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Michele RiccardiTRANSCRIME Research centreUniversità Cattolica Sacro Cuore, Milan (Italy)[email protected]

BOWNET - Identifying the beneficial owners of legal entities in the fight against money launderingFinal results of the project

European Parliament – CRIM Special Committee HearingBrussels, 23rd January 2013

ALPHA

DELTA

THETA

IOTA

BETA

EPSILON

GAMMA

ZETA

50%

95% 54,5%

98%

2%

40%

Mr C.

100%

Confiscated company

Impresa non confiscata

Natural person

ShareholderAdministrator

95%

45%

Construction sector

Non confiscated company

Source: Transcrime 2012 (www.investimentioc.it)

Through this complex scheme, entrepreneur Mr C., connected to Cosa Nostra,controlled 10% of construction industry in Italian province of Catania

Criminals and «Chinese boxes»

Company 1Year: 1994 - 1997

Company 2

Company 4

Company 3

50%

5%

95%

25% N.S.

A.I.

D.S.

Company 5

Company 6

Company 7

Company 8

Family ties Mr S.

Confiscated companyNatural person

ShareholderAdministrator

Non confiscated company

Through this complex scheme of companies, Mr S., linked to Camorra clan of Casalesi, controlled a significant share of the construction sector and of the illegal waste disposal industry in the Campania region

Criminals and «Chinese boxes»

Source: Transcrime 2012 (www.investimentioc.it)

The above are just two examples of how criminals and criminal groups make use of companies and corporate entities, often structured in complex ownership «Chineseboxes» schemes and set up in different countries, for:

► concealing their criminal identity

► concealing proceeds of crime

► money laundering and terrorist financing

► evading taxes

► hiding slash funds

► committing frauds, corruption and other financial crimes

The issue of Beneficial Ownership (BO)

Identification of Beneficial Owners (BO) behind suspicious corporate entities has hence become crucial in the international and EU fightagainst money laundering:

► UN Conventions 1988, 2000, 2003

► FATF Recommendations (2003 and 2012)

► EU AML Framework (3rd and 4th EU AML Directives)

► OECD (Behind corporate veil Report 2001)

► World Bank/UNODC (Puppet Masters Report 2011)

► WEF Global agenda on Organised Crime 2012

► Private field (e.g. Wolfsberg Group guidelines)

The issue of Beneficial Ownership (BO)

Despite this attention, questions remain unanswered. Theyare addressed by Project BOWNET:

► What information is used by EU investigators for identifying BO of suspicious corporate entities?

► What information is used by intermediaries covered by 3AMLD?

► Who is providing this information at EU level?

► What are the problems in terms of availability of this information?

► What is needed by investigators and intermediaries to improve investigations on BO of suspicious corporate entities?

Project BOWNET - Objectives

7

Project BOWNET - Partners

► Funded by EU Commission, DG Home Affairs

► Duration: Started in March 2011. Final report by 23rd February 2013

► 6 EU Partners:- Transcrime / Università Cattolica Milan – Coordinator- EBR – European Business Register- Direction V (anti Financial crime), Italian Ministry of Economy and

Finance- FIU Denmark - State Prosecutor for serious Economic Crime- UniCredit S.p.A.- PricewaterhouseCoopers S.p.A.►Materials available on www.bownet.eu

Questions addressed through a range of activities

► Survey on EU FIU, LEA, ARO practices in BO identification

► Survey on EU intermediaries practices in BO identification

► Analysis of EU Business Registers (BR)

► Analysis of other Business Information Providers (BIP)

► Analysis of AML software used in BO identification

► Proposals for new support systems to be used in the identification of BO of suspicious entities

► Identification of policy implications

Project BOWNET - Activities

► Data on shareholders and directors of companies most used information in BO identification, both by investigators and intermediaries

► Problems of availability: differences exist across EU MS and some still do not collect this information

► Problems of disambiguation: name of shareholders and directors is often available but additional information (e.g. date of birth, ID, address) are not

► Problems of accuracy: concerns about reliability of this information

► Problems of timeliness: information not always accessible on timely fashion

► Data often available for limited companies, but not often for unlimited companies, foundations, associations

BOWNET Findings - Data most used

69.2%

38.5%26.9% 23.1% 26.9%

65.4%

15.4%

19.2%11.5%

11.5%

30.8%46.1%

53.9%65.4% 61.6%

34.6%

0%

20%

40%

60%

80%

100%

Name Home Address Address forcorrespondence

Date of birth ID/Passportnumber

Extent ofShareholding

Not publicand notavailable

Not publicbut withintheregistry

Availableon thepublicregister

N=26

Information on shareholders available on EU Business Registers

Source: Transcrime 2012, project BOWNET (www.bownet.eu)

