By Louise Green – Chief Marketing Officer, Bureau van Dijk, a Moody’s Analytics company
Since 9 July 2018, member states of the European Union are legally required to hold beneficial ownership records and to provide these to EU citizens, without them having to demonstrate ‘legitimate interest’. These measures were introduced under the fourth anti-money laundering directive (AML4) in 2015 and its update (AML5) in July 2018.
These directives aim to make information relating to account holders and assets (including corporate vehicles) public and to include the ability to identify account holders. AML5 also includes the public release of a functional list of politically exposed persons (PEPs) at an EU-wide level, focussing on individuals with prominent public functions.
AML5 pushes for a unified database of ultimate beneficial owner (UBO) information, one that has unrestricted, public access across member states. In addition, AML5 requires enhanced due-diligence measures when dealing with a list of high-risk third countries that have low transparency for beneficial ownership information. These include nations such as Iraq and Syria, but also Tunisia, Sri Lanka and Ethiopia.
Will member states meet the deadline for beneficial ownership registries?
Central registries are being created in all 28 EU member states. Denmark and the UK were the first to launch publicly accessible UBO registries and have since been followed by Estonia, Finland, Latvia, Slovakia and Slovenia. Meanwhile, Belgium, Lithuania, Poland and Portugal have passed legislation to make their UBO registries public once they are implemented. As of September 2018, Romania, Cyprus and the Netherlands are the final few that haven’t yet transposed AML4 requirements into national law.
Figure 1 shows the status of all 28 EU member states as at 19 September 2018.
The deadline for member states to comply with AML5 is 10 January 2020 – but this seems unlikely to be achieved. Problems include whether the registries will ever be linked, reconciliation of different languages and methods and lack of depth. The information about beneficial owners to be made public may be limited, because AML5 only requires the following:
- Month and year of birth
- Country of residence
- The extent of beneficial ownership or interest
Not having a centralised database for UBO information could impede the process of making the information public and presents another roadblock in the creation of an EU-wide registry. For reasons of privacy, many countries that have complied with AML4 have also made efforts to limit the amount of information collected from beneficial owners and persons with significant control (PSC) or restricted access to the records. For example, Sweden has made the registry available only to Swedish nationals.
AML in the US
Money laundering in the US is estimated to account for around half of the money laundered globally per year. Since 2001, all financial institutions have been required to have AML programmes under the Patriot Act, which amended the Bank Secrecy Act. If there is a large or suspicious transaction, they must send a suspicious activity report (SAR) to the Financial Crimes Enforcement Network (FinCEN). US non-financial businesses are not legally required to have an AML programme, nor to file SARs. However, they must still report:
- Cash payments of more than $10,000 received in a trade or business
- Foreign bank and financial accountants (FBARs)
- International transportation of currency or monetary instruments
They are also subject to the Office of Foreign Assets Control’s (OFAC’s) sanctions requirements, including the 50 per cent rule
Under OFAC’s 50 per cent rule, a company is sanctioned by extension if owned by a sanctioned company or individual through a chain of ownership of 50 per cent or more.
Companies that are sanctioned by extension do not necessarily appear on any sanctions list, but businesses must avoid doing business with them and can be fined if they do. Businesses will need access to corporate ownership data to find out whether other companies are sanctioned by extension or not.
How effective is your sanctions screening?
Figure 2, using ownership data from Orbis, shows how a US-registered company is connected to a sanctioned individual in Russia. All companies within this chain are sanctioned by extension. In April 2018, OFAC added 12 Russian nationals to its Specially Designated Nationals (SDN) sanctions list for allegedly interfering with the 2016 US election. Orbis identified 1,300 companies that became sanctioned by extension that day, and 90 per cent were registered outside of the US.
The importance of corporate ownership data
While there is no certainty about the final form the various EU registries will take and whether they will ever be formally linked, company information, including information around corporate ownership structures, can help businesses to ensure they are compliant with legislation around know your customer (KYC), AML and sanctions. For example, using databases – such as our global company database Orbis – you can check your existing network for sanctioned and sanctioned-by-extension entities that you should not be trading with. You can also set up alerts to warn you of ownership changes that might make you non-compliant. And, most importantly, it can help you to protect your reputation and integrity.
About the Author:
As CMO, Louise is responsible for all elements of marketing at Bureau van Dijk. Based in London, she manages a global marketing team comprised of regional marketing directors as well as people with key skills in content, digital and design. Her projects include building lead generation engines around the globe, defining and developing the Bureau van Dijk brand, content marketing strategy, internal communications via the intranet, website development, PR activity and global CRM.
Louise joined Bureau van Dijk in 1990 after graduating from Bristol Business School with an honours degree in Business Studies and spent her first three years in sales before being appointed UK marketing manager. She has a solid understanding of the shared aims of the sales and marketing functions, and – importantly – developing business through lead generation.