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The fight against financial crime is not going to become easier anytime soon.

Since a long time, the criminal community have identified banks and financial service businesses as one of the key channels for money laundering and generally speaking financial crime. The means and processes of financial crime are ever evolving.

Running to stand still

Thus, as banks have improved and enhanced their financial crime controls, leading to the discovery and prevention of more crimes, the criminals have simultaneously increased their output and are committing more crimes.

As always, banks and firms are playing a game of catch up, knowing they will never get ahead of the criminals. But there are others who are closer to the criminal than the banks because they have been investigating, penetrating, and infiltrating them for a long time. Banks and firms respond to threats and trends as they happen, not before they do so, and investigations are often limited in scope.

It's a numbers business

Earlier this year Alison Rose, the CEO of Nat West Bank stated there were 5000 people in the bank addressing financial crime threats and regulatory requirements. In the prior three years, Santander have significantly increased recruitment in the area of financial crime, as such there is competition for talent, experience, and expertise.

Essentially there are not enough resources to meet the demands, consequently, banks and firms have sought to develop talent internally. Some financial crime compliance professionals are learning on the job, others are teaching on the job. In the meantime, the criminals’ changes, and the volume of crime increases. Banks and firms are struggling to cope.

Successive governments have tolerated online crime and fraud, in part because this reduced number of crimes committed on the street. As fraud has increased, robberies have decreased. Only now, fraud is out of control and presents a significant threat to individuals, banks, firms, and governments.

So, who you gonna’ call?

The police are busy. In the U.K. there is a Serious Fraud Office (SFO), but there is not a Not So Serious Fraud Office. Most police forces do not have a dedicated fraud squad and those that do have seen their resources poached by banks. Throughout the U.K. there are not 5000 people in law enforcement fighting financial crime. Yes, Nat West Bank have more financial crime resources than the U.K police.

Some banks call law firms, others engage global consultancy businesses. Now more than ever before, all the banks call each other seeking the return of funds stolen from their clients’ accounts. Too few calls upon the expertise of third-party due diligence providers who can help to identify the criminal addresses: online and physical; the stolen personal data; the methods: the routes and the suspects themselves.

In the event any of us are unfortunate to be burgled, assaulted of defrauded, we don’t determine to investigate the crime ourselves, we call the police. So why do banks and firms choose to investigate crimes themselves? When we contact the police, they can link crimes and identify the methodology of known criminals. Essentially, we draw upon their expertise and significantly, their knowledge. The same applies to third-party due diligence providers who have the expertise, familiarity, and knowledge.

Opinions versus facts

Lawyers are often engaged by firms to provide opinions and it is not uncommon for such opinions to be shaped in order to suit a client’s requirements. I recollect business managers challenging my anti-money laundering and corruption findings against some clients and their PEP owners. The partner from the high-profile U.S. law firm advised business colleagues, that the clients and the owners were, ‘not endemically corrupt’. So, I asked the CEO and the Board what level of corruption they tolerated? The answer was zero and the client relationships were terminated.

In contrast to lawyers, third-party due diligence businesses provide facts, without emotions, without advice, and no opinion. After all, banks and firms make the decisions, because they own the relationships and the risks.

The evolution of due diligence

I have been using negative media screening since the 1990s, I have always liked to know what high risk clients are doing, even when not transacting with the firms or banks I work for. I always used high profile established providers and I used the terms and criteria proposed by the providers because I found this to be the most effective form of monitoring.

In contrast, there were financial crime professionals working for multi-national banks, using homemade Google searches. Some of you have winced upon reading this, it reminds you of the tedious and painful process you once used, whereas others offer their sympathy.

Nowadays, negative media screening has become mainstream so much so, that the value and impact has in some ways been eroded. Whereas negative media was reserved solely for high-risk clients, it is now routinely applied to all clients. This has created a problem because firms are struggling to identify and apply an enhanced level of due diligence for high-risk clients and transactions. Some banks and firms have outsourced these enhanced due diligence requirements to third party experts.

The resistance

It was Jeffrey Robinson, author of The Laundrymen who stated, “Dirty money is like water, it seeks the course of least resistance” Enhanced due diligence is resistance, and applied correctly it can thwart the criminal, stopping the flow of dirty money and preventing clean money being stolen from client accounts. It is the due diligence providers who draw upon intelligence from a wide range of sources, including law enforcement agencies and boastful criminals. Sometimes, they can put a bank or firm ahead of an organised crime group.

