The recommendations put forth by the Financial Action Task Force (FATF) suggest that countries’ regulations should require the collection of BO information for its use by authorities when investigating financial crimes. Indeed, the U.S. Financial Crimes Enforcement Network (FinCEN) implemented its Customer Due Diligence Rule (CDD Rule) that codified a risk-based requirement for FIs to obtain and maintain accurate BO information to a threshold of 25% ownership. The European Union’s (EU) various Anti-Money Laundering Directives also establish a minimum standard that requires FIs to identify and verify beneficial ownership through gathering BO information for any ownership interests that represent greater than a 25% stake in a legal entity customer. Both the United Kingdom (UK) and Germany adopted the EU standard and established corporate registries to gather and record beneficial ownership information; however, public access is only available in the UK.
Gathering BO information for the purposes of U.S. sanctions compliance is less clear and ultimately applicable to both FIs and corporations. While the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) prohibits transactions involving sanctioned individuals and legal entities, the 50% Rule and related aggregation principle also prohibit transactions involving legal entities with direct or indirect ownership interests totaling 50% or more by specifically sanctioned individuals or legal entities.3 In addition, FIs and corporations need to appreciate the sanctions risks posed by business partners that maintain relationships with sanctioned entities and by individuals exercising control over business partners that otherwise would not be subject to sanctions. Compliance obligations under the 50% Rule can become particularly burdensome as there is no defined minimum threshold for collection of BO information, although industry standards set the threshold at 10% ownership interest for higher risk entities. In addition, compliance can be particularly onerous for corporations that otherwise are not required to collect BO information and employ extensive supply chains.
Maintaining compliance with these complex and regulatory obligations can create a web of costly, unaligned processes and create challenges surrounding the maintenance of current BO information, sharing BO information globally or across many jurisdictions, and soliciting adequate and appropriate certifications. Nevertheless, there are a number of methods for accelerating collection and sharing of BO processes that can generate efficiencies and increase business value. Such methods include implementing procedural and technological enhancements to screening procedures, developing global standards for gathering BO information, leveraging the quality control function, and administering strong data governance and information systems.
Guidehouse is an industry leader in partnering with FIs and corporations to develop effective compliance programs that generate business value and drive down the cost of operations. Guidehouse professionals are ready to use their extensive combined experience to assist your organization with technological implementation and upgrades, program reviews, file remediation, gap assessments, and efficiency mapping.
Thank you to Benjamin Donat for contributing to this article.
Financial Crime Solutions