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The Importance of Beneficial Ownership Registries in Fighting Money Laundering and Terrorist Financing

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Ieva Tarailienė, Head of Registry Practice at NRD Companies, gave an interview for “The Paypers” on the matter of beneficial ownership registers, their benefits to transparency and accessibility as well as their importance as it relates specifically to AML, CTF, and sanctions.

The Paypers- the Netherlands-based leading independent source of news and intelligence for professionals in the global payment community.

We are sharing the full interview here. Enjoy your reading.

What are NRD Companies, and what is your target market?

NRD Companies, a global group of information technology companies, specialises in the creation of GovTec and Fintech solutions and the provisioning of subject matter consultancy services. The purpose of the company’s offerings is to help growing economies reduce the digital divide and increase financial inclusion, in line with the UN’s sustainable development goals. With more than 150 E-Registry-related projects implemented in 33 countries, NRD Companies is considered to be an industry leader in market share by country.

Let’s delve into the topic of registers. How many types of registers does your company support?

In the field of registries development, NRD Companies’ core competence and main characteristics lie with the amalgamation of law, information technology and electronic communication into a well-functioning institution built on universal legal and technical principles and adjusted to traditions, culture, needs and demands in specific countries.

NRD Companies have a wealth of experience developing an array of registers including company registration, beneficial ownership, population registration, mortgage transactions, business licences, real estate ownership, and others.

Narrowing the topic to Beneficial Ownership registers, could you please portray the main features of these registries specific to the significant areas that you cover: Europe, the US, and Asia?

The primary purposes of establishing and maintaining Beneficial Ownership Registers are to deter Money Laundering and Terrorist Financing, help enforce sanctions, and unveil secret corporate ownership. Such registers will ensure that the ultimate owners/controllers are identified and that this information is readily and publicly accessible.

The growing pressure on governments and companies to improve transparency and accountability has resulted in a global shift towards increased disclosure around beneficial ownership. As a result, corporate transparency and the accessibility of beneficial ownership and controller information have become a leading topic on the international business registry agenda.

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The European Parliament has adopted the Fourth EU Anti-Money Laundering Directive (EU2015-849) (AMLD4), a law that obliges European Union Member States to maintain central registers detailing corporate beneficial ownership. This directive has laid down the foundations for Beneficial ownership registers in Europe. But it is worth mentioning that the shift towards transparency is not just limited to the EU. One of the drivers for change is the Financial Action Task Force (FATF). This inter-governmental body sets standards and encourages all of its 39 members from 37 different jurisdictions to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system. FATF Recommendation 24 even states that all countries will need to have a beneficial ownership registry or an equivalent system in place.That said, a look at the map of European BO registers compiled by Transparency International at the end of 2021, reveals that some countries have failed to establish such registers while others have imposed a myriad of public access restrictions.

To illustrate the inconsistencies in global regulations and according to the World Bank, registering beneficial ownership was mandatory in only 64 economies in 2020 and more common amongst high-income economies. I would like to believe that the situation is much better today.

What are the main issues regarding developing and using Beneficial Ownership registers that you are most familiar with?

From a technological perspective, it is not difficult for us, as a company with the solutions and experience, including our BOREG module, a Beneficial Ownership Registry solution, to develop the BO registry itself that would allow the collection of BO data and the secure storage and transfer of data. Our technology can combine company data with global sanctions and general AML screening, allowing one to build a holistic picture of companies’ beneficiaries. However, it is not enough to have a modern stand-alone BO register; a whole ecosystem including legislation and processes must be created to implement the principle of transparency so that authorities have access to adequate, accurate and up-to-date information. I would like to highlight some of the challenges related to the registration of ultimate beneficiaries.

Absence of data verification capabilities

Since many BO registries may involve self-declaration, verification of information is a crucial issue.

Many BO registries do not verify the information they hold which makes it difficult to authenticate the data provided.  An increasing number of governments in countries are contemplating the extension of new powers to their BO registers such as data analysis and the ability to check against sanctions lists. For example, the UK government aims to enhance the role of the Companies House and thus increase the transparency of corporate entities and the ability to validate the information.

Accessibility to BO data

One of the most crucial elements in beneficial ownership registers is whether it is public or not, and in what way is access to recorded data provided. Different countries have distinct approaches to privacy and transparency. For example, the US considers ownership of companies to be a private matter and many Business registers offer limited accessibility. Meanwhile, in Europe, many countries are opening up beneficiaries’ registers data. Still, in some countries, it will be available free of charge, while in others it will incur a fee.

Data accuracy

Although the definition of beneficial ownership is contained in the European Anti-Money Laundering Directive, the FATF Recommendations and national legislations, many data providers still insist that it is difficult to identify beneficial owners and controllers. Therefore, it is recommended that the State should not only impose the obligation to provide the necessary data to the registry but also ensure that detailed guidelines for the identification of a beneficial owner are developed.

One good example is the guidance produced by the UK Companies House, which explains the law and is intended to help data providers comply with it.

What role does data (accuracy) play in the success of Beneficial Ownership registers to counter fight money laundering and terrorist financing?

In the context of recent events, the accuracy of registered data is more essential than ever. However, I must admit that currently, in most countries, the provision of data on shareholders or beneficiary owners is more declaratory. Company heads are responsible for submitting the necessary data to the register and ensuring its accuracy. However, supporting documentation is rarely presented and data verification capabilities are limited. In conclusion, only reliable, accurate and up-to-date beneficial ownership data can help in the prevention of money laundering and terrorism financing activities.

The Ukrainian Russian war brings lots of implications to the sanctions screening processes. How are well-developed registers supporting these processes?

As mentioned, having a stand-alone technological solution for the registration of beneficiaries is just the starting point that has to be accompanied by the appropriate legislation.        – r     It is critical to have a sophisticated and holistic system that allows for the sharing of information, and the use of open-source intelligence including sanctioned parties. In addition, such AI based systems should be capable of identifying financial crime and money laundering risks, structuring the necessary datasets and developing the required algorithms.

Only with modern beneficial ownership registries that provide authorities with efficient access to accurate and updated information can it be expected to materially improve transparency, enhance international cooperation, and prevent abuse of corporate structures.

Mrs. Ieva Tarailiene has working experience at the Lithuanian State Enterprise Centre of Registers including as acting CEO. She’s been deeply involved with Lithuanian Business registry development and has longstanding experience in the development of electronic services and representing national developments in public e-services on the national and international scene.

Have more specific questions and would like to set up a call with Ieva Tarailiene? Choose a time for your free call in Ieva’s calendar in the Calendly

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