FATF RECOMMENDATIONS:

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1 FATF RECOMMENDATIONS: WHAT DO THEY MEAN FOR THE CORPORATE TREASURER? REUTERS Eddie Keogh BY NEIL JEANS

2 TABLE OF CONTENTS 4 CORPORATE TREASURY: A JUGGLING ACT 4 ABOUT THE FATF 5 KEY POINTS OF THE 2012 FATF RECOMMENDATIONS 5 DEVELOPMENTS ACROSS THE GLOBE 6 WHAT DOES THIS MEAN FOR CORPORATE TREASURERS? 7 CONCLUSIONS AUTHOR: NEIL JEANS IS THE HEAD OF POLICY FOR THOMSON REUTERS ORG ID AND HAS OVER 20 YEARS EXPERIENCE IN FINANCIAL CRIME RISK MANAGEMENT. 2 FATF RECOMENDATIONS

3 REUTERS Yuya Shino INTRODUCTION The 2012 Financial Action Task Force (FATF) Recommendations set new guidelines for the information that legal entities, including corporations, should hold and maintain about themselves. These Recommendations are already filtering into new regulations across the globe, with significant consequences that all corporate treasurers need to be aware of. This report summarizes some of the key points from the Recommendations and what they mean for the corporate treasurer. risk.thomsonreuters.com 3

4 REUTERS Issei Kato CORPORATE TREASURY: A JUGGLING ACT Globalization and the increasing focus on accessing and managing cash amid an ever-increasing volume of regulations has seen the responsibilities of the corporate treasurer increase exponentially. Corporate treasury teams are increasingly relied upon by the Board to understand and interpret trading regulations such as the European Market infrastructure Regulation and Dodd-Frank. However, with the FATF Recommendations, this scope could extend to regulations governing Anti-Money Laundering as well: yet another set of regulations that corporate treasurers need to juggle. ABOUT THE FATF Financial Action Task Force (FATF) is an intergovernmental organization established in July 1989 as a G7 initiative to develop policies to combat money laundering. The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. These standards are set through Recommendations. The first one was issued in 1990, with revisions in 1996, 2001, 2003 and 2012, to ensure that they are up-to-date and relevant. The FATF monitors the progress of its members in implementing necessary measures; reviews money laundering and terrorist financing techniques and counter-measures; and promotes the adoption and implementation of appropriate measures globally. In collaboration with other international stakeholders, the FATF works to identify vulnerabilities at a national level, with the aim of protecting the international financial system from misuse. There are 34 member jurisdictions and 2 regional organizations within the FATF. 4 FATF RECOMENDATIONS

5 KEY POINTS OF THE 2012 FATF RECOMMENDATIONS Some of the key highlights from the 2012 FATF Recommendations which are especially important for corporate treasury are as follows: Regardless of the methods used to obtain and record identity information (including beneficial ownership information) there is a minimum requirement; The minimum basic information to be obtained and recorded by an organization should include: 1. The organization s name, proof of incorporation, details of its legal form and status, the address of the registered office, basic regulating powers (e.g. memorandum and articles of association), a list of directors, and 2. A register of shareholders or members, containing the names of the shareholders and members, the number of shares held by each shareholder and details of the categories of shares (including the nature of the associated voting rights) Thus, the guidance is that organizations need to maintain and make available to a registry, operated by the authorities in a particular country, all the basic information set out in the above points. DEVELOPMENTS ACROSS THE GLOBE Corporate treasurers need to know what impact these Recommendations will have on developments across various regions as they might need to interpret what they mean for their organization at a HQ and/or regional level. EUROPE The Fourth Money Laundering Directive (4MLD) which is largely mirrored on the 2012 FATF Recommendations has passed its final legislative hurdle and will become law across EU member states in two years following a vote in the European Parliament. This directive has consequences for all organizations within the EU. The regulated sector (financial institutions) will be required to place greater emphasis on effectively identifying and mitigating risk and there are key requirements around holding legal entity identity data, including beneficial ownership for companies. Article 29 of the 4MLD incorporates the guidance in the FATF Recommendations as follows: Member states shall ensure that corporate or legal entities established within their territory obtain and hold adequate, accurate and current information on their beneficial ownership Member states shall ensure that the necessary information about a legal entity can be accessed in a timely manner by competent authorities and by obliged entities These requirements are aimed at legal entities domiciled within EU member states, and essentially require companies to hold adequate, accurate and current information on their firms including their owners. Furthermore, Article 39 of the Directive discusses the regulatory onus on obliged entities (entities covered by the AML legislation and regulation such as banks and FIs) to ensure that they keep ownership information on their customers, meaning that it is also necessary from a regulatory standpoint that companies are able to transmit this information effectively to obliged entities. AUSTRALIA Australia has been one of the first countries to move its national law into alignment with the FATF Recommendations. The Australian Transaction Reports and Analysis Centre (AUSTRAC) amended its AML/CFT Rules in June 2014 to include, inter alia, the collection, monitoring and maintenance of: Information about beneficial owners, and Details of the management and organizational structure (including names and positions held) These requirements extend to all legal entities and effectively mean that they must maintain their beneficial ownership information and make it available when required. UNITED STATES In the U.S., the Financial Crimes Enforcement Network (FinCEN) s proposed rules document indicates a move towards more stringent customer due diligence requirements, including more information about beneficial ownership. Although the document does not imply that legislation is imminent, it could be argued that FinCEN is moving in the direction of requiring legal entities to hold and maintain beneficial ownership information: FinCEN s Notice of Proposed Rulemaking (NPRM) proposes: Enhancing the availability to law enforcement, as well as to the federal functional regulators and SROs, of beneficial ownership information of legal entity customers obtained by U.S. financial institutions, which assists law enforcement financial investigations and regulatory examinations and investigations. REST OF THE WORLD Other countries, as they prepare for the next round of FATF mutual evaluations (which assess a country s compliance with the FATF Recommendations) are also moving to amend their legislation in ways already seen in Europe, Australia and the U.S. It is clear that information about beneficial ownership is high on the agenda in many countries around the globe as a result of the FATF changes, as well as tax transparency and corruption initiatives at an inter-governmental level. risk.thomsonreuters.com 5

