Academic journal article Journal of Finance, Accounting and Management

The Beneficiary Ownership and Joint Stock Companies

Academic journal article Journal of Finance, Accounting and Management

The Beneficiary Ownership and Joint Stock Companies

Article excerpt


Legal and political environment is affecting more and more decision making worldwide. It may have profound effect on the success of any organization. In various scientific works like Aaker (2008): External environmental factors include customer analysis, competitor analysis, target market analysis, as well as evaluation of any elements of the technological, economic, cultural or political/legal environment likely to impact success.

As part of the political and legal environment, the phenomenon of money laundering directly affects the operational decision of the financial institutions. Money laundering is considered by some authors as "Capitalism's Achilles Heel" (Baker, 2005). In the course of prevention of Money Laundering, one of the most important issues financial institutions facing today is the client's identification and its source of income. In this regard it is very important the identification of Beneficiary Owner, which is part and parcel of client's identification. There is a local legal gap faced by financial institutions in Albania, particularly banks, in fulfilling their obligations regarding the identification of beneficial ownership of their clients. The task becomes increasingly difficult in cases of offshore and nonresident's clients.

The research is focused in literature review and "in-depth interviews" using semi structured questionnaires with the main stakeholders dealing with prevention of money laundering mainly bank's compliance officers and law enforcement officials.

The main hypotheses are:

· There is a real need to harmonize the legal framework;

· International company registers must be in place and accessible by banks worldwide.

This qualitative study is organized in two sections. The first section presents the concept of beneficial ownership, which is part and parcel of due diligence measures applied by the bank on its customers. The second section, which is the main part of the work, explores the legal difficulties encountered by banks in identifying beneficial ownership such as the resistance to non- declaration of beneficial ownership, legal gaps in legal and regulatory framework, difficulties in identification of nonresident and offshore corporations, Politically Exposed Persons PEPs as well as International efforts to improve the current situation. It also suggest the ways to intervene in the local legal and regulatory framework in order to release the burden from the banks in order to better prevent the phenomena of money laundering in Albania.

The Concept and Legal Liability

According to local legal framework which is in line with FATF1 recommendations, banks must apply "Due diligence" when establishing business relationship with their clients. "Due diligence" is the entirety of measures that the subject should apply in order to identify as well as fully and accurately verify the customers, the ultimate beneficial owner, ownership and control structure of legal persons or legal arrangements, nature and purpose of the transaction and the business relationship as well as the ongoing monitoring of the business relationship and the continuous consideration of the transactions, in order to ensure that they are in conformity with customer's business activity and risk profiles, including, where necessary, the source of funds.

In cases of politically exposed persons PEP an extended enhanced due diligence is required. "Enhanced Due Diligence" is a deeper control process, beyond the "Know Your Customer" procedures, that aims to create sufficient certainty to confirm and evaluate the customer's identity, to understand and test the customer's profile, business, and the activity of its bank accounts;

The Financial Crimes Enforcement Network (FinCEN), along with the Board of Governors of the Federal Reserve System, and some other important US state institutions concluded in their studies that: Heightened risks can arise with respect to beneficial owners of accounts because nominal account holders can enable individuals and business entities to conceal the identity of the true owner of assets or property derived from or associated with criminal activity. …

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