Transparency and Beneficial Ownership

Assignment Brief

The total word count for this assignment should be between 3,000 and 3,500 words. This includes all text references and appendices but excludes any footnotes, reference page or contents page. N.B. Appendices should only be used in exceptional circumstances and should consist of only brief extracts or tables.

• The number of words per part of the question should be in proportion to the number of marks allocated.
• Penalties will be applied for excessive overall word count. All parts of the question can be answered in relation to a jurisdiction with which you are familiar.

JURISDICTION - Bahamas

The name of the jurisdiction you have selected should be clearly stated in your answer. Answer all parts of the question.

Question

1. In its report, Transparency and Beneficial Ownership (FATF, October 2014), the FATF made it clear that corporate vehicles play an essential role in the global economy, conducting a wide range of legitimate, commercial and entrepreneurial activities. Nonetheless, they have also been misused by criminals to disguise and convert the proceeds of their crimes. In its Report to the G20 on Beneficial Ownership (FATF, October 2016), the FATF highlighted how it is helping to improve transparency and prevent the misuse of companies, trusts and other corporate vehicles. Evaluate the extent of the issue, the particular difficulties associated with tracking ultimate beneficial ownership, and the measures that are being taken to assist with the problem. 25 marks
2. You are a member of the AML compliance team that focuses on anti money laundering at a regional office of an international bank. You receive an internal suspicious activity report from a customer relationship manager (CRM) via the bank`s reporting process. The internal report details the following customer activity. Sergio Valdez has been a customer of the bank for the last three years. He operates a small agency in London that assists firms that wish to develop business in Latin America. The turnover of the firm over the last three years has been consistent at circa US$300,000 per annum, consisting of invoices that are on average between US$3,000–5,000. The invoices have all been to UK-based entities. In the last six months the scale and profile of the business has changed. Several inward and outward transactions from Colombia, Argentina and Brazil have totalled US$6.5 million and on invoices the standard statements as to nature of services all state `business facilitation fees`.
3. The CRM tried to arrange a meeting with Sergio Valdez but his office stated regularly that he was out of the country. The CRM eventually managed to arrange a call with him and asked about the change in type and scale of the business. Sergio Valdez explained that the business had expanded and he now had more clients, but he was vague as to details of who his clients were, the nature of the business and how it had grown so quickly. He appeared reluctant to stay on the call, saying he was busy and would come to the bank to answer any further questions that were needed. Despite repeated attempts to arrange a meeting, no meeting was held because of the customer`s non-availability. After several weeks of trying, the CRM became concerned and submitted an internal suspicion report.

Evaluate any risk issues arising as a consequence of the case.

Assess what actions you should take on receiving the internal suspicion report.

Under what circumstances is there an obligation on you to report both internally and externally any suspicion of money laundering? 30 marks

From a customer due diligence (CDD) perspective, in a jurisdiction of your choice, analyse the status of a politically exposed person (PEP) including: i. identifying who should be classified as a PEP or as a ‘close associate’ or ‘immediate family member’ ii. describing how PEPs are classified from a CDD perspective. 20 marks

You are a member of the AML/Compliance team of a financial services firm based in a jurisdiction of your choice. You have been requested to review a new business application for a high-net-worth individual who wishes to open an account with the firm to facilitate extensive inward and outward payments from and to a number of global centres. The only information on the client file specifies:

• the nature of the client’s business – import and export, primarily in the agricultural industry
• the rationale for inward and outward payments – settlement of trading accounts
• the jurisdictions of operation – various, primarily North America
• the source of funds – family wealth You are uncomfortable about the lack of detailed information and decide to conduct more extensive due diligence.

