The role of UBO and PEP regulations in combatting financial crime
The role of UBO and PEP regulations in combatting financial crime
Just before the summer commenced the Principality of Monaco was added to the Financial Action Task Force’s (FATF) ‘grey list’. Moneyval, the Council of Europe’s monitoring body, conducted a comprehensive review of Monaco’s measures to combat money laundering and terrorism financing. The evaluators rated the measures Monaco had in place as insufficient. The country’s mutual evaluation report highlighted several issues which included:
- Gaps in its regulatory framework related to Anti Money Laundering (AML) and Counter-terrorist financing (CTF). This includes insufficient laws, regulations, and enforcement mechanisms to effectively address and mitigate the risks of money laundering and terrorism financing.
- A lack of transparency regarding the beneficial ownership of companies and trusts and the ability to conceal the true owners of assets and accounts was a significant concern. In addition, the principality's mechanisms for sharing information with other jurisdictions were considered inadequate, hindering international efforts to combat financial crimes.
- Concerns were also raised about the political will and commitment of Monaco's authorities to address the identified deficiencies. Effective AML and CTF measures require strong political support and resources for implementation and enforcement, which appears to have been lacking in the jurisdiction.
The FATF’s concerns around the lack of political commitment, coupled with the highlighted deficiency in the transparency of beneficial ownership, pose a particular problem for Politically Exposed Persons (“PEPs”). This is especially true for those in Ultimate Beneficial Ownership (“UBO”) positions, who require additional financial crime risk assessments by financial firms in the context of AML and CTF.
PEPs are individuals who are entrusted with prominent public functions, domestically and internationally (which will include Foreign PEPs and International Organisation PEPs). A UBO is defined as a person who controls a legal entity, such as a company, trust, or foundation. These two concepts are often compounded, which can offer an entity a greater level of security and accountability; however, in that position, PEPs are often viewed by financial service firms as higher risk due to their positions of power (influence) and access to public money.
In the context of AML and CTF, the appropriate level of risk assessment of these concepts is crucial. Having the ability to correctly risk assess a PEP (or declassify a PEP) in a UBO position can provide financial service firms the opportunity to identify and mitigate any associated risk of financial crimes and corruption normally associated with these individuals.
At Aston, we maintain a high standard of comprehensive support for our clients in all jurisdictions. PEP and UBO status does not automatically render our clients as high risk and we ensure, whilst adhering to our regulatory obligations, that we mitigate any identified risks to an appropriate risk-assessed level. The Bailiwick of Guernsey has a strong PEP regime in place and while it awaits its Moneyval outcome (due in 2025) post its recent review in April 2024, Aston continues to adhere to the current strong measures in place.
For further information on Aston’s services and how we can support you, please contact a member of our team at www.astoncm.com.