Information on directors available on EU BRs

92.3%

50.0%38.5% 42.3%

26.9%

19.3%

15.4%23.1%

23.1%

7.7%

30.8%46.1%

34.6%50.0%

0%

20%

40%

60%

80%

100%



Notpublicand notavailable

Notpublic butwithintheregistry

Availableon thepublicregister

N=26


15.4%3.8% 7.7% 3.8% 7.7%

15.4%

7.7%

15.4%15.4%

15.4%15.4%

7.7%

76.9% 80.8% 76.9% 80.8% 76.9% 76.9%

0%

20%

40%

60%

80%

100%



Extent ofshareholding

Not publicand notavailable

Not publicbut withinthe registry

Available onthe publicregister

N=26

Information on Beneficial Owners available on EU BRs


13

75.3%

26.7%

16.7% 20.0%11.3%

19.3% 22.0%

0%

20%

40%

60%

80%

Limitedcompanies

Unlimitedcompanies

Foundations Associations Trust Other N.A.

N=150


Type of corporate entities covered by EU registers

Analysis carried out on 150 EU BRs and other data providers

► Business Registers (BR) remain most important source to collect information for BO identification

► A high number of alternative information providers (BIP) exist (on average 7 per EU MS)

► But most of them cover only 1 EU MS at the time – lack of connections among different EU MS registers

BOWNET Findings - Data sources

4 3 2 3 4 4 4 5 5 4 35

3 35 4 4 3 3 2 3 3 4 4 3 3 4

13

7

42

22

4 34 5

5

22

4

92

25

15

2

52

2 2 5 46

4

11 4

02468

1012

Austria

Belgium

Bulgaria

Cyprus

Czech R

epublic

Denm

ark

Estonia

Finland

France

Germ

any

Greece

Hungary

Ireland

Italy

Latvia

Lithuania

Luxembourg

Malta

Netherlands

Poland

Portugal

Rom

ania

Slovakia

Slovenia

Spain

Sw

eden

United K

ingdom

Europe and…

Worldw

ide

Average

Commercial BIPs (N=43) Public BIPs (N=98)

15

Number of countries covered by each BIP

* The figure includes only commercial BIPs

0% 10% 20% 30% 40% 50%

n.a.

>20

2 - 4

1

N=44*

Commercial BIPs>20

4

3

2

1

0% 20% 40% 60% 80% 100%

N=150All BIPs


► Problems of identification: difficulties for users to identify the relevant data source (especially in foreign cases)

► Problems of accessibility: difficulties in accessing the BIPs and finding relevant data (especially in foreign cases)

► Problems of payment: difficulties in obtaining data without credit cards (often not available to investigators)

► Problems of cost: commercial BIP too expensive, especially for investigators

► As a result:

- Investigators often access foreign BR through asking to foreign police counterpart;

- Intermediaries often rely on customers documentation;


► Lack of software able to collect and process data from Business Registers

► Lack of software able to put together data on shareholders and directors of legal entities registered in different EU MS

► Lack of software able to reconstruct ownership structure (OS) of EU legal entities, especially in cross-border schemes

► As a result, reconstruction of OS of suspicious entities often carried out manually both by investigators and intermediaries, with time-consuming activity

BOWNET Findings - Software

18

Do you use software to collect and analyse data for identifying BO of suspicious corporate entities?

Yes 34.8%

No65.2%

Intermediaries

N=21

No46.7%Yes

53.3%

N=45

Investigators

BOWNET Findings - Software

► To be reminded: business registers conceived to respond to Company Law needs rather than AML needs

► Data privacy concerns exist

► If not possible to harmonise the collection of data across EU MS (implies Company Law modifications), harmonization of the access to available data should be pursued

► In particular, access to foreign BR should be improved

► to help cross-border investigations, interconnections among different EU MS registers should be strentghened

► Existing initiatives in this sense (e.g. Directive on interconnection of BRs, EBR, Euro Group Register) should be supported

Conclusions and policy implications

► To avoid overlapping and increase effectiveness, interconnections among existing data providers and databases (BRs, BIPs, CBARs, confiscation databases, etc) should be strengthened

►New support systems to be used for BO identification, both by investigators and intermediaries, should be funded

► Opportunity to improve the availability of information with regards to certain types of legal entities (e.g. unlimited companies, foundations, associations) should be evaluated;

► Data format standardization should be improved

► Data privacy issues should be taken into account

Conclusions and policy implications - 2

Contact: Michele RiccardiTRANSCRIME Research centreUniversità Cattolica Sacro Cuore, Milan (Italy)[email protected]

BOWNET - Identifying the beneficial owners of legal entities in the fight against money launderingwww.bownet.eu

With financial support from the Prevention of and Fight against Crime Programme of the

European Union

European Commission – DG Home Affairs

BOWNET – Contact

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