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• Aim of Project Bownet
• The importance of identifying the beneficial ownership of corporate entities
• The problem addressed by Project Bownet
• How Project Bownet addresses the problem
• Who will be the stakeholders and the end-users of Project Bownet
• What is the added value of Project Bownet

Aim of Project Bownet

Project Bownet is a feasibility study aimed to assess what is needed to develop an intelligent system able to search and integrate information on:

• shareholders
• beneficial owners
• the ownership structure
• directors and members of the board

of EU listed and unlisted companies and corporate entities.

This system will serve as a support tool for Financial Intelligence Units, Asset Recovery Offices, Law enforcement agencies, financial intermediaries and legal professions to:

• reconstruct the ownership structure of EU companies
• identify the beneficial owners behind EU corporate entities
• uncover complex schemes of corporate ownership such as “Chinese boxes”

so as to improve the prevention and the fight against money laundering and other financial crimes, and to accomplish with the obligations of the Directive 2005/60/EC (Third AML Directive).

The importance of identifying the beneficial ownership of corporate entities

Complex cross-border schemes of corporate entities with a “Chinese boxes” structure are often used by criminals and organized crime to:

• conceal illicit flows of money
• laundering money
• evade taxes
• commit financial and accounting frauds
• create and hide slash funds
• commit bribery and corruption

The identification of beneficial owners hiding behind a “Chinese boxes” scheme is hence crucial to prevent and combat these types of crime, and has become a pillar of the entire EU anti-money laundering regulatory framework.

In particular, the Third EU AML Directive (Directive 2005/60/EC) requires intermediaries such as banks, auditors, accountants, lawyers and notaries to identify, in the framework of the Customer Due Diligence procedures, the beneficial owner of their clients and to take “risk-based and adequate measures to understand the ownership and control structure of the customer” (article 8, par. 1, letter b).

The problem addressed by Project Bownet

Despite the importance of identifying BO, there are some problems which could be summarized as follows:

1. Lack of information, at EU level, on BO and ownership structure, in particular for unlisted corporate entities
2. Differences among countries re. transparency requirements
3. Lack of EU integrated systems of sharing information on BO and shareholders:

As regards the last question, it shall be noted that a single EU database for reconstructing cross border ownership schemes does not exist, despite on-going developments in this field (e.g. EU Project Brite).

These problems have been already identified and described by Transcrime in its 2001 report Transparency and Money-Laundering , funded by EU Commission, and highilghted again by Transcrime in 2007 in the Cost Benefit Analysis of Transparency Requirements in the Company/Corporate Field and Banking Sector Relevant for the Fight Against Money Laundering and Other Financial Crime , funded by EU Commission.

The study by Transcrime estimated the burden to be borne by financial intermediaries and legal professions as a consequence of the Third AML Directive (Directive 2005/60/EC). In particular it highlighted that in many cases the costs to private stakeholders are attributable to an “underestimated gap between the crucial role assigned to the disclosure of company beneficial ownership within the current EU anti money laundering regulation and the actual availability of company ownership structure information to the public authorities as well as to market agents, including those who have reporting duties”.

The comments of the 2007 study by Transcrime are still valid. During a recent meeting organized by EC in February 2011 to discuss Anti-Money Laundering and Counter Terrorist Financing Policy, EU private stakeholders expressed “concerns […] about the imbalance between the increasing amount of information being requested by public authorities and absence of supporting role to facilitate implementation of rules (e.g. by establishment of consultable registers)”. In particular stakeholders asked for the creation of public databases on PEPs, beneficial owners, equivalent third countries, etc.

Due to the lack of data and support tools, when financial intermediaries, legal professions, LEA and FIU want to collect information on BO and ownership:

• either they access single national BRs (upon payment of an expensive fee) thereafter assembling different pieces of information from different sources in different countries;
• or use other data sources than the BR databases (in primis documentation provided by the same companies/customers).

this results in inefficient, often unreliable and costly ways to collect and integrate information on BO, OS and company directors.

How Project Bownet addresses the problem

Project Bownet assesses what is needed to create a common EU platform providing data on BO and ownership structure of EU corporate entities. In particular, it understands what is needed to develop an intelligent system able to put together information on BO and ownership structure coming from:

• Different EU Companies registries
• Other business databases
• Newspaper / media archives
• Other non structured sources (e.g. Internet, blogs, etc)
• Whereas possible: LEA and FIU database

Specifically, the activities of Project Bownet will aim to :

• Understand which information on BO and ownership could be used for developing the intelligent system
• Understand which information on BO and ownership is available at EU level, and where
• Understand how these information and data could be put together and shared across countries/institutions
• Identify the specific needs and desires of the end-users of the intelligent system
• Identify the technical requirements which such an intelligent system should have

Who will be the stakeholders and the end-users of Project Bownet

Project Bownet will provide crucial information to a number of intermediaries and other categories of stakeholders, including:

• Financial Intelligence Units (FIU);
• Law Enforcement Agencies (LEA) specialized in dismantling terrorist financing and financial crime organisations;
• Asset Recovery Offices (ARO);

All those obliged under the EU Directive 2005/60/EC to identify BO of their customers, viz.:

• Credit institutions;
• Financial institutions;
• Auditors, external accountants and tax advisors;
• Lawyers;
• Notaries, Trust and company service providers;
• Real estate agencies;
• Casinos.

Other subjects:

• EU Financial supervisory authorities and financial regulators;
• Tax agencies for anti-tax evasion purposes;
• Financial journalists and news agencies;

What is the added value of Project Bownet

It is evident that, beyond the scope of the EU AML regime, Project Bownet will also bring benefits in terms of transparency and efficiency of EU financial markets, by developing a system which could provide more detailed information about the identity of shareholders and investors and the nature of the business relationship.

These information will constitute privileged information for strengthening the security and the solidity of the EU financial system, and for preventing frauds, evasions, misuses which could undermine the functioning and the legality of the entire EU economy.