Explain what measures you would take, what information you would require and how you would go about obtaining the required information. 25 marks Total 100 marks

FORMAT

SOLVE ASSIGNMENT AS THE FOLLOWING

Assignments must be submitted in Microsoft Word format. You should not include the question within your assignment. You must ensure that your assignment is properly referenced using footnote referencing system. Include

• a contents page – optional, but gives a professional finish to your assignment
• font size 11 or 12 in a clear typeface such as Calibri, Ariel, Times New Roman
• leave 1.5–2 line spacing
• use sub-headings to clearly identify what you are discussing

Sample Answer

Beneficial Ownership Transparency: Issues, Challenges, and Measures

Introduction

Corporate vehicles, such as companies and trusts, play an essential role in the global economy, enabling legitimate business, investment, and wealth management. However, as highlighted by the Financial Action Task Force (FATF) in its reports to the G20, such structures can be misused by criminals to conceal the proceeds of crime. A core issue is the difficulty in tracking ultimate beneficial ownership (UBO), which has significant implications for anti-money laundering (AML), tax evasion, and financial crime. This essay evaluates the extent of the problem globally and within The Bahamas, examines the difficulties in tracking UBO, and assesses the measures being taken to enhance transparency.

The Extent of the Issue

The misuse of corporate vehicles to hide illicit funds is a global concern, enabling money laundering, corruption, tax evasion, and the financing of terrorism. The Bahamas, as an international financial centre, has long attracted clients seeking tax efficiency, wealth privacy, and asset protection. However, such advantages have also attracted illicit actors seeking to exploit the jurisdiction’s financial system.

Globally, a lack of transparency in company ownership has enabled complex networks of shell companies, often spanning multiple jurisdictions, to obscure the identity of those truly controlling assets. The Panama Papers (2016) and Paradise Papers (2017) exposed the extent of this misuse, implicating several Caribbean jurisdictions, including The Bahamas.

The FATF has highlighted that jurisdictions with weak or opaque beneficial ownership regimes are vulnerable to being exploited. In its 2018 Mutual Evaluation Report on The Bahamas, the FATF noted that while improvements had been made, significant gaps remained in the transparency and accessibility of beneficial ownership information.

Difficulties in Tracking Ultimate Beneficial Ownership

Tracking UBO presents several challenges, both globally and within the Bahamian context:

1. Complex Ownership Structures
   Beneficial ownership can be obscured through multi-layered corporate structures, involving nominee shareholders, trusts, and offshore vehicles. In The Bahamas, the use of international business companies (IBCs) and trusts adds complexity, especially where legal ownership is separated from control.

2. Lack of Centralised Registers
   Until recently, The Bahamas did not maintain a public central register of beneficial ownership. Instead, beneficial ownership information was held by registered agents and was not readily accessible to authorities in real-time. This fragmented system hampers enforcement and cooperation.

3. Legal Privilege and Confidentiality
   The Bahamas has historically protected financial privacy, which, although important for legitimate business, can obstruct regulatory oversight. Concerns over client confidentiality may delay or limit access to beneficial ownership records, especially when legal privilege is invoked.

4. Limited Enforcement Capacity
   The Compliance Commission and Financial Intelligence Unit (FIU) in The Bahamas have limited resources relative to the complexity of cases involving cross-border financial flows. This can result in delayed investigations or inadequate scrutiny.

Measures Being Taken to Improve Transparency

The Bahamian government, in response to international pressure and FATF recommendations, has undertaken several reforms to improve beneficial ownership transparency.

1. Beneficial Ownership Register Act (2020)
   This Act introduced a secure, non-public central register of beneficial ownership information, maintained by the Registrar General’s Department. The register is accessible to authorised Bahamian authorities (e.g., the FIU) upon request, thus improving regulatory oversight while preserving client confidentiality.

2. Enhanced Due Diligence (CDD) Requirements
   Under the Financial Transactions Reporting Act (FTRA) 2018, financial institutions and designated non-financial businesses and professions (DNFBPs) are required to identify and verify the beneficial owners of legal entities. Enhanced due diligence applies to higher-risk clients, such as politically exposed persons (PEPs).

3. International Cooperation and Treaties
   The Bahamas has entered into Tax Information Exchange Agreements (TIEAs) and complies with the OECD’s Common Reporting Standard (CRS). It also cooperates with international authorities under the Egmont Group to share financial intelligence.

4. FATF and CFATF Compliance
   The Bahamas continues to engage with the Caribbean Financial Action Task Force (CFATF) and FATF to improve its AML framework. The country was removed from the FATF’s grey list in 2020 after demonstrating significant progress in transparency and enforcement.