company structure information whilst also performing in-depth AML checks & electronic identity verification checks on company directors and ultimate beneficial owners.