Beneficial Owners at the heart of the fight against money laundering

by 02/01/2025AML-CFT

All business relationships are based on integrity and trust. KYC(Know your customer) approaches are designed to verify the identity of customers and suppliers. One source of information is the Beneficial Owners register.

When a company is set up, it is compulsory to declare the natural person(s) controlling it. The Beneficial Owners website therefore concerns the shareholders of companies with their registered office in France, or an establishment in the case of foreign companies, as well as any entity registered in the commercial register (collective investment schemes, economic interest groupings, associations, etc.).

Beneficial owner: definition

A European directive has set up a register of Beneficial Owners (RBE), defined as " the natural person(s) who directly or indirectly holds more than 25% of the company's capital or voting rights, or by any other means exercises control over the company's management, administrative or executive bodies, or over the general meeting of shareholders ". If none of these criteria is met, the person or persons legally representing the company (managing director, chairman, etc.) is deemed to be a director.

The information concerns the identification details (birth name, customary name, first names, pseudonym, nationality, date and place of birth) and personal address of Beneficial Owners, as well as the terms and conditions of the control they exercise over the company or entity (direct or indirect holding of capital or voting rights, percentage, full ownership, bare ownership, joint ownership, legal representative, etc.).

An update imperative

Any change concerning Beneficial Owners, at any time during the life of the company, must also be declared. Failure to do so may result in a fine of €7,500 and six months' imprisonment, as well as a management ban (maximum 15 years) and partial deprivation of civil and civic rights. These penalties also apply to a beneficial owner who refuses to provide the information required for a declaration.

Identifying Beneficial Owners only makes sense if it is operational at international level. Directive 2018/843 of the European Parliament and of the Council of Europe on the prevention of the use of the financial system for the purpose of money laundering or terrorist financing stipulates that "Member States should be able to determine which data they deem useful and proportionate to collect in order to enable the useful identification of Beneficial Owners, taking into account the legal systems and traditions in force. Member States are currently required to ensure that companies and other legal entities incorporated on their territory obtain and maintain adequate, accurate and up-to-date information on their Beneficial Owners."

Beneficial Owners, a key role in the system AML-CFT

Beneficial Owners is an essential pillar of AML-CFT. Indeed, criminals often use multiple corporate structures to disguise the illicit origin of their funds, often multiplying legal entities to reinforce the opacity of their activities. By making visible who really controls a company, it is thus easier to identify suspicious activities, establish direct links with illicit financial flows, and freeze or confiscate assets used for criminal purposes.

The 2018 European Directive explains that "the need for accurate and up-to-date information on the beneficial owner plays a key role in tracing criminals, who might otherwise hide their identity behind a corporate structure. The globally interconnected financial system makes it possible to conceal and transfer funds across the globe, a possibility that money launderers, those who finance terrorism as well as other criminals have increasingly made use of."

Detect to deter and punish

Exhaustive identification is therefore essential to deter any attempt at money laundering, whether direct or via cascades of shell companies. In its guidelines on Beneficial Owners, the Banque de France's Autorité de Contrôle Prudentiel draws the attention of financial organizations to the fact that " they must ensure that they have effectively sought out the natural person(s) who should be considered as the beneficial owner(s), particularly in cases of high risk of money laundering or terrorist financing. "

Identifying Beneficial Owners : three major challenges

Although the Beneficial Owners register represents a major step forward and a powerful weapon in the fight against money laundering and the financing of terrorism (AML-CFT), there are three practical obstacles to its scope and effectiveness.

Challenge 1: complex legal structures

One of the main challenges lies in the complexity of obtaining an overview of legal arrangements, particularly when multiple entities, including offshore companies, are interwoven with cross-shareholdings in several countries. Some of these countries, with little commitment to combating money laundering and the financing of terrorism, further complicate this task. It should be remembered that the FATF's grey list includes no fewer than 24 countries (under enhanced surveillance), in addition to the three on the black list (and therefore considered high-risk).

These complex legal arrangements contribute to the three main methods of money laundering:

  • the injection of funds of criminal origin in the form of cash into the economic and financial circuit (" investment "),
  • converting, moving and dispersing funds to disguise their illegal origin (" stacking "),
  • the reintroduction of funds into legal economic activities (" integration ").

These actions are facilitated by legal arrangements such as foundations and trusts domiciled in tax havens, which help to dilute the traceability of Beneficial Owners, particularly those at the top of the shareholding chain.

Challenge no. 2: limited access or inaccuracy of available databases

Despite the requirements of Beneficial Owners, the completeness of public registers has not yet been achieved, as not all companies meet their obligations. In France, over the last five years, no fewer than 2.5 million letters have been sent by registrars inviting companies to update their information.

Challenge 3: Intentional fraud or concealed data

In addition to missing data, information relating to Beneficial Owners may be intentionally falsified to conceal the true identities or qualities of the persons concerned. In some cases, Beneficial Owners uses pseudonyms to conceal their identity. Their information may be accurate, but their intentions are far less obvious...

What are the best practices for ensuring compliance?

Companies on the front line of AML-CFT (banks, insurance companies, lawyers, real estate agents, notaries, etc.) must manage three imperatives to integrate Beneficial Owners into their compliance policy:

Ensuring efficient data management

AML-CFT is based on the analysis of huge and steadily growing volumes of data, which must also be constantly verified (and updated) to guarantee the integrity of third parties and business relationships. For example, a solution like APScan enriches data on Beneficial Owners and helps identify sensitive individuals.

Make sure you have the right information

The Beneficial Owners register is an essential source of information. However, since August1, 2024, information concerning Beneficial Owners is no longer public: companies wishing to consult it must now demonstrate a legitimate interest. A solution such as AP Scan offers API access to the Beneficial Owners register, in addition to lists of asset freezes, politically exposed persons...

Focus on responsiveness

In the fight against money laundering and the financing of terrorism, speed of detection is of paramount importance, so that suspicious capital flows can be stopped as early as possible. To achieve this goal, internal processes are essential to better document searches and easily retrieve the documents needed for investigations. It goes without saying that these processes must be automated, as manual management generates errors, inaccuracies and delays in the detection of suspicious transactions.

The benefits of identifying and managing Beneficial Owners are threefold:

  • deterrence (with information obligations),
  • detect (who is doing what) and punish, thanks to the identification of all parties involved in money laundering operations,
  • to fight terrorism.

 

Only innovative, high-performance software solutions can achieve these three objectives.

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