A common theme from the Panama Papers in 2016, Paradise Papers in 2017, and Pandora Papers in 2021 is the challenges faced by financial institutions when attempting to ascertain ultimate beneficial owners (UBOs) and the potential misuse of complex corporate structures.

As financial institutions continue to face enhanced public scrutiny and potential regulatory attention, it is important they allocate competent resources (both human and technological) to their anti-money laundering (AML) programs, evidencing the application of a robust risk-based approach to due diligence.

While there is no shortage of guidance issued by various regulatory bodies, the requirements to which financial institutions and others should adhere is worth highlighting, as the nonexhaustive list below demonstrates:

  • Unwrap corporate structures and understand the chain of ownership and differing legal requirements in a range of jurisdictions;
  • Identify any political connections, including links to politically exposed persons (PEPs);
  • Ascertain whether there is any sanctions exposure or potential to circumvent sanctions;
  • Determine whether the structures make economical or business sense;
  • Have in place a clear escalation process;
  • Document (and follow) a procedure for de-risking, which might involve termination of client relationships;
  • Provide training to staff at all levels, including the board of directors and senior management;
  • Engage senior management at all relevant stages of the client relationship (including approving high-risk relationships); and
  • Encourage staff at all levels to report any suspicions promptly.

These approaches provide flexibility for financial institutions to tailor their overall AML/countering the financing of terrorism (CFT) programs to specific risks and design appropriate controls to mitigate the risks, with consideration given to the organization’s risk appetite.

ICA

The International Compliance Association (ICA) is a professional membership and awarding body. ICA is the leading global provider of professional, certificated qualifications in anti-money laundering; governance, risk, and compliance; and financial crime prevention. ICA members are recognized globally for their commitment to best compliance practice and an enhanced professional reputation. To find out more, visit the ICA website.

It’s also worth stressing that timely, quality data underpins a robust due diligence program, enabling financial institutions to identify and respond to issues and risks without delay.

However, financial institutions often find inconsistent and dated information hampers their ability to undertake effective due diligence.

As an example, the U.K.’s Companies House has received criticism over the years regarding its lack of strong controls when verifying corporate entities. This is aptly illustrated in the case of the company Weight A Minute Ltd, where a former director is named Jesus Christ, an “Angelic” national residing in “Heaven.”

No government department or financial services firm has the resources to comprehensively verify all information, but having open public registers will provide more efficient access to beneficial ownership data. Companies identifying discrepancies have an obligation to report them; in time, this might improve data quality.

While there is no one-size-fits-all approach to identifying UBOs, the detrimental impact on society and the ramifications of the reputational damage of failing to do so can be profound. It is up to all of us to help change the narrative and contribute toward an ethical business environment.

This article is an excerpt from the full story by the International Compliance Association. The ICA is a sister company to Compliance Week. Both organizations are under the umbrella of Wilmington plc.

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