6 REUTERS Stephan Wermuth WHAT DOES THIS MEAN FOR CORPORATE TREASURERS? The proposals and developments outlined above will have significant consequences for corporations, as they will also be obligated by law to collect, maintain and deliver relevant, up-todate information about themselves on an ongoing basis. The onus is on corporations to provide up-to-date information and to alert their FI to any relevant changes as they occur. These requirements have significant consequences on a corporate treasurer, since it is likely that a large part of the responsibility to comply with these Recommendations will fall on the already-burdened shoulders of this corporate function. Additional tasks would include collecting, collating, verifying, securely storing and maintaining more corporate identity related documentation, and making them available when necessary. These new requirements, whilst necessary to maintain the integrity of global AML initiatives, will place additional strain on organizations who are already struggling to keep abreast of everincreasing compliance demands. Moreover, the practical implications of the FATF Recommendations run far beyond simply collecting and collating the new documentation that will be required. Each country will transpose the Recommendations into their own national law which could lead to banks and FIs interpreting them differently with many erring on the side of caution and requesting more information from their clients than is strictly necessary. With no consistent legislative standard, organizations will need to provide different sets of information for each FI they do business with, leading to frustration and significant duplication of effort. There is also the concern over how corporate legal entity information will be stored and made available to the correct individual and/or organization. The current methods of delivering highly confidential information via or post are vulnerable to interception or falling into the wrong hands. And even if secure delivery is achieved, organizations have no control over who can access their confidential information once they have released it. These are very real information security concerns for many organizations. 6 FATF RECOMENDATIONS

7 REUTERS Daniel Munoz CONCLUSION As the complexity and number of regulations continues to grow, all stakeholders including FIs and corporations will need to understand the impact of additional regulations on their businesses as well as their specific functions. For the FATF Recommendations, the onus will be on corporates to gather and maintain all necessary information about their organizations and furthermore to keep their FIs updated. This task will be both time-consuming and repetitive, delaying the pace of business and taking the focus away from other priorities This is a global issue: those regions where there is currently no legal requirement for this enhanced information gathering and reporting can expect to be regulated in due course. Corporate treasurers must weigh up the advantages of being early adopters of these expected regulations against the risk of the proposed legislation changing. However, early adoption, as opposed to late, does offer many benefits: last minute compliance projects can be difficult to implement if the requirements turn out to be more complex than expected and furthermore, early adopters are often afforded the opportunity to influence the design of new compliance solutions. Late adopters also run the risk of professional advisors being fully booked in the run-up to a compliance deadline. Compliance is never optional. It is simply a requirement. The consequences of non-compliance are well-documented and include hefty fines and often severe reputational damage. In order to stay ahead of the regulatory curve, it would be prudent for corporate treasurers to view these expected changes as a catalyst to amend current processes and put procedures in place now to collate, verify and maintain their confidential information. A streamlined and optimized solution will be to the benefit of all stakeholders - banks, corporates, the regulator and other government agencies. As the FATF Recommendations continue to filter into new regulations that will govern the daily duties of compliance officials across the globe, it is time for forwardthinking and efficiency to take center stage. risk.thomsonreuters.com 7

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