When the Panama Leaks were published in 2016, many banks, firms, and financial crime compliance professionals leaned for the time of the criminal exploits of the law firm Mossack Fonseca, but not everyone learned something new. Some professionals knew all about Mossack Fonseca. Bob Mazur (The Infiltrator) had been advised to use the firm, by bankers with BCCI. At the time, Mazur was operating undercover, laundering money for Colombian cartels. The time? That was 1989. Mossack Fonseca had been helping their clients to launder money for decades. Some third-party due diligence businesses were aware of this and applied their knowledge, helping their clients steer clear of Mossack Fonseca.

Knowledge is power

The blunt truth is, there are not enough people in the world of anti-money laundering, anti-fraud, and anti-corruption with enough knowledge. It is highly likely, there are not enough people at Nat West Bank with enough knowledge. Absent to the right knowledge, banks and firms will lack the power to fight, deter, detect, and defeat financial criminals.

Many years ago, as criminals went to the dark web, some due diligence businesses followed them. Eventually, banks went there, but they remain way behind the criminals and the due diligence firms who have infiltrated the criminal networks.

The smart financial crime compliance professionals identify and seek to fill their knowledge gaps, those who bluff it become prey to the financial crime criminals. They use third-party due diligence experts, with their knowledge experience, and reach, across the world and into the dark web.

There is a lot of strength and power in acknowledging what you don’t know. Problems are seldom resolved by employing thousands of other people who also don’t know a lot. Whilst a little knowledge can be a dangerous thing, a refusal to acquire more knowledge can be far more dangerous.

How many times have bankers and executives said, “If I only knew then, what I know now?” Only for a regulator or a litigant to assert, “You should have known.” When provided with knowledge, the right decisions will be made and if necessary be justified.

Time out

There was a time when banks and firms managed their own information technology (IT) and real estate, before concluding this was not their area of expertise, focus, and value. Now is the time for banks and firms to assess their own financial crime and due diligence capabilities, as well as capacity. Financial crime compliance has become a body count business, as banks throw more and more people, qualified and unqualified at a problem that is out of control.

Managers must assess the value and expenditure of time and money. One third-party provider with knowledge can offer greater value for time and money than a huge internal department lacking expertise and knowledge. Outsourcing due diligence can provide substantial savings, value for money, improved outcomes and most importantly, shareholder protection.

Third-party due diligence providers operate and think outside of the box, the tick box some banks and firms have become hostage to. Criminals know what is required to secure a tick in the box. In contrast, there are third-party due diligence providers who know how to keep criminals out of such boxes and out of banks and firms. It is more cost-effective to keep such criminals out, rather than subsequently trying to kick them out of a bank or firm.

Conclusion

Due diligence in time, can help a bank or firm acquire knowledge that will keep criminals out of their business, be they clients, employees, vendors, or counterparties. Making the right decisions at the right time. Some commentators posit financial crime compliance is the fasted growing business in banking. Others contend compliance is not a business, it is a cost of doing business. The costs are going up and they too are out, out of control. Using third-party expertise can reduce all costs, as well as risks. 5000 people working in financial crime should be effective, but are they, and what is the cost?

It is not about numbers, it is all about knowledge, if you don’t have it, go, and get it, now!

The Square Facts team – August 2022

For more information about Square Facts, please contact us at contact@square-facts.com.

De nombreuses entreprises de divers secteurs ont subi des dommages de réputation et des sanctions pécuniaires ces dernières années pour des faits de corruption, de traite des êtres humains et d’esclavage moderne. Dans un contexte législatif et réglementaire international de plus en plus strict, les conséquences peuvent être lourdes pour les entreprises en cas de non-conformité et non-respect de certaines obligations, notamment en matière d’évaluation et de surveillance des tiers avec lesquels elles collaborent.

De manière générale, l’évaluation des tiers (en anglais, due diligence) est une enquête approfondie sur un sujet donné, une personne physique et une personne morale. Le terme conformité, fait quant à lui le plus souvent référence à la diligence d’un tiers ou à l’évaluation d’une personne spécifique.

