The Identification of Beneficial Owners and the Risk-based Approach

Christian Theodor Oxlund

Student thesis: Master thesis

Abstract

This thesis addresses the problem of money laundering of illegal profits. This is a general problem for financial systems, and this thesis will try to analyze how identification of beneficial owners can be made more efficient by using the level of information in the legislation as a tool.
In recent years, the financial sector has been hit by several money laundering scandals, the most extensive being the pending case with the Danish bank Danske Bank. The scandals have created a huge focus in the area of money laundering, where politicians in the European Union as well as in its Member States have seen the need to increase the focus on preventive measures against money laundering and terrorist financing. This is seen in the creation of the European Union Anti-Money Laundering directives 4 and 5, as well as the implementation in Danish law of the Money Laundering Act and the increased obligation to register and disclose beneficial owners that follows.
The purpose of this thesis is, in the light of recent legislation, to analyze the challenges associated with identifying beneficial owners in regard to money laundering. Actors trying to launder illegal profits will try to blur their ownership through complex ownership structures that can be difficult to understand for the obliged entities that need to identify beneficial owners of their customers.
The thesis discusses the jurisprudence from economic perspectives on the level of information in the law, including the choice of rules versus standards in lawmaking, and how the design of information creates incentives for the obliged entities and their customers when they are utility-maximizing agents.
The conclusion of this thesis is that the current legislation that introduces the risk-based approach, still can be made more efficient from a societal perspective, due to the disclosing of important information on the content of the law. Disclosure of this information has the ability to confuse the obliged entities and create a practice or reduce the incentive to increase efforts to identify beneficial owners and allows the customers with bad intentions to design their ownerships in companies and thus circumvent the law.
The result is that the law can be made more effective in achieving its purpose, that is all beneficial owners, either through direct or indirect ownership or control, must be identified and disclosed. A possible way to do this, in addition to further sanctions, is to lower the level of information to combat money laundering further.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2019
Number of pages78
SupervisorsKalle Johannes Rose