Creating Mechanisms to Get Good Access to Beneficial Ownership Information in International Context

Abstract

International initiatives to enhance tax compliance and reduce the extent and impact of illicit financial flows have now been ongoing for over two decades, led primarily by the Organisation for Economic Co-operation and Development (OECD), the Financial Action Task Force (FATF), the Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum), the European Union (EU), the United Nations Office of Drugs and Crime (UNODC), and the World Bank.

Increasingly, the various forums, bodies, panels, and countries involved in developing policy responses to the issue of illicit financial flows are recognising that there are synergies between these regimes and initiatives that, if harnessed properly, can multiply the effectiveness of current individual approaches. For instance, while the stated purpose of the FATF Standards on transparency and beneficial ownership is to prevent the misuse of corporate vehicles for money laundering or terrorist financing, the implementation of these Standards supports efforts to prevent and detect other predicate offences such as tax crimes and corruption, while reinforcing jurisdictions’ capacity to meet their legal obligations arising from related international standards such as the UNCAC, the Criminal Law Convention on Corruption, the OECD Convention on Combating the Bribery of Foreign Public Officials in International Business Transactions, and the Standard for Automatic Exchange of Financial Account Information.

Common to many of these regimes and standards is the shared recognition that the identification of the ultimate beneficial owners of accounts and of corporations is crucial to detecting, tracking, and preventing illicit financial flows, by enabling authorities to more effectively and efficiently “follow the money”. The aim of this paper is to provide the necessary contextual information around beneficial ownership, and its place in the broader transparency agenda, in order to enhance understanding amongst stakeholders of what is meant by the concept and what its effective implementation requires. Part I sets out a broad overview of current and historical developments in the financial transparency agenda. Part II provides an outline of the relevant international frameworks that prescribe the collection, verification, and disclosure requirements for beneficial ownership information (being, primarily, the AML/CFT FATF Standards and the bilateral/multilateral mechanisms for exchange of information for tax purposes). Part III discusses the benefits of, and barriers to, effective collection, disclosure and exchange of beneficial ownership information, and outlines practical steps that can be taken to enable and/or reinforce verification systems. Part IV establishes an overview of recent international developments on the concept of beneficial ownership. It presents a factual description of the initiatives taken by the OECD, the Global Forum, the FATF, the Extractive Industries Transparency Initiative, World Bank, UNODC, Transparency International and Tax Justice Networks. Part V seeks to provide some useful practical-oriented recommendations on short- to medium-term actions that could be taken in these types of capacity-constrained environments to improve transparency and enhance the effectiveness of current tools and practices for combatting illicit financial flows.