A guide to the beneficial owner: New rules to combat money laundering
In a move aimed at strengthening the integrity of the financial system and protecting it from exploitation in financial crimes, the Ministry of Commerce a comprehensive guide on "customer due diligence" procedures, with a primary focus on identifying the beneficial owner . This guide serves as a practical reference for traders and commercial establishments, particularly those operating in the precious metals and gemstones sector, to ensure compliance with applicable regulations in the Kingdom of Saudi Arabia, most notably the Anti-Money Laundering Law and the Anti-Terrorism Financing Law.
Context of commitment to international standards
The issuance of this guide comes as part of the Kingdom's ongoing efforts to align its financial and commercial legislation with international standards, specifically the recommendations of the Financial Action Task Force (FATF) . Through these measures, the Kingdom seeks to close loopholes that criminals might exploit to conceal illicit proceeds through complex business structures. Identifying the "beneficial owner" is a cornerstone in uncovering networks attempting to launder money or finance prohibited activities, thereby reinforcing the Saudi economy's position as a safe and transparent investment environment that enjoys the confidence of the international community.
Who is the real beneficiary?
According to the new guidelines and Article (15/1) of the Anti-Money Laundering Law, the beneficial owner is defined as the natural person who owns or exercises ultimate effective control, whether direct or indirect, over the client or entity. The guidelines specify clear criteria for this ownership and control, most notably:
- Owning 25% or more of the capital of the legal entity.
- The ability to make crucial decisions or to appoint and dismiss senior management.
- Exercising control through means other than direct ownership of shares.
The ministry stressed that if it is not possible to identify a natural person who owns a controlling stake, the person who occupies the position of senior management officer should be identified as a last resort.
Risks of complex structures and corporate entities
The guide highlighted the challenges posed by legal entities such as corporations, endowments, and charitable foundations, which may be used as fronts to conceal the true beneficiaries. Money launderers often resort to creating multiple layers of shell companies or complex legal arrangements to separate themselves from illicit assets. This underscores the importance of the Ministry's due diligence procedures, which no longer rely on superficial shareholder information but must delve into the details of the ownership structure to identify the individuals who actually control the funds.
Commitments of traders and the gold and jewelry sector
The guidelines impose specific obligations on traders, particularly those dealing in gold and precious stones, given the high-value nature of their goods, which may be attractive to money launderers. These obligations include:
- Understanding the ownership structure: The trader must understand the legal nature of the client and the structure of their ownership and control.
- Identity verification: Using documents and data from reliable and independent sources to verify the identity of the true beneficiary.
- Continuous monitoring: Due diligence does not end when a business relationship begins, but requires periodic data updates and monitoring of operations, especially when changes occur in the ownership or management structure.
Economic and security impact
Strictly applying these standards not only protects businesses from unintentional involvement in financial crimes, but also directly contributes to safeguarding the national economy from illicit financial flows. Furthermore, transparency in identifying the beneficial owner promotes fair competition and prevents the exploitation of the commercial sector as a conduit for financing terrorism or the proliferation of weapons, thereby bolstering national security and economic stability in the region.
