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The new face of KYC?

Monday 7 May 2018


Could identifying the ultimate beneficial owner be easier in 2020?

It is well-known that identifying ultimate beneficial ownership presents a significant challenge to business. Unfortunately, it can—and has—taken major data leaks to reveal complexed trust lineages.

The Australian Securities and Investment Commission (ASIC) Register has found gaps for some businesses in the Australian context, and as noted by Eric Frost, founder of Simple KYC, companies often get it wrong by relying on registers that fail to reveal the true complexity of lineages in trusts.

In 2016, when the Panama Papers was still being plastered across the front pages of mainstream publications, Niall Coburn, Regulatory Intelligence Expert for the Asia Pacific at Thomson Reuters, told GRC Professional that the major challenge was the uneven regulatory landscape.

For Coburn, the issue then was not just about tackling outdated regulation, it was also about enforcing existing regulations in an environment where the rules are often wilfully ignored.

Coburn highlighted five reasons why AML implementation was vulnerable to corruption:

  • Corruption is one of the most-significant contributors to proceeds of crime that become available for laundering, often through shell intermediaries;
  • Because of its connection with money laundering, corruption can prevent the adoption of effective measures against money laundering;
  • Corruption impedes the effective implementation of adopted AML measures by interfering with the capacity of institutions to perform their duties, or by corrupting relevant officials, or thwarting internal investigations;
  • Institutions on whose co-operation the prevailing AML systems rely can, if corrupted, sabotage the effective implementation of AML measures by falsifying or concealing information;
  • Corruption can take advantage of differences in the levels of implementation of AML measures in different countries to frustrate trans-national co-operation to investigate money laundering, ensuring beneficial ownership is never revealed.
The last of these—corruption taking advantage of different levels of implementation of AML—highlights the issue of investigations getting stymied by jurisdictional roadblocks.
In an interview before this year’s GRC AML & Financial Crime Summit, Frost told GRC Professional that many other jurisdictions don’t have corporate registers like ASIC’s, or hold their members to quite the same level of detail, so blaming incomplete data on companies in other jurisdictions that are actually meeting their own locally-determined KYC compliance targets may not be the best excuse.

UK territories to Reveal UBOs
But what if the regulatory environment could be made a little more even?
Simon Bowers, from International Consortium of Investigative Journalist (ICIJ), writes that the United Kingdom will force its overseas territories, particularly those based in the Caribbean and other well-known tax havens or low-tax jurisdictions, to reveal the names of ultimate beneficial owners.
Earlier this month, Bowers wrote:
The UK measure, which will force overseas territories to make public the owners of all their registered companies by the end of 2020, was set out in a proposed amendment to a government anti-money laundering bill, which is before parliament this week.
Sanctions and Anti-Money Laundering Bill [HL] 2017-19 has already passed through the House of Commons and has been introduced into the House of Lords.
The fourteen territories that will be affected are:

  • Anguilla
  • Bermuda
  • British Antarctic Territory
  • British Indian Ocean Territory
  • British Virgin Islands
  • Cayman Islands
  • Falkland Islands
  • Gibraltar
  • Montserrat
  • Pitcairn Islands
  • Saint Helena, Ascension and Tristan da Cunha
  • South Georgia and the South Sandwich Islands
  • Turks and Caicos Islands
However, there is some political opposition.
After the announcement of the Bill passing successfully through the House of Lords,
Caribbean 360 reported opposition to this Bill, and the Organisation of Eastern Caribbean States (OECS) has called on the UK Parliament to reject it:
While we recognise and respect the sovereign right of the UK to determine its national legislation, our concern centres on those provisions which are discriminatory to the BVI and which contravene the constitutional arrangement between the BVI and the UK by which financial services are formally entrusted to the democratically elected BVI Government when the new Constitution was agreed in 2007.

The statement from the regional body also went on to point out that the provisions did not apply to tax havens closer to the UK, such as Jersey, Guernsey and the Isle of Man. These countries were also left off the EU blacklist.
The OECS argued that international regulation is the remit of FATF and that the British Virgin Islands (BVI), in particular, has been compliant and their records are open to law enforcement.
They did, however, state that if the requirement for an open register becomes the new international standard, they will comply. In a twist, it was suggested that while the UK did have a
public register, it was ‘not verifiable’ and ‘technically does not met FATF requirements’.
It is yet to be seen if this political lobby will have any impact on the passage of the Bill through UK Parliament; however, the idea of an international standard and an international register would certainly make life easier, not only for law enforcement, but for financial institutions and—to acknowledge the expansion of the AML/CTF framework in New Zealand and potentially Australia—non-designated financial businesses and professionals (NDFBPs) who must meet their KYC requirements.
Thus, perhaps while there might be political challenges and political opposition, bringing this conversation out into the open might push the process one step closer to an international standard for an international register.