Can Knowledge of Beneficial Ownership Assist in the Prevention of Laundering the Proceeds of Corruption?

Identification and disclosure of beneficial ownership (BO) has been viewed as the ‘silver bullet’ for the international community in its Anti-Money Laundering and Anti-Corruption (AML/ACL) efforts. The intergovernmental body, Financial Action Task Force (FATF), specifically addresses transparency and BO of legal persons and arrangements¹ in Recommendations R24 and R25.  Under these Recommendations, countries are required to maintain adequate, accurate, and timely information on BO and to ensure access to that information by the authorities and those undertaking customer due diligence. Given the desire to further increase understanding and identification of BO, FATF is currently undertaking a public consultation regarding amendments to Recommendation 24 to “strengthen the international standard” to “ensure greater transparency”.

A beneficial owner is defined widely as a natural person who ultimately owns or controls a legal person or arrangement or the natural person(s) on whose behalf a transaction is conducted. It also includes those persons who exercise ultimate effective control. A widely used disclosure threshold is ownership or control of 25% of a company or trust, a level used in a range of jurisdictions, including the UK² and the US³. Nigeria, the focus of our research, has elected to disclose at a far lower and highly ambitious threshold of 5%.

Despite the enthusiasm of the FATF and others for creating BO registers to increase transparency, the difficulties associated with creating a useful and accessible register and determining and recording accurate BO data are underestimated. This is especially true  in the case of complex arrangements which cross borders or involve multiple layers of ownership. The practical problem faced by the authorities is not so much the construction of the register itself, but: (a) how to ensure the accuracy and accessibility of the data contained therein; and (b) how to police the non-compliant obliged entities to ensure there is no unregistered BO information.  

We recognise here a fundamental tension between the objectives and requirements of those tasked with collection and submission of information (not just government agencies but businesses, individuals and the entire regulated sector) and those seeking to make use of that information.  As always there is a balance to be struck in terms of reasonableness in expectations placed upon those required to comply and the desire of law enforcement to collect as much information as is possible. Much of our prior work in the field of AML has been on proportionality advocating a ‘less is more’ approach: the simpler and less costly for the private sector, the more likely it is to comply. With regard to BO registers, our observation is that it is critical to get the basics right and not aim to be overly complex or ambitious. It is better to have less information that is accurate and verifiable than a lot of inaccurate, worthless or inaccessible data.

Identification of BO is burdensome for the private sector and maintenance of a register has significant resource implications for the agencies responsible for their management.  A particular area of burden concerns having resources to check the accuracy of data that are submitted to the registry. Errors can easily creep into the system, particularly within free-form fields where spelling mistakes can be common or information incorrectly entered, thus inhibiting future searches and undermining the usefulness of the register. Taking the UK’s Companies House Register as an example, within the field ‘Usual_Residential_Country’ the ‘United Kingdom’ appears not only in abbreviated form as U.K. and UK but also with seven different misspellings of Kingdom and one of United! While not technically incorrect, this kind of data makes the register difficult to navigate and use.

The UK recognises problems with the accuracy of the data captured in its register of company information maintained by Companies House. The Money Laundering, Counter Terrorist Financing and Information on the Payer Regulations 2017 (as amended) now requires the regulated sector to report discrepancies between BO information available at Companies House and the information that they may obtain through their own independent checks, though it is important to note that discrepancies are not necessarily a sign of sinister activities or intentional wrongdoing.  A discrepancy may be a consequence of a huge range of factors, such as missing paperwork, slow filing systems, lateness or lack of knowledge or understanding of filing requirements among smaller companies. Such discrepancy reporting is not currently required in Nigeria, which has a very low disclosure threshold level of 5%.  

A lower threshold has two implications: it creates a far greater number of PSCs who will have to report; and it creates a far greater burden on the Corporate Affairs Commission (CAC), the agency tasked with creating and maintaining the register. It is understood that law enforcement might want to have access to as much information as possible, however, there is a negative impact on genuine investors due to increased transaction and business costs of obliged entities and associated increase in the time it will take to comply with the requirements⁴.  The CAC will need adequate resources to be able to execute its function and ensure companies are compliant with their obligations. Any mechanism for reporting discrepancies should be straightforward and simple and lead to rectification of the register to reduce the compliance burden on all parties.

