The topic of the beneficial owner is one of the most complex and elusive in the context of preventing money laundering and countering the financing of terrorism. The beneficial owner, is the natural person who ultimately has control or ownership of a company, account or transaction and is therefore the beneficiary. Financial intermediaries often face significant difficulties in identifying who is the beneficial owner of a legal entity.
In this article, we highlight how to strengthen the identification of the beneficial owner by combining different approaches to make this procedure even more effective.
Definition and Criteria
The definition of beneficial owner has been borrowed in different contexts with different nuances, but there is a common core that is discussed in this article. The beneficial owner is the one who benefits from the ongoing legal scheme. The beneficial owner must be a natural person and not a legal entity, such as a company or partnership.
The Financial Action Task Force, FATF, the intergovernmental body established to draft international policies and standards to combat money laundering and terrorist financing, has published guidelines on Beneficial Ownership of Legal Entities. The document describes some useful criteria for identifying the beneficial owner (or beneficiaries, if there are multiple).
The logic is that of identification through:
- the analysis of the ownership structure (with thresholds not exceeding 25%);
- the reconstruction of who exercises control (e.g. voting rights, financing instruments and debt control are considered);
- the identification of who assumes management and is entitled to make strategic decisions.
These criteria are designed to define the pool of potential beneficial owners and are adopted with different nuances in different jurisdictions. However, further verification is necessary to understand whether an individual who meets one or more of the criteria mentioned is indeed the beneficial owner.