Lifting the veil on beneficial ownership. Challenges of implementing the UK’s registers of beneficial owners
| DOI | https://doi.org/10.1108/JMLC-02-2020-0014 |
| Published date | 28 March 2020 |
| Pages | 717-734 |
| Date | 28 March 2020 |
| Author | Paul Michael Gilmour |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
Lifting the veil on
beneficial ownership
Challenges of implementing the UK’s registers
of beneficial owners
Paul Michael Gilmour
Department of Institute of Criminal Justice Studies, Faculty of Humanities and
Social Sciences, University of Portsmouth, Portsmouth, UK
Abstract
Purpose –This paper aims to critically explore the challengesfacing the UK in implementing registers of
beneficial owners, a measure mandated by the EU’s anti-money laundering (AML) directive to enhance
beneficialownership transparency.
Design/methodology/approach –This study systematically reviews the literature surrounding
beneficial ownership transparencyto critically analyse the extent to which challengesfacing the UK, impact
upon its abilityto successfully implement registers of beneficialowners.
Findings –This study demonstrates that a lack of beneficial ownership transparency facilitates money
laundering by concealing corrupt wealth and frustrating authorities’efforts to trace illicit finance. It
demonstrates that implementingregisters of beneficial owners may be a superficial approach to tackling the
multifaceted problem of money laundering. Better intergovernmental cooperation is required to improve
beneficialownership transparency and to ensure measuresto curb offshore money laundering are successful.
Research limitations/implications –This research focuses on one aspect of AML control from the
UK’s perspective. Further work is needed to investigate the concerns from the perspective of offshore
jurisdictionsand how global AML rule affects developing economies.
Practical implications –The study informs policymakers and other professionals implementing the
UK’s registersof beneficial owners to enhance future strategiesand better combat offshore money laundering.
Originality/value –This is the only study to explore the challenges facing the UK in implementing
registers of beneficial owners, thus providing novel insight into the moral, legal and practical dilemmas to
imposingAML control.
Keywords Money laundering, AML directive, Banking secrecy, Beneficial ownership transparency,
Offshore banking, Tax haven
Paper type Research paper
1. Introduction
The secretive world of offshorebanking has come under increasing scrutiny since the leaked
“Panama Papers”and “Paradise Papers”(Radon and Achuthan, 2017). In 2015, the Panama
Papers, revealed the business activities of over 300,000 offshore clients detailed within 11
million papers from Panama-based law firm, Mossack Fonseca (Harding, 2016;Yeoh,
2018b). Comparable revelations were made through the Paradise Papers in 2017, involving
The author would like to express his sincere gratitude and appreciation to Dr Branislav Hock, Senior
Lecturer in Economic Crime at The University of Portsmouth, for his supervision and advice
throughout his Master’s degree studies.
Lifting the veil
on beneficial
ownership
717
Journalof Money Laundering
Control
Vol.23 No. 4, 2020
pp. 717-734
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-02-2020-0014
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
the Bermudan law firm, Appleby (Lord, 2017). These papers have served to expose the
widespread involvement of the rich and famous, and political elite in questionable offshore
dealings. Much controversy has also focussed on the use of complex corporate structures
and anonymous shell companies incorporated through offshore financial centres (OFCs).
Nonetheless, despite the complexitiesof offshore business, there is always a natural person
who ultimately controlscompany assets or activities (Riccardi and Savona, 2013, p. 18). This
person is known as the “beneficial owner”(FinancialAction Task Force, 2014).
Henceforth, governments are under increasing pressure to strengthen the transparency
of offshore banking. It seems that governments’preferred step towards better corporate
transparency is through implementing registers of beneficial owners. The European Union
recently updated and expandedthe scope of their anti-money laundering directives (AMLD)
to require Member States to register beneficial ownership information (Campbell, 2018). In
response, the UK Government introducedthe “Persons of Significant Control”(PSC) register
covering UK-based companies in 2016 and plans to adopt a “Register of OverseasEntities”
by 2021 (Campbell, 2018). Yet, how worthwhile these registers are, is debateable. According
to data analysed by campaign organisation, Global Witness, registration requirements
appear not to have been met (Lord et al., 2018,p.12).
This article systematically reviews literature surrounding beneficial ownership
transparency to critically explore the challenges facing the UK in implementing such
registers. It reveals several themes which seem to defy beneficial ownership transparency,
including the moral, legal, and practical dilemmas facing governments seeking to execute
AML policy. This article argues that while implementing beneficial ownership registers
appears to be a positive step towards strengthening corporate transparency, it is not the
only solution; better intergovernmental cooperation is required to ensure measures to curb
offshore money launderingare successful.
2. The role of beneficial ownership in offshore money laundering
The Financial Action Task Force (FATF)is an intergovernmental organisation that creates
globally recognised AML standards to be met by governments in curbing money laundering.
FATF has been instrumental in supporting cross-government cooperation to identify
susceptibilities at domestic level despite countries’hesitance to accept money laundering as a
growing problem, indicated by many countries’slow adoption of domestic AML laws
(Alldridge, 2008;FATF, 2012;Nance, 2018). Importantly, FATF promotes beneficial ownership
transparency by urging banks, Trust and Company Service Providers (TCSPs), and other
professional intermediaries (like accountants, lawyers and tax advisors), to verify customers’
identification and financial transactions, and to ensure reporting requirements are met, through
the “Customer Due Diligence”(CDD) process (Le Nguyen, 2018).
FATF defines a “beneficialowner”as:
[...] the natural person(s) who ultimately owns or controls a customer and/or the natural person
on whose behalf a transaction is being conducted. It also includes those persons who exercise
ultimate effective control over a legal person or arrangement (FATF, 2014, p. 8).
The EU further stipulates that the beneficial owneris one who holds more than 25 per cent
of the shares or voting rights in a legal entity. Exceeding this threshold, therefore,requires
such a person to be disclosed as a company’sbeneficial owner on a centrally held register.
Furthermore, the beneficial owner is not necessarily the registered or legal owner of assets,
so identifying the real beneficialowner can prove difficult (Hook, 2018).
A lack of beneficial ownership transparency is problematic as it helps to concealcorrupt
wealth by hindering authorities’ability to trace the real person behind corporate vehicles
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