Company registrars: The first line of defence in counteracting money laundering and terrorist financing

by Dr Waleed Alhosani

Legal persons (LPs), notably companies, ¹ play a crucial role in the global economy and financial system. However, criminal gangs often exploit these entities for illegitimate purposes. This exploitation takes a number of forms, such as the establishment of companies with complicated ownership and control structures, the use of shell companies and the unrestricted use of LPs as directors, with a view to money laundering (ML), terrorist financing (TF) and/or sanctions evasion. It is notable that maintaining and updating LPs' basic information and beneficial ownership (BO) information accurately are among the most challenging international requirements that jurisdictions face. Recent statistics extracted from Mutual Evaluation Reports (MREs) conducted either by the Financial Action Task Force (FATF) or by FATF-style regional bodies show that just 9% of countries meet the effectiveness requirements of the Immediate Outcome 5 (IO 5), which represents the lowest level of effectiveness achievable by countries among all IOs of the FATF methodology. ² When it comes to technical compliance, less than half of all countries are rated as "compliant" or "largely compliant" in relation to the criteria contained in Recommendation 24 of the FATF methodology. ³ This article discusses the role played by jurisdictions, specifically company registrars, in mitigating the risk of LPs being abused for ML or TF. This article examines the main requirements from the perspective of best practices and international standards, particularly the standards and requirements of the FATF methodology. This involves LP risk assessments, basic and BO information, access to basic and BO information and sanctions. Each is discussed in detail below.