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The ease with which legal persons, primarily limited liability companies (or similar) can be formed, make them particularly vulnerable, and are seen to be used in building complex legal ownership structures, often involving shell companies.
Trust and company service providers frequently play a role in such structures. The use of nominee directors and shareholders, both formal and informal, exacerbates the risks by creating barriers between the owner or individual and laundered proceeds, and often professional intermediaries play a role in helping create or operate the structures used to conceal beneficial ownership.
In this first article of a two-part sequel, I explore several indications of concealed beneficial ownership.
Following are signals related to client behavior and involved legal entitites.
- The client is reluctant to provide personal information.
- The client is reluctant or unable to explain:
- their business activities and corporate history
- the identity of the beneficial owner
- their source of wealth/funds
- why they are conducting their activities in a certain manner
- who they are transacting with
- the nature of their business dealings with third parties
- Individuals or connected persons:
- insist on the use of an intermediary (either professional or informal) in all interactions without sufficient justification
- are actively avoiding personal contact without sufficient justification
- are foreign nationals with no significant dealings in the country in which they are procuring professional or financial services
- refuse to co-operate or provide information, data, and documents usually required to facilitate a transaction
- are politically exposed persons, or have familial or professional associations with a person who is politically exposed
- are conducting transactions which appear strange given an individual’s age (this is particularly relevant for underage customers)
- have previously been convicted for fraud, tax evasion, or serious crimes
- are under investigation or have known connections with criminals
- have previously been prohibited from holding a directorship role in a company or operating a Trust and company service provider
- are the signatory to company accounts without sufficient explanation
- conduct financial activities and transactions inconsistent with their customer profile
- have declared income which is inconsistent with their assets, transactions, or lifestyle.
- Legal persons or legal arrangements:
- have demonstrated a long period of inactivity following incorporation, followed by a sudden and unexplained increase in financial activities
- describe themselves as a commercial business but cannot be found on the internet or social business network platforms (such as LinkedIn, XING, etc.)
- are registered under a name that does not indicate the activity of the company
- are registered under a name that indicates that the company performs activities or services that it does not provide
- are registered under a name that appears to mimic the name of other companies, particularly high-profile multinational corporations
- use an email address with an unusual domain (such as Hotmail, Gmail, Yahoo, etc.)
- are registered at an address that does not match the profile of the company
- are registered at an address that cannot be located on internet mapping services (such as Google Maps)
- are registered at an address that is also listed against numerous other companies or legal arrangements, indicating the use of a mailbox service
- where the director or controlling shareholder(s) cannot be located or contacted
- where the director or controlling shareholder(s) do not appear to have an active role in the company
- where the director, controlling shareholder(s) and/or beneficial owner(s) are listed against the accounts of other legal persons or arrangements, indicating the use of professional nominees
- have declared an unusually large number of beneficiaries and other controlling interests
- have authorised numerous signatories without sufficient explanation or business justification
- are incorporated/formed in a jurisdiction that is considered to pose a high money laundering or terrorism financing risk
- are incorporated/formed in a low-tax jurisdiction or international trade or finance centre
- regularly send money to low-tax jurisdictions or international trade or finance centre
- conduct a large number of transactions with a small number of recipients
- conduct a small number of high-value transactions with a small number of recipients
- regularly conduct transactions with international companies without sufficient corporate or trade justification
- maintain relationships with foreign professional intermediaries in the absence of genuine business transactions in the professional’s country of operation
- receive large sums of capital funding quickly following incorporation/formation, which is spent or transferred elsewhere in a short period of time without commercial justification
- maintain a bank balance of close to zero, despite frequent incoming and outgoing transactions
- conduct financial activities and transactions inconsistent with the corporate profile
- are incorporated/formed in a jurisdiction that does not require companies to report beneficial owners to a central registry
- operate using accounts opened in countries other than the country in which the company is registered
- involve multiple shareholders who each hold an ownership interest just below the threshold required to trigger enhanced due diligence measures.
While corporate vehicles, such as companies, foundations, partnerships, and other types of legal persons and arrangements are important for supporting commercial and entrepreneurial activity, they can also be misused to conceal the ownership and control of illicitly gained assets. A new joint FATF-Egmont Group report assesses the vulnerabilities linked to the concealment of beneficial ownership in order to support further risk analysis by governments, financial institutions and other professional service providers.