What’s an opaque structure?

An opaque structure is any ownership or control arrangement that makes it hard to work out who really owns or controls a client, or how decisions inside that structure actually get made.

FATF names this directly in its own guidance. Its 2023 guidance on beneficial ownership lists “opaque ownership and control structures” as a known risk factor.

It points to nominee directors and nominee shareholders, including foreign ones, as a common way this happens. Wherever you’re regulated, the idea behind the term is the same.

What makes a structure opaque?

Layering, where ownership passes through multiple companies, partnerships or trusts, is one of the most common descriptions of an opaque structure. But it’s only one. Opacity can also build up through:

• nominee directors or nominee shareholders standing in for the people actually calling the shots;
• control exercised through informal influence rather than a formal shareholding;
• decision-makers who aren’t named anywhere in the entity’s constitutional documents;
• ownership or control that shifts often, or that’s explained inconsistently by the client.

A structure with a single layer can still be opaque if a nominee is standing in for the real owner. Equally, a layered ownership structure can be entirely transparent if you can trace every step of it. What matters is simple: can you see who’s really in control, or not?

Why this matters

FATF’s beneficial ownership standards, which are set out in Recommendations 24 and 25, exist because those involved in money laundering, terrorist financing or proliferation financing routinely hide behind structures that are hard to see through.

This doesn’t make an opaque structure automatically suspicious. Plenty of legitimate group structures, family arrangements and cross-border investments are opaque at first glance, for entirely ordinary commercial reasons.

However, opacity does raise your risk and the presence of an opaque structure should shape how much due diligence you carry out.

When should opacity should trigger enhanced due diligence?

FATF’s Recommendation 10 requires you to apply enhanced due diligence (EDD) wherever a transaction or relationship carries higher risk. This includes where:

• it has no apparent economic or lawful purpose;
• it’s unusually complex or large;
• it follows an unusual pattern.

Opaque ownership or control should be treated in the same way. If you can’t clearly identify and verify who’s really behind a client, your own risk assessment should reflect this and a form of EDD needs to be applied.

These are just some red flags that should prompt you to dig deeper rather than proceed as normal:

• The ownership chain is more complex than the client’s stated activity would explain;
• Overseas entities are involved without a clear commercial reason;
• Nominees, informal arrangements or verbal agreements are doing the work that a shareholding or a written contract normally would;
• The client can’t explain, or keeps changing their explanation of, who controls the structure; or
• The structure doesn’t match what you’d expect given the client’s profile or source of wealth.

How far you go with your EDD should follow your own application of the risk-based approach, which is set out in FATF’s Recommendation 1.

What good practice looks like

Regulators don’t expect you to refuse every client with a complex structure. What they do expect is that you record the decision-making process, to show how you’ve identified the risk, mitigated it and how effective this process has been in practice.

Where a structure is opaque, your file should show:

• what you found difficult to establish and why;
• what steps you took to resolve it, including any independent sources you checked;
• whether you reached a clear view of who ultimately owns or controls the client;
• if you couldn’t, what that meant for the relationship, including the mitigations you’ve put in place.

FATF’s standards ask you to be proportionate when collecting your evidence and mitigating the risk. As a general rule, the harder it is to see who’s really in control, the more work you should do before you’re comfortable that you know.

The question is the same one that sits behind every beneficial ownership check: who ultimately owns or controls this client and can you evidence how you reached that view?