Financial criminals often choose multi-layered and multi-jurisdictional legal structures which include shelf and shell companies to launder illegal funds. Careful construction of layers of complexity vague the identities of the ultimate beneficial owners which promotes the financial crime activity. This sort of corruption results in great financial losses for governments, societies, and companies. There are several key challenges associated with the ultimate beneficial ownership which include the challenges related to policymaking, accessing the reliable ultimate beneficial ownership data, screening of the available ultimate beneficial ownership data, and Identification and verification of the ultimate beneficial ownership information.
Corporate vehicles are used for illegal purposes which include money laundering, corruption and bribery, frauds in tax, insider dealing, and terrorist financing, and other illegal practices. Several studies by the FATF has reported that misuse of corporate vehicles for illicit objectives which include money laundering and terror financing. The key challenges to this problem are the lack of proper, accurate, and on-time ultimate beneficial ownership information that cannot be extracted.
- In most of the cases, different aspects of a corporate vehicle are associated with multiple countries. Criminals create, manage, control, own, and operate these vehicles from multiple geographical locations which prevent the concerned authorities from obtaining all relevant information of a corporate vehicle in a single jurisdiction. This limitation of the competent authorities leads to money laundering, terror financing, and associated predicate violence like corruption and tax crime.
- Sometimes, company structures promote complications and enhance the difficulty for the concerned authorities to get correct beneficial ownership information during the investigation of the corporate vehicles which are suspected of misuse. The shell companies and the bearer shares are a couple of examples in this regard.
- Trust is also used as a tool to hide the ownership of a corporate vehicle. This happens in a way that the trust created in one jurisdiction is used to occupy the vehicle across other jurisdictions. This leads to the anonymity of the beneficial owner which is a key challenge for the authorities to find out the criminals.
- In another case, law enforcement and other competent authorities do not have access to beneficial ownership data for corporate vehicles. It has been observed that many counties are facing Significant issues while the implementation of measures to certify the availability of correct beneficial owner information. In many countries, corporate vehicles are produced and sold without collecting any information about the beneficial owner. This emerges as a key challenge for law enforcement and other competent authorities in the process of following the money and performing financial investigations involving corporate vehicles.
- The use of multiple corporate vehicles instead of a single one is a sophisticated scheme of the launderers to proceed with the crime. This is one of the best techniques for the criminals to hide the information and achieve their targets without getting into any trial from competent authorities.
The above discussion concludes that the misuse of corporate vehicles worldwide is emerging as a key challenge for FATF and other global regulators. The association of the corporate vehicles with multiple geographies, complicated manufacturing and authorization mechanisms, the anonymity of ultimate beneficiary owners, issues related to the accessibility of data, and the use of multiple corporate vehicles are the complications acting as a hurdle in the path of a successful audit. How Global regulators will overcome such complexities is the question of an hour.
Author is a postgraduate from the Department of Industrial Engineering, University of Engineering and Technology, Taxila, Pakistan where he received his Bachelors’s in 2017. He is the author of a couple of journal articles along with some conference papers. His research interests include Engineering management, project management, optimization techniques, and project scheduling and algorithms.