21/04/2016
Jersey Financial Services Commission
Refresher Series
Beneficial Ownership and Control
Hamish Armstrong
Vladimir Jizdny
Financial Crime Policy
Contents
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Purpose
Beneficial Ownership and Control - why is it relevant?
Beneficial Ownership and Control - what is it?
AML/CFT Handbook
Main points of difference
Common queries
Next Steps
Key Learning Points
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Purpose
Purpose
› Nothing new
› Reminder / “refresher”
› Areas of most interest / confusion
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ECDD
SCDD
Reliance
Beneficial ownership
› Common queries
› Surgery
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Beneficial Ownership
and Control - why is it
relevant?
Beneficial Ownership and Control - why
is it relevant?
› Money Laundering Order Article 3(2):
› Identify the customer
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Where the customer is a legal person - understand the ownership and control
structure; identify the beneficial owners or controllers.
› Identify any third parties
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Where third party is a legal person – understand ownership/control and identify
beneficial owners or controllers.
Where third party is a legal arrangement – identify each person in Article 3(7).
Where person in Article 3(7) is a legal person - understand ownership/ control
structure and identify beneficial owners or controllers of that person.
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Beneficial Ownership and Control - why
is it relevant?
› Money Laundering Order Article 3(7):
› In relation to a trust, a settlor or protector
› Any person who has a beneficial interest in the third party; or
is the object of a trust power (in relation to a trust that is a
third party)
› Any other individual who otherwise exercises ultimate
effective control over the third party
Beneficial Ownership
and Control - what is it?
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Beneficial Ownership and Control what is it?
FATF Glossary
Money Laundering Order Article 2(1)
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(a) an individual who is an ultimate
beneficial owner of that other person
(whether or not the individual is its only
ultimate beneficial owner); and
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(b) an individual who ultimately controls or
otherwise exercises control over the
management of that other person (whether
the individual does so alone or with any
other person or persons).
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Beneficial owner refers to the
natural person(s) who ultimately
owns or controls a customer
and/or the natural person on
whose behalf a transaction is
being conducted.
It also includes those persons
who exercise ultimate effective
control over a legal person or
arrangement.
Beneficial Ownership and Control what is it?
› Money Laundering Order Article 2(2):
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For the purposes of paragraph (1) it is immaterial whether an individual’s
ultimate ownership or control is direct or indirect.
› Money Laundering Order Article 2(4):
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In determining whether an individual is a beneficial owner or controller of
another person, regard must be had to all the circumstances of the case, in
particular the size of an individual’s beneficial ownership or degree of control
having regard to the risk of that individual or that other person being involved
in money laundering.
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Beneficial Ownership and Control what is it?
Customer
(company)
Corporate
Shareholder
(96%)
Individual
Shareholder
(1%)
Individual
Shareholder
(3%)
plus 70 others at 1%
Beneficial Ownership and Control what is it?
Customer
(company)
Corporate
Shareholder
(96%)
10%
50%
10%
10%
Individual
Shareholder
(1%)
10%
Individual
Shareholder
(3%)
(All individual shareholders) others at 1%
10%
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AML/CFT Handbook
AML/CFT Handbook
› Section 3 of the AML/CFT Handbook
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Explains how to apply identification measures
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Includes guidance on understanding ownership and control structures
(in order to determine who is at tier 1 and 2); source of funds; the risk
based approach to identification measures
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AML/CFT Handbook
› Section 4 of the AML/CFT Handbook
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Explains who is to be considered the beneficial owner or controller of a
legal person or legal arrangement
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Lists what evidence of identity might be obtained in order to comply with
Article 13 of the Money Laundering Order
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Includes guidance on the timing of obtaining evidence of identity and on
what to do where it is not possible to complete identification measures
AML/CFT Handbook
› Based on the revised FATF methodology on beneficial
ownership (Recommendation 10) and recent guidance on
transparency and beneficial ownership.
Introduces a “3 tier” approach:
1.
Are there any individuals with a material controlling ownership interest
(25% benchmark) or who exercise control via other ownership interests?
