National Efforts to Prevent Shell Firm Abuse ‘Need to Happen Now’: FATF President
14 Nov 2019

The Financial Action Task Force (FATF) will “hold governments to account” for failing to crack down on the criminal exploitation of corporate formation laws, the head of the intergovernmental group said Wednesday.

In an editorial published in the Financial Times, FATF President Xiangmin Liu called on nations to immediately step up their efforts to prevent money launderers and other criminals from hiding their identities behind legal entities that permit anonymous ownership. 

While shell companies have legitimate and legal uses, they also “frequently allow drug dealers, arms traffickers and corrupt politicians to hide their ownership and conceal their ill-gotten gains,” Liu wrote, adding that the estimated scope of such crimes is “startling.” 

“The annual proceeds from human trafficking and forced labor exceed $150bn, according to the International Labour Organization, with many victims forced into prostitution,” he wrote. The estimated $100 billion in annual US illegal drug sales contribute to an average of 174 deaths every day by drug poisoning—a figure that outnumbers deaths by firearms, car crashes, suicides and bombings, Liu said, citing data from the US Drug Enforcement Administration. 

“The reality speaks for itself. Shell companies enable serious crime that harms society. That is why this fight is so important,” Liu said.

Last month, FATF published a best-practices paper recommending the adoption of a “multi-pronged approach” to identifying the beneficial owners of shell companies. 

The proposal calls on member-states to ensure that companies retain and provide up-to-date beneficial ownership data and that such information is made available to law enforcement officials and other authorized parties. Such data should be analyzed alongside existing information retained by tax authorities, company formation agents, financial institutions, lawyers and others, FATF said. 

The Paris-based group, which published related guidance in October 2014 and July 2018, noted in the best-practices paper that nations may rightly choose to tackle corporate transparency in various ways so as to ensure effective enforcement. 

“Even with measures in place, no one is going to pretend this is an easy problem to solve,” Liu wrote Wednesday. “Publicly accessible central registries [of beneficial ownership data] will only be effective if steps are taken to ensure the information is accurate and up to date,” he said, in reference to the European Union’s mandate to launch such databases throughout the bloc. 

Liu, whose 1-year appointment as the head of FATF began in July, said that the intergovernmental organization will focus on holding nations accountable for how they implement recommendations related to shell companies and ownership data. 

“If high-quality, transparent information is shared, then we can detect the tainted money in the global financial system. The changes need to happen now,” he wrote. 

Read the full editorial here

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