This week, the WSJ rightly highlighted that the biggest impediment to the U.S. Treasury’s plans to implement a beneficial ownership registry, a key provision of the AML Act of 2020, is verification. Alongside the increased use of technology and public/private partnerships, meaningful reforms to the beneficial ownership regime have been long cited as the three AML-related changes that could have the greatest immediate impact on the fight against financial crime.
And it’s no surprise to see why.
According to the Open Government Partnership, the Global Financial Institute estimates that “anonymous shell companies were facilitating the illegal outflow of roughly $1 trillion from developing countries every year, while World Bank research found that 70 percent of corruption cases analyzed involved anonymous shell companies.” Yet, according to a study by the Tax Justice Network, out of 133 jurisdictions, only 37 have, what they consider, “proper legal ownership registration,” with just 11 jurisdictions making the corporate registry information publicly available online. The United Kingdom, one of the 11 jurisdictions and the only jurisdiction to provide the information in an open data format, is the perfect case study in the importance of verification.
In a study of 10 million corporate records, Global Witness discovered that approximately 10% of all UK companies, relying on legal loopholes, would not identify its beneficial owner. Among those that do, though, four thousand beneficial owners are listed under the age of two, including an owner who has yet to be born. Furthermore, due to the open data nature of the registry, Global Witness was able to identify 5 owners that appear to control more than 6,000 companies and nearly 10,000 companies controlled by “beneficial owners” who control over 100 other companies! More shockingly though, the analysis revealed that “7,848 companies share a beneficial owner, officer or registered postcode with a company suspected of having been involved in money laundering.” By leveraging technology like Sigma, insights into risk, like those identified by GlobalWitness, can be derived not just from corporate registries but from a variety of data sets, both structured and unstructured in order to both mitigate and fight financial crime more effectively.