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Progress: Financial Action Task Force adopts new standard on transparency in company ownership

The adopted measures are key for countering kleptocrats and dirty money, but significant work remains

Transparency International welcomes the adoption of a revised global standard on beneficial ownership transparency as a major step to curb dirty money. The new standard, announced on Friday by the Financial Action Task Force (FATF), will make it easier for the international community to block corrupt officials and kleptocrats who use secretive corporate structures to exploit the global financial system. This significant reform follows Transparency International’s sustained campaigning for tougher international rules to end the abuse of anonymous companies.

FATF’s Recommendation 24 will now require that every country sets up a beneficial ownership register or sufficient alternative to allow authorities to see who ultimately owns or controls a company. Previously, the standard did not specify how company ownership information should be collected and made accessible to authorities. As a consequence, many countries relied on information held by banks. This approach is deeply flawed, as major bank scandals – such as the recent Suisse Secrets revelations – have shown time and again that banks cannot be trusted to submit reliable information. The new standard now requires countries to have three different mechanisms in place – with beneficial owners available from a register, from companies themselves and from supplementary sources like financial institutions.

While years too late, the stronger standard comes at a critical time – just a week after Russia’s invasion of Ukraine, in response to which several countries in the West announced a new wave of targeted sanctions against Kremlin-linked individuals and companies. To effectively implement these measures, countries that have yet to do so must urgently set up a beneficial ownership register to allow for better tracking of assets.

Details on the amendment text have not yet been published, but it seems the reform falls short in some areas. The wording released so far is vague on whether or not beneficial ownership information should be held centrally in a single register, and it does not require countries to open up their registers to additional stakeholders and the public. Transparency International has called for registers to be public to allow civil society to identify future reform areas expose and counter cross-border financial crime.

While Recommendation 24 will now require information to be verified, it does not assign this responsibility to a government authority, which would help to ensure accuracy. Just last month, Transparency International Germany called attention to the fact that a German foundation promoting the now-suspended Nord Stream 2 gas pipeline omitted its ties to Russian oil giant Gazprom in its beneficial ownership records. Allowing powerful interests to secretly impact decisions is unacceptable.

The plenary made other important changes to Recommendation 24 that will help authorities to better understand who is in control of companies. Bearer shares – physical certificates of ownership that allow for anonymous trading – are now prohibited. There are also stricter rules on nominee arrangements, making it more difficult for real owners to select appointees to manage companies or assets on their behalf. Authorities are also now required to review foreign companies, and public procurement processes are now recommended to utilise beneficial ownership data.

In the coming months, FATF will need to design clear guidance documents on how to implement the new standard so no loopholes remain. Transparency International, together with its more than 100 national chapters and partners, will continue to support and monitor the implementation of the new standard across the FATF global network.

Maíra Martini, anti-money laundering expert at Transparency International, said:

“With Russia launching a full-scale attack against Ukraine, the international community is waking up to the urgent need to counter kleptocracy much more vigorously than ever before. Today’s reform, while welcome, arrives a decade too late. If countries had created beneficial ownership registers years ago – when many governments promised to do so – Russian kleptocrats would have had a much harder time moving their dirty money across borders. In turn President Putin’s ability to increase his power would have been severely curtailed, the devastating impacts of which we are now seeing in Ukraine.

“World leaders must stop dragging their feet and act now to develop robust beneficial ownership registers. Company ownership information will be critical in tracking the assets of kleptocrats now facing sanctions. Transparency International will continue to advocate to close the remaining gaps, but if countries can quickly implement the new standard, the world will have a much better chance to crack down on dirty money from Russia and around the world."

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