Financial Crime Compliance, Counter Terror Financing and Ultimate Beneficial Ownership guidance
Good financial crime compliance and anti-money laundering directives all require organisations to introduce a risk-based approach to customer and enhanced due diligence.
Counter Terror Financing
When assessing the risks of money laundering and terrorist financing, organisations should check whether any high-risk factors apply.
When dealing with individuals or companies established in high-risk jurisdictions, or are exposed to other cases of high risk, organisations should identify the areas of risk and apply enhanced due diligence measures to manage and mitigate those risks appropriately.
Specifically, look out for:
- whether any business relationships are conducted in unusual circumstances
- customers that operate in geographical areas of higher risk, including areas of non AML/CTF legislation, significant levels of corruption, countries subject to UN sanctions and/or countries harbouring designated terrorist organisations
- whether any individuals are using personal asset-holding vehicles
- customers who only have nominee shareholders or shares
- if any customers are cash-intensive
- ownership structures of customers who appear unusual or excessively complex given the nature of their business
- whether any business relationships are based on anonymity
- if your organisation has received funds from unknown parties
Ultimate Beneficial Owners
Identifying accurate, audited and up-to-date information on beneficial owners is a powerful tool in deterring financial crime activity, and to help identify those who might hide their identity behind corporate structures.
A beneficial owner means any natural person or persons, who ultimately owns or controls an organisation.
Most Anti-Money Laundering directives state that a shareholding of 25% or more, whether it be a natural person or corporate entity, shall be an indication of direct ownership.
Depending on an organisation’s risk-based approach, a lower percentage can be set depending on their criteria. In exceptional cases, organisations having exhausted all other means of identification and provided there are no grounds for suspicion, may consider the senior managing officials to be the beneficial owners.
As part of the risk-based approach, organisations can reduce the likelihood of financial crime, assisting with customer and enhanced due diligence by;
- identifying the customer and verify the customer’s identity on the basis of documents, data or information obtained from a reliable and independent source
- take reasonable measures to verify the beneficial owner’s identity
- take reasonable measures to understand the ownership and control structure of the customer
- verify the control structure and ultimate beneficial owner
- conduct ongoing monitoring of the business relationship including scrutiny of transactions undertaken throughout the course of that relationship to ensure compliance
- verify that any person purporting to act on behalf of the customer is authorised and identify and verify the identity of that person
Politically Exposed Persons (PEPs)
With respect to transactions or business relationships with PEPs, organisations must implement appropriate risk-based procedures, to determine whether the customer or the beneficial owner of the customer, is a PEP. Approval from senior management to establish or continue business relationships with PEPs is required.
Organisations can help satisfy PEP compliance by:
- checking and verifying sanction lists and registers to identify PEPs, close associates and subjects of interest
- establishing the source of wealth or funds that are involved in business relationships or transactions with PEPs
- conducting enhanced, ongoing monitoring of business relationships with PEPs
If a PEP is no longer entrusted with a prominent public role, organisations are still obliged, for a period of at least 12 months, to continue enhanced due diligence with respect to the PEP until such a time that the PEP is deemed to pose no further risk.
EU Directive measures are of a preventative and not criminal nature and should not be interpreted as categorising a PEP as being involved in criminal activity. Although PEPs are considered a risk due to their public life making them vulnerable to corruption, organisations should not simply refuse a business relationship on the basis that he or she is a PEP, as this is contrary to the ethos of the Directive.
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