According to current regulations, there is a demand that the person that controls the company is known. This transparency seems to be simple but it is not. Assessing ultimate beneficial ownership is all about tracing the beneficial owners to the owners. This is a practice that is often very difficult, especially when the parties involved are citizens of other countries. There are various national disclosure regimes that are in place in the EU, the US and other parts of the world.
The Beneficial Owner
The beneficial owner is the individual that controls over 25% of the shares of a company or voting rights or the actual owner. The person can also be the one that exercises control over management. In the event that such interest belongs to a trust, the entity that controls the trust has to be registered as the official beneficial owner.
Obviously, not all people want to be officially identified as being beneficial owners. There are many criminals that use corporate opacity in order to hide identities, a true purpose of an account or how funds are used. Sometimes fund sources are not mentioned.
In most cases, criminals just want to avoid paying taxes. In others, they want to stop the authorities from tracking money coming from corporate crime, like through corruption, bribery and money laundering.
Fortunately for honest businessmen, authorities fight back. As an example, the FATF (Financial Action Task Force) is an international regulatory body that sets anti-money laundering standards, counter-terrorist financing standards and guidance that has to be followed by countries in regards to beneficial ownership.
According to the FATF, there are clear measures that are recommended so that beneficial ownership and transparency are properly addressed. The main recommendations to remember include:
- Risk assessment, which involves assessing risks of all people associated with legal agreements and legal persons.
- Making sure that up-to-date and accurate beneficial ownership information is actively available for the authorities that need them.
- Making legal arrangements and legal persons sufficiently transparent.
Besides the FATF, there are also EU money laundering directives that are often published in order to actively crack down on tax evasion, terrorist financing, and money laundering. All these make the beneficial ownership a vital provision that is of high importance for corporates.
Transparency is vital for all people involved, in the event that they are honest. Public registers are needed to highlight the real beneficial ownership of all companies, especially the large ones. Many challenges are related to data. For example, many issues exist surrounding data lineage, data timeliness, and data quality. In addition, different rules exist in different countries. There are countries that are true off-shore tax heavens. They prevent data gathering when referring to beneficial ownership and more. Criminals quickly exploit this.
Ethical Business Growth
Trusts and organizations can now adopt 2 routes to collect the data associated with beneficial ownership. They can manually look at every single record or they can automate the entire process. Unfortunately, too many firms use the manual approach. This is a bad idea as the process is expensive, prone to human error and slow. Data collection can be easily streamlined by semi-automated data collection, which can deliver ethical business growth and the needed transparency.
In an ideal scenario, the business employs a good solution that enables organizations to reach core data assets related to efficiently and quickly sharing ownership data. You need to have practices in place so that the beneficial owner is disclosed at all times and identified. This is not at all something that is easy to do. However, without it, the business cannot grow in a fully ethical way.