Customer due diligence (CDD) and enhanced due diligence (EDD) have become common phrases in the anti-money laundering community. The Financial Action Task Force (FATF) led the way as the first international body to set global standards on beneficial ownership in 2003 as part of a strong CDD program. In 2014, FATF clarified their standards and published the Guidance on Transparency and Beneficial Ownership. This was long before the United States passed legislation in 2018 to unveil the secrecy of legal entity ownership. Passage of stronger CDD rules became the Federal Financial Institutions Examination Council’s (FFIEC) 5th pillar of a strong BSA program. Included in the U.S. CDD rule was the requirement to capture beneficial ownership information.
According to FATF, anonymous shell companies are one of the most widely used methods for laundering the proceeds of crime and corruption. This was brought to light by the Panama Papers and Paradise Papers, the history making data leaks which exposed many individuals across the globe as the beneficial owners of tax haven shell companies, including prominent United States citizens. FATF, the global standard for fighting money laundering and terrorist financing, published best practices in October 2019 to help countries pierce the ownership veil of legal entities and prevent their misuse for crime and terrorism.