NEWS BRIEF
The Financial Action Task Force (FATF) will intensify scrutiny of shell companies in its next round of country assessments, calling them a “getaway car” for criminals. The warning comes as the U.S. and Switzerland recently rolled back transparency rules for beneficial ownership—a key tool in tracking illicit finance.
WHAT HAPPENED:
- FATF President Elisa de Anda Madrazo announced that the organization will heavily evaluate the effectiveness of national company registers in its upcoming six-year review cycle, emphasizing that shell companies function as the “getaway car” enabling global money laundering.
- The U.S. under the Trump administration stopped requiring domestic companies to report beneficial ownership data in March, though foreign firms must still comply.
- Switzerland also exempted foundations and associations from its planned transparency register, weakening anti-money laundering efforts.
- A 2023 Moody’s study of 472 million companies identified nearly 20 million with shell company characteristics, with the UK showing the highest number of red flags.
WHY IT MATTERS:
- Shell companies enable serious crime: They provide anonymity for money laundering, terrorist financing, corruption, tax evasion, and sanctions evasion, allowing illicit funds to infiltrate legitimate economies.
- Major economies are backsliding: The U.S. and Switzerland’s retreat from transparency undermines global anti-financial crime standards and encourages other jurisdictions to weaken regulations.
- FATF’s “grey list” carries consequences: Countries with ineffective registers risk being placed under increased monitoring, which can deter foreign investment, increase borrowing costs, and restrict banking access.
- Cryptocurrency compounds the risk: As criminals increasingly use virtual assets to move money across borders, robust company registers become even more critical for tracing illicit flows.
IMPLICATIONS:
- Increased FATF pressure may force countries like the U.S. and Switzerland to reconsider recent deregulation and strengthen ownership transparency.
- Grey-listing could expand to more jurisdiction including advanced economies—if they fail to meet FATF standards, affecting global financial stability.
- Law enforcement agencies may face greater difficulty tracing illicit flows without accurate, real-time beneficial ownership data.
- Corporate secrecy havens like the UK (which had the most shell company red flags) may come under heightened international scrutiny
This briefing is based on information from Reuters.
