FATF adopts amendments to Recommendation 24 and its Interpretive Note

The Financial Action Task Force (FATF) adopted amendments to Recommendation 24 and its Interpretive Note on March 4th, 2022. These changes will require countries to prevent the misuse of legal persons for money laundering (ML) or terrorist financing (TF) and to ensure that there is adequate, accurate and up-to-date information on the beneficial ownership (BO) and control of legal persons.

The FATF stated that the amendments were necessary as legal persons were significantly misused for ML, TF, and for proliferation financing (PF) in several jurisdictions. Generally, Mutual Evaluations by the FATF have indicated that there are insufficient levels of effectiveness in combating the misuse of legal persons for ML and TF purposes in the global network. FATF further noted that these improved standards are a critical initial step that must be done in tandem with constructive and sustained efforts to effectively implement the new standards and respond to risks relating to the abuse of legal persons.

Recommendation 24 now requires a multi-pronged approach where a combination of different mechanisms can be utilized for the collection of BO information to ensure it is available to competent authorities (CAs) in a timely manner. Countries should require companies to obtain and hold adequate, accurate and up-to-date information on their own BO and make such information available to CAs in a timely manner. Countries should also require BO information to be held by a public authority or body functioning as BO registry or may use an alternative mechanism if such a mechanism also provides efficient access to adequate, accurate and up-to-date BO information by CAs. Furthermore, jurisdictions should apply any additional supplementary measures that are necessary to ensure the determination of BO of a company. Such measures include holding BO information obtained by regulated financial institutions and professionals or held by regulators or in stock exchanges.

The revisions to Recommendation 24 will require countries to follow a risk-based approach and consider the risks of legal persons in their countries. They must assess and address the risks posed by legal persons, both created in their countries and foreign-created legal persons which have sufficient links with their country. Moreover, the amendments specify that access to information by CAs should be timely, and information should be adequate for identifying the beneficial owner, accurate (based on verification) and up-to-date. Jurisdictions must ensure that public authorities have access to the BO information of legal persons in the course of public procurement. Finally, the changes include stronger controls to prevent the misuse of bearer shares and nominee arrangements, including prohibiting the issuance of new bearer shares and bearer share warrants, conversion or immobilisation of the existing ones, and more robust transparency requirements for nominee arrangements.

The FATF is conducting a parallel review of Recommendation 25 (beneficial ownership of legal arrangements) to ensure consistent and suitably tailored BO standards and efficient implementation. As part of a phased approach, the FATF will begin assessing jurisdictions for implementation of the revised requirements at the start of the Fifth Round of Mutual Evaluations. This would give countries adequate time to put the necessary domestic measures in place. The FATF stated that it will continue to work with the global network to provide the necessary technical assistance and training to assist countries to meet the current standards, raise awareness of the new obligations, enhance understanding of registries and alternative mechanisms, and improve effectiveness of their implementation. More information on the revision process and amendments to Recommendation 24 are available on the FATF website.