Compliance– collecting beneficial ownership information

Sharman wrote to 3,500 corporate service providers worldwide with the objective of forming a shell company to determine what types of identity information would be required in the different jurisdictions.  

Under recommendation 24, formerly recommendation 33, of the Financial Action Task Force’s Anti Money Laundering regulations, service providers should collect certified or notarised identity documents of the beneficial owners even if the shell company has nominee shareholders and directors. 

Beneficial ownership is a concern, Sharman said, because if the information is not collected at formation of the shell company, the owners become untraceable in investigations and any tax information exchange becomes meaningless. “It causes all sorts of law enforcement and regulatory problems,” he said.

Sharman presented the preliminary results of his study based on the mystery shopping exercise at the Offshore Alert conference in Miami last week. He noted the laissez-faire attitude of some service providers who “for a trivial sum of money were very happy to form exactly the sort of corporate vehicle that is prohibited by international standards”.

The 500 corporate service providers in offshore jurisdictions were much more likely to be compliant by obtaining the full suite of identity documents, Sharman said.

“This obviously runs directly against the conventional wisdom that informs so much of the OECD’s work and the G20’s work – [in the sense that] we have a group of under-regulated jurisdictions out there that are unwilling apply to the rules.”

“We find that not only do offshore financial centres actually have the rules and legislation, but when we test those rules they actually work in practice,” Sharman said.

The study, which separated offshore financial centres from OECD and developing countries, did not reveal a difference in compliance between OECD and developing countries.

This again runs against conventional wisdom that richer countries because of their greater capacity and their larger financial centres would be doing a better job to enforce regulations, Sharman said, emphasising that there is no correlation between the wealth of a country and the likelihood of that country applying higher standards when it comes to establishing beneficial ownership.

Corporate service providers in Cayman topped the league table of 183 countries and had much higher compliance standards than those in the rest of the world, the results showed.

“The Cayman Islands and the Isle of Man have a perfect compliance record, that is to say, every single corporate service provider we wrote to to solicit a shell company came back to us with a reply saying: Sure we can form a shell company but in order to do so we need the full suite of information proving you are who you say you are, just in case there is a problem later down the road with law enforcement or regulatory agencies,” Sharman said.

The league table included only those countries where the researchers collected information from 20 or more corporate service providers.

At the bottom of the list were Kenya, Mexico, Ghana, Chile, China, the Czech Republic and US incorporation services.

The study results distinguished between US law firms “who are doing a reasonable job”, according to Sharman, and US incorporation services “which are doing a pretty terrible job”.

Out of 1,405 US corporate service providers only four were fully compliant, he noted. The majority asked for some identity information, but not certified or notarised documents.

Sharman said “the results show that you can have strict regulation and be business friendly too.” In addition, having a system that works efficiently does not have to cost a lot of money, he said referring to India, Turkey or Jordan who all scored highly in terms of compliance.

“The fact that OECD countries are lagging so far behind OFCs and in fact are doing no better than poorer countries indicate that this simply represents a political choice not to comply.” 



Cross-Country Compliance
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Michael Klein
Michael Klein Editor Compass Media Ltd. PO Box 1365, Grand Cayman, KY1-1108, Cayman Islands T: 345-326-1720C: 345-815-0064 E: [email protected] Michael is a financial journalist and copywriter.  In the past he has been responsible for the Risk Management and Corporate Finance sections of a British monthly Corporate Treasury publication.  He has written various financial handbooks, notably on European Banking and Cash Management and the Debt Capital Markets.   In addition he has worked as a copywriter for banks and investment funds and served as corporate communications consultant to US and European blue chip companies.   Michael holds an MA in Political Science and International Law from the University of Bonn in Germany. 

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