Beneficial Ownership Transparency in Anti-Money Laundering

The goal of money laundering is to hide and legitimize illicit proceeds. In recent years，the Financial Action Task Force (FATF)，the world's most influential inter-governmental body that establishes standards for global anti-money laundering and promotes policies to prevent money laundering，has given heed to increasingly sophisticated combinations of money laundering methods and techniques，such as the ever-increasing use of legal entities to disguise the true control and ownership of illegal funds. Financial criminals seek to maximize anonymity in financial transactions by facilitating the creation of shell companies whose owners and controllers remain largely unknown and obscured，thwarting criminal investigation and prosecution. Such misuse of legal persons posed a major risk of money laundering and efforts to unveil the true owners of corporations can be time-consuming and resource-intensive，especially when these ownership trails lead abroad or made of numerous layers. Government authorities investigating money laundering schemes will be less likely to establish the necessary links from the proceeds to the criminal. Financial investigations for tracing and stopping financial crimes have sometimes come up with the wall of opacity erected by the companies that are involved with criminals’ financial transaction. Money launderers use complex structures to avoid being detected – they hide their illegal proceeds to ensure that even if those funds are found，they cannot be traced to the real beneficial owner.

The less transparent the financial and corporate systems are，the less efficient and effective anti-money laundering regime become. Therefore，financial institutions and law enforcement have to provide ample time to determine the true ownership and control structure of the companies so as to prevent the unlawful use of legal persons by money launderers. In order to effectively deter and detect criminals of laundering the proceeds of crime under the cover of corporate vehicles，measures to improve ownership transparency are in urgent need. The following will explore the challenges of and the measures supposed to be taken to strengthen beneficial ownership transparency.

Anonymous Vehicles ¨C "Shell Companies"

Although shell companies may serve legitimate legal purposes，they have often involved with financial crimes such as money laundering. Almost always privately held，not publicly listed，shell companies may be used to obscure the real owners of the assets or the controlling parties behind the financial transactions. Shell companies，in which the real beneficial owner(s) cannot be easily identified，provide financial crimes with more convenience. Owners or controllers of shell companies，who often hide behind legal nominees，have access to financial services anonymously by acting through shell companies that enable illicit proceeds to circulate unobtrusively and criminals to conceal their nefarious activities conveniently. Such use of shell companies makes investigations exponentially more difficult and laborious since the burden of identifying real beneficial owners often handicap or delay investigations.

In response to this issue，in 2006 FATF promoted and enforced corporate transparency standards worldwide. These standards aim to prohibit untraceable shell companies requiring that countries are obliged to "look through" such legal entities to discover the real individual(s) in control，namely the beneficial owner.

Banking Secrecy

Banking secrecy is another barrier that stands in front of anti-money laundering，which comprises of a wall to access to banking operations. Banking secrecy stems from a long-held consensus that clients' financial information should be protected from other parties concerned，including customers' rivals，merchants and clients. Financial institutions are supposed to shoulder obligations to withhold financial information from third-party interference. Many professionals argue that financial data can reveal an individual's commercial status and personal affairs，which to some extent exposes a person to the risk of commercial or personal harm. Moreover，keeping financial information confidential is critical to business conducted in competitive markets and banking secrecy is important to maintaining reliable bank-to-client relationships and ensuring viable economies. To sum up，publishing beneficial ownership can risk legitimate investment chances，sabotage competitiveness of financial markets and even threaten personal security.

However，banking secrecy provides a cover to hide the proceeds resulting from unlawful means like financial crimes. The crime of money laundering is facilitated directly or indirectly by banking secrecy regime. Money launderers find it easy to commit crimes and hide the source from which dirty money is earned. Although there is urgent need to increase the transparency of corporate structure and beneficial ownership，some governments are unwilling to strengthen financial transparency because of the continuing lure of overseas investment and the benefits that huge sums of money bring to the domestic economic growth.

Banks have difficulty in ¡°looking through¡± corporate structures and affording high compliance cost

Despite banks having implemented a huge variety of compliance methods and systems to identify the real beneficial owner of the corporations，compliance mechanisms are still circumvented by some financial criminals who employ corporate vehicles with numerous layers and complicated structures. In such an arrangement，the proceeds are easily transferred across borders through intercompany networks and chains. The globally interconnected financial system makes it possible to move and hide proceeds around the world，which facilitates criminals to launder money and thwarts financial institutions to trace criminals.

Financial institutions are obliged to verify the identity of the client and beneficial owner before and during the course of establishing the relationship，to check whether provided information is accurate and up to date. But financial institutions discharge such "Know Your Customer" duty at a high expense. Money launderers create chains spanning multiple jurisdictions that set up an overwhelming obstacle for financial institutions to monitor cash and information flow. The British Bank's Association notes that over 890 million pounds are spent on financial crime compliance annually. A study published recently by Ronald Pol，an expert of financial crime，suggested that the global anti-money laundering system might be "the world's least effective policy experiment"，and that compliance costs for financial institutions could be more than 100 times higher than the amount of ill-gotten gains seized. Consequently，阅读全部文章，请登录数字版阅读账户。 没有账户？ 立即购买数字版杂志