5 steps to meet your beneficial owner obligations

A new fact sheet to help businesses understand and comply with their beneficial owner identification requirements has been published by the Australian Transaction Reports and Analysis Centre, Australia’s financial intelligence agency and regulator.

Dr Rachel Challis, AUSTRAC’s Acting National Manager Compliance, said the fact sheet draws on feedback from businesses and past compliance assessments conducted by AUSTRAC to clarify the key steps businesses should take to determine beneficial ownership.

“Criminals use complex ownership structures to hide and move their illicit profits from crimes such as fraud, drug trafficking and corruption,” said Dr Challis.

“Not only is beneficial owner identification an Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) obligation, it is an important tool for businesses to know who they are really doing business with to help stop crime.”

“The Paradise and Panama Papers are examples of how businesses can be exploited by criminals through complex ownership structures.” said Dr Challis.

“Preparing this fact sheet is consistent with AUSTRAC’s commitment to partner with reporting entities to help them make their AML/CTF regimes the best they can be.”

The fact sheet sets out the main beneficial owner identification obligations and describes AUSTRAC’s expectations in terms of meeting these obligations.

“We are confident that this fact sheet will assist those reporting entities that may be struggling to understand their obligations or implement their processes” said Dr Challis.

How to meet your beneficial owner obligations

A beneficial owner of a non-individual customer is an individual that controls the customer, or either directly or indirectly owns 25% or more of the customer.

The beneficial owner’s interest in the non-individual customer will often be indirect. This means they do not directly own 25% or more of the customer themselves, but they own an interest in another entity, which in turn owns an interest in the non-individual customer. There can be several links in the chain of ownership that need to be traced through in order to determine the beneficial owner(s).

Firms must know the beneficial owners of their customers to protect themselves from being exploited for criminal gain or becoming unwitting partners in money laundering or the financing of terrorism. The following steps can help firms comply with their legislative responsibilities and be confident about who they’re really doing business with.

1 – Assess

Firms must first assess the risk posed by the beneficial owners of their customers.  Doing business with entities rather than individuals can increase the risk as non-individual customers may have opaque and complex ownership structures. This can make it difficult to determine their true owners and beneficiaries and so firms must demonstrate their have considered the risk this may pose to their own business and the wider community.

As with any other risk, beneficial owner risks will change over time and so firms must regularly review their risk assessments, ensure processes are up-to-date and reflect current risk factors.

2 – Determine

As individuals may own parts of several customer entities which give them a much larger interest than is initially apparent, firms must take steps to determine the true identity of the beneficial owner(s) of their non-individual customers.

3 – Collect

Firms must then collect, and take reasonable measures to verify, information regarding each beneficial owner’s identity.  Companies must know, at minimum, the full name of each beneficial owner, as well as either their date of birth or their full residential address.  They must then verify the beneficial owner’s identity using reliable and independent documentation or electronic data to ensure that information is correct.

Such documentation includes, but is not limited to, original primary photographic or non-photographic identification documentation and original secondary identification information as defined in Chapter 1 of the AML/CTF Rules. Other verification sources may be used by reporting entities, as long as it is appropriate given the ML/TF risk.

Disclosure certificates may only be used for verification purposes as a last resort, when other verification methods are unsuccessful. AUSTRAC expects to see evidence that a reasonable attempt was made to use reliable and independent documentation, or electronic data, to verify the beneficial owner’s identity before use of a disclosure certificate will be considered compliant.

What counts as reasonable measures for verification purposes will depend on the ML/TF risks the firm has identified in relation to providing the designated service to the relevant customer.

If firms are unable to determine the identity of any beneficial owners of a non-individual customer, then they need to take reasonable measures to verify the identity of another individual instead.  AUSTRAC expects to see evidence that a reasonable attempt was made to identify an actual beneficial owner, before identification of these individuals will be considered compliant.

The beneficial owners of a firm’s non-individual customers may change over time, so they must regularly update beneficial owner information throughout the course of that business relationship.

4 – Keep Records

Firms must keep records of the beneficial owner identification processes they undertake. These record-keeping requirements are set out in section 13 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).

Firms must ensure they keep records to demonstrate they have traced through each link in a non-individual customer’s chain of ownership, until they have identified all individuals who meet the definition of beneficial owners.

5 = Document

Firms should document how they will fulfil their obligations in their AML/CTF program. This program should describe how the firm will determine who the beneficial owner(s) of its non-individual customers are, what information they will collect about each beneficial owner and how this will be verified.

It should also outline if, and when, it will allow the use of disclosure certificates or resort to identifying an individual instead of being able to identify an actual beneficial owner.  It should also define the ‘reasonable measures’ undertaken for verifying identity.

The processes set out in a firm’s AML/CTF program cannot be generic in nature.  They must be specific to the business and show its staff what to do when they need to determine, collect and verify beneficial owner information. Processes copied from the AML/CTF Rules or the AUSTRAC compliance guide are not specific and should not be used instead of tailored procedures.

Once a firm’s AML/CTF program has been established, it is a legal requirement that its processes are followed by all staff.