On 24 October 2014, the Financial Action Task Force (FATF) published two guidance, one of those is on the “Transparency and Beneficial Ownership” (“Guidance”). The Guidance is mainly directed to assist law enforcement and other competent authorities in deterring and preventing the misuse of corporate vehicles by money launders. In doing so, the FATF has also provided useful information for financial institutions and designated non-financial business and professions (DNFBP).

Looking at this information, the following can be resumed as the main points:

• Definition of beneficial owner – the BO is defined as follows:

The natural person (s) who ultimately owns or controls a customer and/or the natural person(s) on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal or arrangement. 

In the context of legal arrangements, the FATF describes as BO the natural person (s), at the end of the chain, who ultimately owns or controls over the legal arrangement, and/or the natural person(s) on whose behalf a transaction is being conducted. 

• Guidance to countries on effective mechanisms to combat the misuse of legal persons and legal arrangements.
• Guidance to countries on implementing measures to enhance the transparency of legal persons.
• Guidance to countries on implementing measures to enhance the transparency of legal arrangements.
• The relationship between standard in transparency and beneficial ownership (Recs 24 & 25), and other Recs (CDD requirements (Recs 10/22 and wire transfers (Rec 16)).

Interestingly, the Guidance proposes possible mechanisms and solutions to countries to identify the BO in complex corporate vehicles and legal arrangements such as trusts.

The Guidance also stresses several times the importance for financial institutions and DNFBPs to implement CDD measures, including identifying and verifying the identity of their customers, and their BOs. In particular, it states:

For legal persons,  this should include the natural person(s) (if any) who ultimately have a controlling ownership interest, or to the extent that there is doubt as to whether the persons with the controlling ownership interest are the beneficial owners, the identity of the natural persons (if any) exercising control of the legal person through other means. Where this does not lead to a natural person, this should include the relevant natural person who holds the position of senior managing official.

For legal arrangements, this should the identity of the settlor, trustee(s), protector (if any), beneficiaries or class or beneficiaries, or any other person exercising control over the trust.

The timing of the Guidance seems to be matching further discussions at the European level in relation to the adoption of the 4th Money Laundering Directive, which seems now to be awaiting Council 1st reading position / budgetary conciliation convocation. It is hard to say whether the Guidance may shift  the discussion at the EU level on what the BO definition should be, as it reaffirms the main definition already stated in many other circumstances. However, it can be noted, especially for those who were hoping that any reference to trusts could be dropped at EU level , that the Guidance advises countries to do the opposite. Therefore, it seems remote that the EU will take a different approach in relation to trusts.