Étant donné que la plupart des poursuites pour corruption résultent d’activités de corruption menées par des tiers, il n’est pas étonnant que les lois anti-corruption telles que le Bribery Act 2010 britannique, le Foreign Corrupt Practices Act (FCPA) américain et la loi n° 2016-1691 (Sapin II) française insistent sur la due diligence comme un outil incontournable de connaissance des tiers et donc de prévention de faits de corruption ou de trafic d’influence.

La due diligence permet à vos équipes de conformité de prendre des décisions plus éclairées sur les personnes physiques et morales avec lesquelles elles font affaire et à quel titre. Il est également essentiel que les organisations puissent évaluer leur exposition aux risques réputationnels, réglementaires et juridictionnels, en vertu des lois anti-corruption et d’autres législations.

Dans cette série d’articles, Square Facts qui accompagne les entreprises dans la compréhension, la mesure et la gestion des risques de conformité vous propose un décryptage de ces lois et réglementations afin d’appréhender au mieux cet environnement réglementaire en constante évolution, et de vous guider vers des outils vous permettant de simplifier vos processus de due diligence.

Saisir l’essentiel du référentiel anticorruption français.

Quelles sont les entreprises concernées par la loi Sapin II ?

Suite aux différentes sanctions financières infligées aux entreprises françaises par les autorités américaines pour des faits de corruption, la France a mis en place en 2016 un dispositif législatif dont l’objectif est de mieux prévenir et détecter les faits de corruption. Il s’agit de la loi n° 2016-1691 dite Sapin II qui vise en priorité les entreprises dont le nombre de salariés et le chiffre d’affaires excédent certains seuils et où les parties tierces (clients, partenaires, agents, distributeurs, intermédiaires, fournisseurs, sous-traitants) de ces dernières sont susceptibles de les exposer à de divers risques.

La loi Sapin II s’inspire, notamment, des régimes anti-corruption américains (Foreign Corrupt Practice Act ou FCPA – 1977) et britanniques (United Kingdom Bribery Act – 2010).

La loi Sapin II concerne notamment les entreprises suivantes :

· Les entreprises :

- de plus de 500 salariés
- dont le chiffre d’affaires est supérieur à 100 millions €.

· Les groupes d’entreprises :

- dont le chiffre d’affaires est supérieur à 100 millions €,
- dont la maison mère a son siège social en France et
- celles possédant plus de 500 salariés et un chiffre d’affaires consolidé de plus de 100 millions €

· Les sociétés dotées d’organes de direction (à l’exclusion des SA, SAS et SNC).

La loi s’applique aussi bien en France qu’à l’étranger et concerne à la fois la corruption dans le secteur public et le secteur privé.

Code de conduite et évaluation des tiers

Depuis la promulgation de la loi Sapin II, les entreprises soumises à cette loi ont vu leurs obligations s’accroitre en matière de conformité. L’article 17 de la loi Sapin II en particulier introduit à la charge de certaines sociétés une obligation d’adopter un code de conduite ainsi que d’effectuer des diligences sur la situation des tiers.

1- Code de conduite

L’alinéa 1° de l’article 17 de la loi Sapin II requiert que les entreprises mettent en œuvre « un code de conduite définissant et illustrant les différents types de comportements à proscrire comme étant susceptibles de caractériser des faits de corruption ou de trafic d’influence. Ce code de conduite est intégré au règlement intérieur de l’entreprise et fait l’objet, à ce titre, de la procédure de consultation des représentants du personnel prévue à l’article L.1321-4 du code du travail. »

Il convient de rappeler, que toute entreprise en France, de plus de 50 salariés, doit se doter d’un règlement intérieur, selon l’article L.1311-2 du code du travail.

En tant qu’instrument de bonne gouvernance, il est conseillé par l’Agence Française Anti-corruption (AFA) que ce code de conduite soit applicable partout où l’entreprise exerce une activité, y compris à l’étranger. Il est également recommandé par l’AFA que le code de conduite soit communiqué aux tiers, et que le respect de ce document soit imposé aux tiers, par une clause contractuelle.

L’alinéa 7° de l’article 17 de la loi Sapin II prévoit également, un « régime disciplinaire permettant de sanctionner les salariés de la société en cas de violation du code de conduite de la société », ce qui veut dire qu’un employé peut être légalement sanctionné pour non-respect du code de conduite de l’entreprise.

