FATF Guidance on Beneficial Ownership of Legal Persons

As part of its revised Recommendation 24 (the “Recommendation”), which was adopted in March 2022, the Financial Action Task Force (“FATF”), mandated that nations should guarantee the access for competent authorities to sufficient, accurate, and up-to-date information on the genuine owners of corporations, known as ‘Beneficial Owners’ (“UBOs”). Furthermore, the FATF updated the guidance (“Guidance”) that will assist targeted nations in implementing the amended Recommendation with the aim to utilise a tougher standard.

Despite the essential and legitimate role that corporate vehicles play in the global economy, their unique legal status also makes them capable to be used in complex schemes designed to conceal the true UBOs and, in many respects, the real reason for holding assets and conducting transactions. However, it is challenging to ensure that the information of the UBOs in such complex structures is adequate, accurate and up-to-date, particularly when the ownership chain involves legal persons and legal arrangements spread across multiple jurisdictions, or complex networks comprising multiple layers of corporate vehicles. For this purpose, the FATF has been working out the recommendations, which mainly represent international standards to mitigate the risk illegal activities and trace concealed UBOs threw an adequate monitoring system, a so-called customer due diligence check. The Recommendation is the latest version of this standard, for which the FATF also issues a ‘manual’, the Guidance on Beneficial Ownership for Legal Persons which is to be briefly outlined below.

After defining the most important terms, the guidance characterises the different approaches to receive, process and handle that significant data. Thus, the Guidance explains types and sources of relevant information, and mechanisms to obtain those sources. These variety of approaches can basically be summarised as appropriate split of obligations between the public sector, the authorities, the private sector, the companies, and the intermediary, mainly the advocates, tax advisors and other company service providers. This distribution of obligations is referred to as the company approach, the registry approach and a third approach to include any other supplementary sources of information. Not only assigning several obligations but creating a harmonic interaction between the mechanisms implemented through those obligations shall ensure rapid and efficient access to beneficial ownership information for competent authorities, while the Guidance outlines the nature of all the mechanisms hence having to be proportional to the potentially avoided risk.

The Guidance furthermore describes the recommendations aimed to encourage the countries to extend the access and exchange of information to other sources of UBO information to further strengthen cross-checking and verification.

In the last part, the Guidance describes sanctions, and outlines the relationship of the Recommendation to other obligations and recommendations.

The FATF has made the Guidance available for download.

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