A few small decisions and changes now could considerably assist the CAC in delivering a successful register and also in enhancing the accessibility and usefulness of the data:  

1. This agency has a huge task on its hands and needs proper resourcing if information is to be verified and historic data cleaned when transferred to the on-line portal⁵. 
2. In populating the data on Persons with Significant Control (PSC), it would make sense to start with the largest shareholdings and concentrate on ensuring accuracy of the information that is provided. 
3. Providing public access to the register of BO would enable civil society organisations to add an additional level of checking of accuracy of data, removing some of the burden from the CAC. 
4. Consider an amendment to the AML/CFT Regulations (2013 s.13-16) to require the regulated sector to report discrepancies between PSC information available through CAC and the information that they obtain through independent checks when on-boarding new or transacting with existing customers.

As was succinctly stated in the ‘Background’ to the Compendium published by HEDA in 2020 ‘Corruption has robbed Nigeria of opportunities for development’. Corruption is not a phenomenon that exists only in the past as it appears to be a continuing characteristic of Nigerian governance and a contributor to its on-going poor GDP per capita. The IMF (2019) calls for increased attention by the authorities to enhance governance transparency, particularly in respect to public sector accountability. A similarly negative statement appeared in GIABA (2021:24): “The corrosive effects of illicit proceeds generation, especially proceeds from large-scale endemic corruption and related ML, have undermined effective and transparent governance and development in Nigeria over many years”. 

Corruption is not a natural state of affairs – it is the outcome of the power to make decisions that circumvent existing rules and criteria to gain an advantage (or its expectation thereof). There are certainly challenges in preventing its occurrence and in pursuing those that are corrupt.  Small changes now to the accessibility and availability of BO information will improve its usefulness for investigative, prosecutorial and asset recovery purposes.  Get this right and more accurate and available data will be generated increasing the level of transparency in Nigeria.  Grand corruption has many roots, but opacity is the main condition in which it thrives.

1. The topic is also explored through dedicated publications by FATF: ‘Concealment of Beneficial Ownership’, July 2018; Guidance for a Risk-based approach for legal professionals , June 2019; and,  Best Practices on Beneficial Ownership for Legal Persons, October 2019.
2.  The UK HM Treasury is currently undertaking a consultation to assess “the overall effectiveness of the [regulatory and supervisory] regimes”.
3.  In the US the Corporate Transparency Act, 2021 has established a (non-public) register of BO.
4.  The BO provisions CAMA s.119-123 are a small part of a very detailed act on company governance and reporting A 173 page user guide to company registration is available on the CAC website at https://pre.cac.gov.ng/assets/docs/crp-user-guide.pdf.
5.  Records can be accessed from https://search.cac.gov.ng/home with the search engine driven by company name. there is a link to ‘view persons with significant control of this company’ which we did not find populated.

Jacqueline Harvey

Coming from the school of critical scholars, Jacqueline Helen Harvey‘s evidence-based work challenges existing frameworks and approaches. Her overall contribution to the discipline is around two main themes: anti-money laundering policy / asset recovery and the criminal interface with internal organisational structure. Harvey is a professor of Financial Management and Director of Business Research at Newcastle Business School, and is on the editorial board for the European Cross-Border Crime Colloquium that brings together researchers from across Europe. Harvey received her Ph.D. in Taxation Policy from the University of Bradford.

Co Authors :

Sue Turner

Sue is a Senior Lecturer and Director of Education – CPD at Northumbria Law School with particular expertise in business and finance law and regulation.  She leads numerous specialist modules across postgraduate, undergraduate and professional programmes and is a member of the Financial Crime Compliance Research Interest Group.  Prior to joining Northumbria University, Sue was a banking and finance solicitor with a global law firm.