2. Are there any individuals who exercise control by other means?
3. If no individuals determined at tiers 1 and 2 – which individuals exercise
control through positions held?
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AML/CFT Handbook
› Section 4 of the Handbook explains how this approach
applies to specific types of legal person or legal arrangement:
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Trust (BO/Cs still listed)
Limited partnership
Company
Foundation (BO/Cs still listed)
Partnership that is a legal person
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Examples given for each type
AML/CFT Handbook
Beneficial owners of a trust (legal arrangement)
› Where a settlor, protector, beneficiary, object of a power, etc.
(“person”) is not an individual, beneficial owners or controllers are:
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Individuals with a material controlling ownership interest in the capital of the
person (through direct or indirect holdings of interests or voting rights) or who
exert control through other ownership means.
Any individual exercising control over the person through other means.
Where none - individuals who exercise control of the person through
positions held (who have strategic decision-taking powers or executive control
via senior management positions).
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AML/CFT Handbook
Beneficial owners of a limited partnership (legal arrangement)
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Individuals holding a material controlling ownership interest in the capital of the
partnership (through direct or indirect holdings of interests or voting rights) or any
other person exercising control through other ownership means, e.g. partnership
agreements, power to appoint senior management, or any outstanding debt that
is convertible into voting rights.
Those who exercise control through other means, e.g. those who exert control
through personal connections, by participating in financing, because of close and
intimate family relationships, historical or contractual associations or as a result of
default on certain payments.
AML/CFT Handbook
Beneficial owners of a limited partnership (legal arrangement)
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Where no individual is otherwise identified under this section - those who
exercise control through positions held (who have and exercise strategic
decision-taking powers or have and exercise executive control through senior
management positions, e.g. general partner or limited partner that participates
in management).
NB: In any case where a partner, etc. is not an individual, apply the “3 tier
approach” to find an individual(s) owning or controlling the partnership.
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AML/CFT Handbook
Beneficial owners of a company
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Individuals holding a material controlling ownership interest in the capital of the
company (through direct or indirect holdings of interests or voting rights) or who
exert control through other ownership interests, e.g. shareholders’ agreements,
power to appoint senior management, or through holding convertible stock or any
outstanding debt that is convertible into voting rights.
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Individuals who exercise control through other means, e.g. those who exert
control through personal connections, by participating in financing, because of
close and intimate family relationships, historical or contractual associations or as
a result of default on certain payments.
AML/CFT Handbook
Beneficial owners of a company
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Where no individual is otherwise identified under this section - those who
exercise control through positions held (who have and exercise strategic
decision-taking powers or have and exercise executive control through senior
management positions, e.g. directors).
NB: In any case where a person above is not an individual, apply the “3 tier
approach” to find an individual(s) owning or controlling the company.
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AML/CFT Handbook
Beneficial owners of a foundation
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Where a founder, guardian, beneficiary, etc. (“person”) is not an individual,
beneficial owners or controllers are:
› Individuals with a material controlling ownership interest in the capital of the
person (through direct or indirect holdings of interests or voting rights) or who
exert control through other ownership means.
› Any individual exercising control over the person through other means.
› Where no individual is otherwise identified under this section - individuals
who exercise control of the person through positions held (who are
responsible for strategic decision-taking or exercising executive control
through senior management positions).
AML/CFT Handbook
Beneficial owners of a partnership (legal person)
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Individuals with a material controlling ownership interest in the capital of the
partnership (through direct or indirect holdings of interests or voting rights) or
any other person exercising control through other ownership means, e.g.
partnership agreements, power to appoint senior management, or any
outstanding debt that is convertible into voting rights.
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Those who exercise control through other means, e.g. those who exert control
through personal connections, by participating in financing, because of close
and intimate family relationships, historical or contractual associations or as a
result of default on certain payments.
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AML/CFT Handbook
Beneficial owners of a partnership (legal person)
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Where no individual is otherwise identified under this section, - those who
exercise control through positions held (who have and exercise strategic
decision-taking powers or have and exercise executive control through senior
management positions, e.g. general partner or limited partner that
participates in management).
NB: In any case where a person above is not an individual, apply the “3 tier
approach” to find an individual(s) owning or controlling the partnership.
