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Aspida Insights

FATF publishes new guidance document

Michael Calleja | Senior Compliance Services Executive | Malta

In March 2024, the FATF published risk-based guidance to support the application of FATF Recommendation 25 on Beneficial Ownership and Transparency of Legal Arrangements. The document highlights the necessity for countries to assess risks associated with legal arrangements and enforce measures to ensure access to accurate and up-to-date information on beneficial owners, including settlors, trustees, protectors, beneficiaries, and those with ultimate control.

This guidance, which complements prior FATF work on legal persons’ transparency, targets various stakeholders involved in regulating, forming, managing, or administering trusts. It also emphasizes the non-corporate nature of trusts as relationships among principal parties and outlines specific AML/CFT transparency obligations.

This non-binding guidance seeks to assist in fulfilling FATF Standards on beneficial ownership and operates alongside the guidance on Recommendation 24 (R.24), addressing overlapping elements and supporting national authorities without superseding their jurisdiction. The document can be accessed by clicking on the following link: https://fiaumalta.org/app/uploads/2024/03/FATF-Guidance-on-Beneficial-Ownership-and-Transparency-of-Legal-Arrangements-1.pdf

Aspida will offer a concise overview of the key sections that subject persons should carefully review and incorporate into their daily operations:

Identifying Beneficial Owners (BOs).

The document commences by stating the importance of express trusts and similar legal arrangements for legitimate purposes but also acknowledges their potential misuse for evading anti-money laundering (AML) and counter-terrorist financing (CFT) measures. It emphasizes the critical role of identifying beneficial owners to prevent such misuse. In this connection, countries are urged to ensure mechanisms are in place for obtaining and accessing beneficial ownership information promptly and effectively by competent authorities.

Scope of R.25: Trusts and Other Similar Legal Arrangements

This section within the guidance note delves into the revisions to FATF Recommendations 24 and 25, focusing on the need for beneficial ownership transparency for legal arrangements. It also clarifies the definition of express trusts and other similar legal arrangements, detailing the structural characteristics and functions that align with express trusts. Finally, it also discusses the importance of identifying legal arrangements that may not traditionally be considered trusts but function similarly in terms of separating legal and beneficial ownership.

Understanding and Assessing the Risks

It is also worth mentioning that the document outlines the potential risks associated with trusts and similar legal arrangements, such as their use for money laundering and terrorist financing due to their private nature, flexibility, and potential for abuse. It stresses the importance of conducting risk assessments of legal arrangements and implementing appropriate measures to mitigate identified risks, highlighting the need for countries to understand the specific vulnerabilities within their jurisdictions.

Adequate, Accurate, and Up-to-date Information

FATF mandates that information on trusts and similar legal arrangements must be adequate, accurate, and current. This includes details on settlors, trustees, beneficiaries, protectors, and any individuals with ultimate control. The guidance specifies the types of information required and emphasizes the responsibility of trustees to maintain this information and make it available to competent authorities in a timely manner.

Mechanisms and Sources for Obtaining Beneficial Ownership Information

This section discusses the mechanisms through which beneficial ownership information can be obtained, including the responsibilities of trustees, the role of registries, and the involvement of other competent authorities. It covers the various sources of information and the processes through which it can be accessed, ensuring transparency and compliance with AML/CFT measures.

Sanctions

The guidance highlights the necessity of implementing effective, proportionate, and dissuasive sanctions for non-compliance with beneficial ownership transparency requirements. It also emphasizes the importance of a robust legal and regulatory framework to enforce these sanctions.

Applicability of Relevant Regulatory Regimes and Other Issues

The document addresses the relevance of existing regulatory regimes to trusts and similar legal arrangements. It primarily discusses the challenges and considerations for implementing FATF Recommendations, including the role of case law, the responsibilities of service providers and trustees, and the impact of beneficial ownership information on AML/CFT efforts.

International Co-operation

Emphasizing the global nature of financial crimes, this section underlines the importance of international cooperation in sharing beneficial ownership information. It calls for mechanisms that facilitate effective and timely information exchange among countries to combat money laundering and terrorist financing.

10 key takeaways:

  1. Importance of Transparency – the document underscores the critical need for transparency in beneficial ownership of trusts and similar legal arrangements to combat money laundering and terrorist financing effectively.
  2. Risk Assessment – Countries are required to assess the money laundering and terrorist financing risks associated with legal arrangements like trusts and implement measures to mitigate these risks.
  3. Detailed Information on Parties – There’s a strong emphasis on maintaining adequate, accurate, and up-to-date information on the parties involved in trusts and similar legal arrangements, including settlors, trustees, beneficiaries, and any individuals exerting ultimate control.
  4. Scope of Legal Arrangements – The guidance clarifies the scope of Recommendation 25, extending beyond express trusts to include other similar legal arrangements, highlighting the need for a comprehensive approach to legal arrangement transparency.
  5. Mechanisms for Information Access – The FATF calls for establishing mechanisms and sources for competent authorities to obtain beneficial ownership information efficiently and in a timely manner.
  6. Sanctions for Non-Compliance – The FATF stresses the importance of implementing proportionate and dissuasive sanctions for violations related to beneficial ownership transparency requirements.
  7. Relevance to Regulatory Regimes – The document discusses the applicability of relevant regulatory regimes to trusts and similar legal arrangements, urging for compliance with FATF Recommendations to prevent misuse for illicit purposes.
  8. International Cooperation – A strong emphasis on the need for effective international cooperation in exchanging beneficial ownership information to address the cross-border nature of financial crimes.
  9. Responsibility of Trustees – Trustees are specifically tasked with obtaining and holding beneficial ownership information, reflecting the central role they play in ensuring transparency and compliance with AML/CFT measures.
  10. Flexible Approach Based on Risks – The FATF advocates for a risk-based approach, allowing countries and entities to tailor their efforts to collect and verify beneficial ownership information based on the level of risk associated with specific trusts or legal arrangements.

Against this backdrop, Aspida’s role becomes even more crucial. The firm’s specialized services in Compliance, Risk Management, and Governance are designed to navigate these intricate regulatory waters and expectations, ensuring that clients not only comply with current FATF requirements (expectations) but are also prepared for future developments.

For a discussion on options available to facilitate your requirements, please contact maltainfo@aspidagroup.com in the first instance.

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