FATF Toughens UBO Standards (But it's Not a Silver Bullet)

Countries can't just press a magic button and are now following the FATF's standards. And the uncomfortable truth is that it takes years for implementation to take place. 

It's also a path of snakes and ladders - as demonstrated in November 2022 when the European Court of Justice invalidated the provision of the Anti-Money Laundering Directive (AMLD) that requires EU Member States to grant public access to UBO registers. 

The sanctions.io blog covered this backward step in this post, where you can learn more. 

And back to the latest FATF revision on beneficial ownership standards. The reality is this: As a compliance or AML officer, your problems regarding UBOs aren't going away. ‍

FATF's March 10 UBO Revision

Negativity aside, the news is a step in the right direction. The FATF Recommendations (40+ of them) provide a framework to help countries combat money laundering and terrorist financing. More than 200 jurisdictions are signed up to follow the FATF's lead.

And Recommendation 24 (R.24) deals with discovering who is a company's beneficial owner - ultimately, the individuals at the end of the money trail receiving financial benefit. 

According to FATF, the revisions to R.24 will 'help prevent the organized criminal gangs, the corrupt, and sanctions evaders from using anonymous shell companies and other businesses to hide their dirty money and illicit activities.'

And to achieve this aim, FATF's revisions are doubling down on a strategy that's having success - the multi-pronged approach. 

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Multi-Pronged Approach to BO Data

The multi-pronged approach to identifying the ultimate beneficiary of a company is more effective than a single approach, according to FATF. 

In practical terms, what does this mean? 

FATF now recommends that jurisdictions put more resources into collecting information for UBO registers from multiple sources. These may include data from corporate filings & registries, public databases, third-party data providers, and other publicly available information. 

Proponents of using any data (you can legally get your hands on) to track down the ultimate beneficiary of a company, such as Open Ownership, are doing great work to make this task easier for jurisdictions around the world. 

How? A growing number of governments and non-governmental actors - such as investigative journalists - now follow Open Ownership's Beneficial Ownership Data Standard (BODS) when sharing data.

This data standard will significantly lighten the task of managing the increasing amount of information from multiple sources governments will seek in the coming years, especially given the revisions made to R.24. 

And all these developments sound so promising, right? The world is making great strides in making it harder for criminals to hide their dirty money (making compliance officers' lives that much easier). But lurking in the background is resistance toward who can access all this data on UBO registers. 

Need For Transparency in UBO Data

The perfect scenario for those interested in battling criminal groups, corrupt politicians, and sanctions evaders from hiding dark money is this:

A plethora of data (following the BODS standard) collected through a multi-pronged approach that's available on a jurisdiction's UBO register that has general public access. And the more countries doing that, the better. 

This approach is also ideal for many companies operating in RegTech, offering software solutions that utilize data for clients to help them comply with AML regulations.

Data Protection & Privacy in BO Disclosure

Now for the other side of the debate. Privacy advocates believe individuals have the right to keep personal information confidential, including information about the companies where they are the ultimate beneficiary of the profits. 

For example, as discussed at the beginning of the article, the privacy hawks who support General Data Protection Regulation (GDPR) policies are winning in the EU.

The November 2022 European Court of Justice ruling (invalidating the provision of the AML Directive, requiring EU Member States to grant public access to UBO registers) was, at the time, described as 'an early Christmas present for money launderers' by some UBO transparency advocates.  

In this article, it's impossible to go through UBO transparency commitments made by countries. Commitments to UBO openness vary per jurisdiction. This Open Ownership map is a tool to zero in on specific countries for more information. 

Interestingly, according to Open Ownership, some of the most impressive strides in UBO transparency are being made in West African countries, such as Nigeria and Ghana, where corruption is a huge societal problem.

On the contrary, the EU's step back from UBO transparency bucks the global shift towards openness over who owns and controls companies. Transparency International, a global coalition against corruption, described the EU's position as setting back the fight against cross-border corruption by years.

What The Revision Means For Compliance Pros

So what does this all mean for compliance officers diligently working away on meeting AML regulations? As you probably already worked out, FATF's revision to R.24 won't miraculously make their job easier - for now. It's going to be a slow burner. 

And there is no escaping this reality: Managing compliance obligations, such as 4AMLD requirements in Europe and the US's FinCEN Final Rule, places identifying the UBOs as the pillar in all compliance programs.

The bottom line is that UBO issues will continue to be a problem in AML compliance for the foreseeable future.

Final Thoughts

The FATF's March 10 revision to Recommendation 24 is a step in the right direction. A multi-pronged approach will lead to more public data appearing on UBO registers worldwide. 

But it's not a silver bullet. 

The problem for those battling illicit financial flows is the accessibility of the data gathered. If the global trend sways more to the privacy side (less general public access), as is currently the case in the EU, there is a bumpy road ahead. 

To find out more about ways to detect and prevent money laundering within your organization, reach out to sanctions.io for an obligation-free discussion.