04/18/24
FROM Features
Delve into the intricate balance between transparency and privacy in the evolving landscape of international finance with our feature. We explore the pitfalls of imposing intrusive surveillance on cryptocurrencies, the shortcomings of anti-money laundering laws, and the UK’s experience with beneficial ownership registers.
Paul MarshallPragmatix Advisory
Rebecca MunroIsland economies consultant, Pragmatix Advisory
Transparency vs Privacy
Ownership Vs Control: FATF Targets Soft Power
Some well-meaning initiatives have unintended consequences. This was the case when in 2012, opening the debate on the need for registration of beneficial owners, the FATF offered a helpful suggestion: “A controlling ownership interest depends on the ownership structure of the company. It may be based on a threshold, eg any person owning more than a certain percentage of the company (eg 25 per cent)”.[3] That “eg” provided the basis for the evolution of a global industry in beneficial ownership avoidance. It is just the work of a moment for an offshore lawyer or wealth manager to make sure that no-one owns more than 24.99 per cent of any structure, thereby eliminating registration requirements altogether. That same footnote is still to be found in the November 2023 updated FATF Recommendations. It is perhaps too late now to turn the tide, because so many jurisdictions have already adopted the 25 per cent threshold, but in March 2023, the FATF offered an alternative strategy: Not ownership, whether controlling or not, but control in its own right. It has targeted soft power. FATF 40 Recommendations (2012, amended November 2023) The FATF Recommendations (International Standards on Combating Money Laundering and the Financing of Terrorism
US Lawmakers Try Familiar Tactics To Impose Sweeping Crypto Surveillance Regime
Major developments in recent months, such as the approval of spot Bitcoin ETFs in the United States, have done much to accelerate the mainstream adoption of cryptocurrency. Despite the preferences of some powers that be, the industry is not going away. But that doesn’t mean there won’t be major political challenges ahead, as politicians seek to impose on crypto the same burdensome and invasive surveillance regime that strangles traditional finance and harms consumers.
Transparency vs Privacy
Anti-Money Laundering Laws Don’t Work
Substitutive changes in AML and global financial compliance came from the OECD (Organisation for Economic Co-operation and Development) in 1989, which formed a sub-entity called the FATF (Financial Action Task Force). The initial purpose of the FATF was to reduce harmful tax competition and the possibilities of tax avoidance. It was not until the terrorist attacks on the United States on September 11, 2001, that the concept of crime prevention occurred to the FATF – but it was still about harmful tax competition. From the OECD: “Countries concerned about the flight of capital and savings from their jurisdictions to low- or no-tax jurisdictions engage in the cycle of tax competition to attract investment. This spiral involves enormous amounts of lost revenue for governments, as well as facilitating the laundering of proceeds from criminal activities. The phenomenon has reached such proportions as to be considered harmful and become a priority on the OECD Fiscal Committee’s agenda.”[i] In 1990, the “First FATF Report on the extent and nature of the money laundering process and FATF Recommendations to combat money laundering” was published. The report contained: i) a thorough analysis of the money laundering process, its extent and methods; ii) a presentation of
Can The UK Teach The US How To Manage Beneficial Ownership Registers?
The US Corporate Transparency Act (CTA) came into force on 1 January 2024, introducing corporate ownership reporting requirements into the US for the first time. In the UK, a similar regulatory regime came into force in 2016, building on the existing corporate ownership register, Companies House, which had been in existence (in one form or another) since 1844. Both regimes exist to combat money laundering, tax fraud, and related misconduct. What can the UK experience tell us about the likely impact of the US CTA? The UK People With Significant Control (PSC) Register In 2016, the UK introduced a register of beneficial owners of UK companies – the people of significant control register (PSC Register).[i] The PSC Register is publicly accessible. Stakeholders who use the PSC Register include financial institutions, corporate entities, civil society, and law enforcement. Although the PSC Register applies only to beneficial owners of UK companies, subsequent legislation now extends certain registration obligations to overseas entities. The Economic Crime (Transparency and Enforcement) Act 2022 (ECA), which came into force in March 2022, requires any overseas entity that invests in UK property to file details of beneficial ownership on a register of overseas entities.[ii] The purpose of the
UK: Register of Overseas Entities Legislation Reforms Reporting Requirements
There are severe sanctions for non-compliance under the ROE, including criminal and civil penalties. Furthermore, OEs will not be able to deal with a qualifying estate unless registered on the ROE and registration of legal title to a newly acquired qualifying estate will require registration on the ROE first. Under ECA, RBOs include individuals, entities or government bodies that meet at least one of the following conditions: They hold, directly or indirectly, more than 25 per cent of the shares in the OE. They hold, directly or indirectly, more than 25 per cent of the voting rights in the OE. They hold the right, directly or indirectly, to appoint or remove a majority of the board of directors of the OE. They hold the right to exercise, or actually exercise, “significant influence or control” over the OE. They hold the right to exercise, or actually exercise, “significant influence or control” over the activities of a trust, partnership, unincorporated association, or entity that is not a legal person, where the trustees of a trust, or the partnership members, unincorporated association or other entity meet any of the conditions specified above. Due to the term “indirectly”, in most cases where registrable
Transparency vs Privacy
Remaining Private: The Double-edged Sword Of PARBOs
The widescale introduction of PARBOs was intended to extend access to existing private registers held by official regulators and registrars (and already available to international tax authorities and law enforcement agencies) to allow anyone to find out who is the ultimate owner or beneficiary of an asset. So, if there are already easily accessible private registers that tax authorities and law enforcement agencies can use to prevent money laundering, tax evasion, and criminal financing activities, what is the disease that the PARBO remedy was designed to cure? Well, quite simply, there isn’t one, other than an overwhelming political desire to force transparency, and in doing so, create a sure vote-winner by shining a light on the (supposedly) dark corners in which hide white-collar enemies of the law-abiding, tax-paying working class. The trouble for the United Kingdom, European Union and others is that public registers are fundamentally at odds with the right to privacy, something that the European Court of Justice noted in their November 2022 ruling that was made in response to a request by Luxembourg. Indeed, the existing rules on public registers for member states were too loosely framed, and granted overly wide access to information without properly justifying
