Efforts around the globe to identify Ultimate Beneficial Ownership (UBO) within companies, trusts and funds have intensified in recent months. This puts extraordinary pressure on global businesses to remain alert to, and in compliance with, fast shifts in the regulatory landscape.

There is little disagreement among international regulatory and enforcement authorities of the value of ultimate beneficial ownership (UBO) transparency when it comes to combating illicit financial flows, but global compliance has proved burdensome in practice. As public-sector entities in several jurisdictions labor to meet the EU’s anti-money laundering requirements, pressure is mounting for “obliged entities” to comply with demands for greater transparency about their customers.

Professional service providers, public records authorities, and financial institutions are facing resource challenges when it comes to the EU’s UBO compliance requirements. The EU's 4th Anti-Money Laundering Directive (4MLD) required the establishment of public registers—accessible to enforcement authorities and 'obliged entities' such as banks—to capture information on ultimate beneficial ownership. The EU's Fifth Anti-Money Laundering (5MLD) goes still further, making it an obligation to consult beneficial ownership registers when performing AML due diligence.

 A Nice Theory, Challenging in Practice

Although creating public registers would seem to assist with compliance with these EU directives, some jurisdictions are behind in creating them. This raises questions about how obliged entities can meet unforgiving deadlines imposed by regulatory authorities eager to spotlight their commitment to enforcing anti-money laundering principles and practices.

  • Last month, Luxembourg again pushed back the deadline for companies to register their beneficial ownership details after authorities learned that 53 percent of affected entities in the country failed to meet the initial 31 August deadline.

  • Under presidential regulation, companies in Indonesia had until March 2019 to disclose their beneficial owners, but media reporting suggests that less than one percent have complied.

  • According to the Basel Institute on Governance, analysis of data from the Financial Action Task Force (FATF) demonstrates that noncompliance with beneficial ownership requirements is the primary reason for countries’ poor performance. FATF’s mutual evaluation reports indicate an average effectiveness score of only 23 percent when it comes to information about beneficial ownership.

Furthermore, tax authorities point to the complexity of corporate structures as a barrier to timely compliance, but the IMF's patience with nontransparent tax havens seems to be wearing thin. In a paper titled "The Rise of Phantom Investments" last month, IMF officials noted that collection of taxes and reliable global economic statistics was being jeopardized by countries such as Luxembourg. The IMF spotlighted the distortions evident in official statistics as a result of tax-haven-driven "phantom investments":

According to official statistics, Luxembourg, a country of 600,000 people, hosts as much foreign direct investment (FDI) as the United States and much more than China. Luxembourg’s $4 trillion in FDI comes out to $6.6 million a person. FDI of this size hardly reflects brick-and-mortar investments in the minuscule Luxembourg economy.”

Find Out How IntegrityRisk OwnerCheck Helps

Delays in the creation of required public beneficial ownership registries and increasingly complex Know Your Customer requirements create a potential ”perfect regulatory storm” for obliged entities. Our experienced research team uses its global business knowledge and native-level fluency in multiple languages to conduct focused, accurate public record checks to identify details and compile information regarding beneficial ownership and affiliated parties. We also can supply local, reliable human intelligence and relevant investigative services when needed. IntegrityRisk OwnerCheck can play an important role in helping clients meet regulatory requirements for just about any purpose, including real estate transactions, private wealth matters, and third-party/vendor diligence. Contact us to find out how we can help navigate UBO risks.