C’est dans ce contexte réglementaire qu’en mars 2021, la cour d’appel d’Angers a validé le licenciement d’un directeur commercial pour cause réelle et sérieuse.

Un ancien directeur d’une société d’armement avait organisé, à l’insu de son employeur, un rendez-vous avec un distributeur aux Émirats Arabes Unis, sans tenir compte de la procédure en vigueur dans son entreprise quant à la vérification des tiers, qui définissait des contrôles d’intégrité préalables. Dans ce contexte sensible de ventes à des partenaires étrangers, sans l’existence d’un processus interne de vérification conforme à la loi Sapin II, l’entreprise aurait pu signer un contrat qui l’aurait rendue vulnérable d’un point de vue légal et aurait constitué un risque de réputation sérieux.

La due diligence est généralement effectuée avant de s’engager dans un accord formel. La due diligence initiale peut offrir à l’équipe de conformité l’occasion de mettre en place des activités d’atténuation des risques dans le but de réduire l’exposition à des personnes morales ou physiques à risque critique, que ce soient des partenaires, des fournisseurs ou des distributeurs qui potentiellement représenteront l’entreprise à l’étranger.

2- Evaluation et surveillance des tiers

Les alinéas 4° et 7° de l’article 17 de la loi Sapin II quant à eux accordent une importance particulière aux relations avec les tiers et imposent l’instauration de « procédures d’évaluation de la situation des clients, fournisseurs de premier rang et intermédiaires au regard de la cartographie des risques ».

Les entreprises doivent sur la base de la cartographie des risques, documenter, pour leur principaux clients, fournisseurs et intermédiaires, les procédures attestant qu’ils ont effectué les vérifications ou due diligences sur la situation des tiers. L’AFA recommande sur ce point d’inclure additionnellement dans les dispositifs de due diligence d’autres catégories de tiers avec lesquels l’entreprise peut être en relation ou vouloir entrer en relation, en plus de celles citées par la loi Sapin II, notamment : ses cibles d’acquisition, ses bénéficiaires d’action de sponsoring ou de mécénat.

Ces démarches peuvent aller de la simple recherche d’information sur internet, d’un questionnaire à établir avec le tiers, à une recherche plus approfondie.

Les évaluations (due diligence) ont pour but d’aider l’entreprise à décider d’engager une relation ou pas avec un tiers, de poursuivre une relation en cours ou d’y mettre fin. Dans certains cas, la cartographie des risques n’est pas suffisante pour évaluer les situations individuelles des tiers.

L’AFA recommande une évaluation systématique de l’intégrité des tiers. En effet, un incident, une alerte, une condamnation judiciaire concernant un tiers qui était jugé initialement peu risqué par la cartographie des risques, ou dont le profil risque a évolué au cours de la relation, pourrait impacter son niveau de risque, et devrait donc conduire l’entreprise à réaliser une due diligence plus approfondie.

3- Trois niveaux de due diligence

Gérer l’ensemble de vos risques en matière de conformité et de réputation, en vous appuyant sur l’expertise métier Square Facts avec nos trois solutions de due diligence :

– Compliance Simplifiée : risque faible à modéré

– Compliance Renforcée : risque modéré à élevé

– Compliance d’Investigation : risque élevé à critique

Il est vivement recommandé par l’AFA, que l’entreprise ait recours à des prestataires externes, notamment lorsqu’elle n’est pas en mesure d’obtenir par elle-même les informations ou documents nécessaires, ou lorsque le tiers réside ou intervient dans un pays où elle n’est pas implantée.

Au regard de la loi Sapin II, l’entreprise demeure responsable de la qualité et de la pertinence des évaluations réalisées pour son compte, il est ainsi conseillé de travailler avec des prestataires spécialisés et démontrant une expertise métier de l’intelligence liée à l’évaluation et la surveillance de l’intégrité des tiers.

Jurisprudence : Le cas Airbus et l’exemple du risque lié aux intermédiaires

L’intégrité des tiers représente en effet un risque de corruption indirect pour les entreprises car il peut s’avérer que les tiers ne se plient pas aux mêmes normes de bonne conduite, d’intégrité et de conformité de celle-ci. Au sein des tiers, les intermédiaires par exemple, sont des tiers à haut risque et de nombreuses affaires de corruption commises par les entreprises ont impliqué des intermédiaires ayant versé des pots-de-vin à des agents publics.