Main points of
Difference
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Main points of difference (Tier 1)
Tier 1: Indirect ownership / 25% threshold
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Previously – the 25% threshold for a “material controlling ownership interest”
was the primary focus.
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Now – also:
(i) consider control through other ownership means; and
(ii) challenge whether “material controlling owning interest” is actually
controlling.
Main points of difference (Tier 1)
Previously: No “material controlling
ownership interest”.
No further work.
A
customer
C
B
50%
50% corporate
D
25% individual
corporate
E
F
Pool
Pool
Each <1%
Each <1%
Now:
Consider whether a 12.5%
share in the customer (25%
share of a 50% share) is
controlling through other
ownership means.
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Main points of difference (Tier 1)
Individual has a
controlling
interest in…
Corporate A,
has a controlling
interest in…
Corporate B, has
a controlling
interest in…
Corporate C, has
a controlling
interest in…
Customer
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The Individual controls through
other ownership means.
› In practice, this may be a very small
“aggregated” ownership interest
(i.e. not “material”), but still able to
control indirectly…
Tier 1: material controlling ownership
interest (25%)
or
control via other ownership
interest (any %)
Main points of difference (Tier 2)
Tier 2 : control via other means
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Examples: personal connections, financing, historical or contractual
relationships.
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You always need to identify and verify the identity of any “tier 2 controllers”.
› You will have determined their existence as part of “understanding the
ownership and control structure”.
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May be BO/Cs at tier 1 and tier 2.
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Common queries
Common queries (1)
Tier 1: Material controlling ownership interest
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Query: I have identified all the 25% shareholders, can I stop there?
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Answer: No.
At tier 1: You need to understand all share ownership, in order to locate any
individuals exercising control via other ownership interests (e.g. a “minor”
shareholder).
Then – consider whether there are any “tier 2 controllers”, in order to ensure
you have determined all the beneficial owners and controllers.
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Common queries (2)
Tier 2: Exercising control by other means
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Query: what steps should be taken to determine whether there are any such
individuals?
Guidance: e.g. those who exert control through personal connections, by
participating in financing, because of close and intimate family relationships,
historical or contractual associations or as a result of default on certain payments.
May be difficult to determine at commencement of relationship; may only
become apparent during course of the relationship.
Ask the question!
Common queries (3)
Passive investors
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Query: Does the three-tier test mean that we do not need to apply identification
measures to individuals with a material interest in a customer, when those
individuals do not exercise control through their holdings?
Answer: Correct – truly passive investors are not considered to be beneficial owners
or controllers.
However - in order to demonstrate that sufficient information has been collected on
source of funds for a customer relationship, it may still be necessary to consider the
provenance of investments of shareholders who have a material interest in a
company, but who do not also exercise control.
The effect of this may still be to require information to be obtained on such
individuals (though it may not be necessary to also obtain evidence of identity).
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Common queries (4)
Registry requirements
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Query: Does the three-tier test apply in the same way to my obligations to
provide information to the Registry for the establishment of a Jersey company the C2A form includes details of the ultimate beneficial owner with an interest
of 10%?
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Answer: This presentation is in relation to your obligations to identify your
customer under the MLO.
The slides do not necessarily reflect your obligations with respect to registry,
which may be different.
You should contact the registry directly if you have any queries.
Next Steps
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Next Steps
› Amendments to the Handbook?
Does it currently reflect the thinking and intention?
› Further Guidance?
Are there any areas that could benefit from more detailed guidance?
› Developing international practice
How are other jurisdictions implementing the FATF model?
Key Learning Points
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Key Learning Points
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More information is required up front, in order to understand the ownership
and control structure and to determine who the beneficial owners or
controllers are.
Need information on all the players in the structure (even “minor”
shareholders), in order to determine who is in effective control.
Don’t just stop at the 25% shareholders!
When you have this information – use it as part of your risk assessment
(PEP/sanctions checks, etc).
Who is actually controlling (whatever their ownership)?
May lead you to apply identification measures (information plus evidence) to
a smaller group of individuals than previously.
Jersey Financial Services Commission
Q&A
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