The Financial Action Task Force (FATF) is conducting a review of Recommendation 25, which covers the transparency and beneficial ownership of legal arrangements. The FATF’s objective is to improve Recommendation 25 and its Interpretive Note to meet its overall objective of preventing the misuse of legal arrangements for money laundering or terrorist financing.
The FATF recently invited STEP and other stakeholders to attend a private sector engagement forum in early November to understand their views on several key areas.
The forum participants discussed the definition of trusts and equivalent legal arrangements in common/civil law systems. The discussion focused on whether a common definition could be introduced in order to clarify where the law is unclear.
This section also covered the key challenges of understanding the nature and structure of common law express trusts and civil law legal arrangements.
The key challenges in understanding and verifying beneficial owners in the context of trusts, and how the concepts of ‘ownership’ and ‘control’ would apply to them, were also discussed. The types of information collected to establish beneficial ownership of trusts, and the challenges of collecting this information of foreign legal arrangements operating in countries without the necessary legal framework, were also covered.
The FATF also raised how it wished to establish to what degree identification of beneficial owners should be inherently part of a trustee’s duties and asked whether this should be an explicit obligation.
One of the major focuses of the forum was to examine some of the ways that trusts and other legal arrangements can purposely be used to disguise ownership and evade transparency. Discussion also focused on complex ownership structures and how they could be defined and identified more clearly. Challenges can arise in existing multi-layered structures where the legal entity being identified is lower down the chain of ownership and in some cases, verifying the beneficial ownership of the ultimate holding entity, can be unclear.
The FATF stated that it would welcome any written proposals with suggested amendments for Recommendation 25 until the end of the year. The next step would be a planned public consultation in Q3 2022: however, this will be open to change if necessary.
In parallel with this review of Recommendation 25, the FATF are also reviewing amendments to Recommendation 24, which focuses on the transparency and beneficial ownership of legal persons. The FATF is consulting on suggested amendments to Recommendation 24 and STEP is planning on responding.