As Australia's Tranche 2 AML/CTF reforms approach, accounting firms are becoming increasingly familiar with concepts such as customer due diligence, ML/TF risk assessments, beneficial ownership identification, Enhanced Due Diligence (EDD), ongoing monitoring and AUSTRAC enrolment.

While each of these obligations presents its own challenges, one issue is rapidly emerging as a significant operational burden for accountants: beneficial ownership identification.

At first glance, beneficial ownership appears straightforward. Identify the shareholders. Determine who owns more than 25 per cent. Record the result. In practice, the exercise is rarely that simple.

Many accounting firms routinely advise businesses with layered ownership structures involving discretionary family trusts, unit trusts, corporate trustees, partnerships, SMSFs and multiple corporate entities. Ownership may pass through several levels before ultimately reaching the natural persons who exercise control.

This is where the spreadsheet problem begins.

Many firms initially attempt to calculate beneficial ownership manually. Shareholdings are traced through multiple entities, percentages are multiplied through ownership chains and results are aggregated across different ownership paths. While this approach may appear manageable for simple structures, the complexity increases significantly once multiple trusts and companies become involved.

The risk is not simply that the exercise becomes time consuming. The risk is that the calculation becomes inconsistent.

Different staff members may apply different methodologies. Ownership percentages may be interpreted differently. Trust controllers may be overlooked. Indirect ownership interests may be missed entirely. Over time, the firm's approach may become difficult to evidence or defend.

For accounting firms, this creates both compliance risk and operational risk.

Under Australia's AML/CTF framework, beneficial ownership is not merely an administrative exercise. It forms a critical part of customer due diligence and informs broader ML/TF risk assessments. Beneficial ownership outcomes may influence whether EDD is required, whether enhanced monitoring is necessary and whether a matter should be escalated for further review.

The challenge is compounded by ongoing monitoring obligations. Beneficial ownership is not necessarily static. Ownership structures may change, new entities may be introduced and control arrangements may evolve over time. As a result, firms require a process that allows beneficial ownership information to be reviewed and updated consistently throughout the client relationship.

The AUSTRAC toolkits provide valuable guidance regarding beneficial ownership obligations and customer due diligence requirements. However, many accounting firms are now discovering that understanding the obligation and implementing it consistently are two very different things.

Increasingly, the question is not whether beneficial ownership can be calculated. The question is whether it can be calculated consistently, documented appropriately and demonstrated later if reviewed by a regulator, auditor or compliance reviewer.

For many accounting firms, beneficial ownership represents the intersection of compliance, governance and data management. It requires a structured methodology, repeatable processes and clear documentation of how conclusions were reached.

This is why beneficial ownership is rapidly becoming one of the most important operational issues under Tranche 2.

Because the real challenge is often not identifying a shareholder. The real challenge is ensuring the spreadsheet arrives at the correct answer.

As more firms begin moving from awareness toward implementation, operational workflow is becoming an increasingly important part of the AML/CTF conversation. Businesses looking to better understand the practical challenges of implementing AML compliance across day-to-day operations can also read our article: “How Small Firms Can Operationalise the AUSTRAC Toolkits”.

By Daniel Ward and Amira Ward, Commercial Lawyers and Co-founders of Flagship AML — 4 minute read.

The Spreadsheet Problem: Beneficial Ownership Under Tranche 2

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