Un récent exemple, inclut le cas Airbus :

En 2020, Airbus S.E. (Airbus) a accepté de payer près de 4 milliards de dollars pour régler simultanément les accusations de corruption engagées par les autorités américaines, britanniques et françaises à la suite d’enquêtes de plusieurs années et impliquant, au-delà de Airbus, un certain nombre de compagnies aériennes dans le monde.

Elle disposait de solides normes et procédures de conformité anti-corruption. Pour exemple, Airbus avait mis en place un code de conduite intitulé « Business Ethics, Policy and Rules », avait créé une organisation spéciale marketing (SMO) chargée de sélectionner et de contrôler les consultants et de s’assurer que les intermédiaires commerciaux étaient indépendants des clients d’Airbus. Le SMO avait son propre responsable de la conformité et son propre responsable juridique, et Airbus avait un comité de sélection au niveau groupe pour la validation des contrats de conseil.

Mais un certain nombre d’accusations portées contre Airbus ont concerné des « commissions » versées à des tiers en tant que courtier, consultant ou agent, qui étaient liés directement ou indirectement à des dirigeants de clients d’Airbus ou à des membres de leur famille. Dans un certain nombre de cas, il y avait donc des indices préoccupants en matière de corruption. Par exemple, la société de conseil avait peu d’expérience dans l’aviation, s’était établie dans un pays tiers et appartenait à l’épouse d’un officier supérieur d’une compagnie aérienne.

Un processus clair d’évaluation des tiers (avec le support de l’instance dirigeante chez Airbus) aurait été souhaitable. Les conséquences en matière de conformité, sanctions pécuniaires, ramifications juridiques, et atteinte à la réputation d’Airbus, auraient pu être évitées.

Étant donné qu’un grand pourcentage des affaires de corruption découle des activités de tiers intermédiaires, il est essentiel que les programmes de conformité de l’entreprise disposent de procédures d’évaluation claires pour contrôler les tiers et approuver les accords et les commissions avec ces parties.

En conclusion, que vous soyez une PME ou une multinationale, une due diligence régulière, consciencieuse et professionnelle de vos tiers – intermédiaires, partenaires, fournisseurs ou encore de vos cibles d’acquisition, bénéficiaires d’action de sponsoring ou de mécénat – est un enjeu de gouvernance, de compliance et d’intégrité primordial.

Sources :

PNF (France) https://www.agence-francaise-anticorruption.gouv.fr/files/files/CJIP%20AIRBUS_English%20version.pdf

DOJ (USA) https://www.justice.gov/opa/press-release/file/1241466/download

SFO (Grande-Bretagne) https://www.sfo.gov.uk/2020/01/31/sfo-enters-into-e991m-deferred-prosecution-agreement-with-airbus-as-part-of-a-e3-6bn-global-resolution/

Square Facts propose des solutions dédiées à la conformité vous permettant de passer en revue grâce à une externalisation, à un expert métier, l’ensemble de vos relations d’affaires et ainsi faciliter votre mission de due diligence en France et à l’international.

Nos packages de conformité simplifiés, renforcées et d’investigation améliorés sont adoptés par les responsables juridiques, responsables de la conformité, responsables de la sécurité, conseillers juridiques, directeurs généraux et conseils d’administration.

Nous tirons parti de toute notre expertise, de notre réseau et de nos capacités technologiques pour améliorer votre compréhension de votre exposition aux risques. Nous préparons des rapports consolidés et analysés dans un format clair et concis, livrés au sein d’une plateforme SaaS sécurisée et centralisée pour permettre une traçabilité et un audit complet.

Retrouvez-nous sur LinkedIn

Profitez dès à présent d’une démonstration de la solution Risk & Compliance ! contact@square-facts.com

Nadia A.Ziani

Directrice Risque et Conformité EMEA

+44(0)7933314791

nziani@square-facts.com

How do you find a politically exposed person (PEP) hidden behind an offshore corporate entity? This is one of the primary questions thrown up by the publication of the Pandora Papers which presented multiple instances of PEPs purchasing high-value real estate in major cities around the world.

There were 336 senior public officials and politicians from 90 jurisdictions, tied to 956 corporate entities which featured in the Papers, including heads of state and monarchs. It is estimated politicians from a single country have purchased £700 million of real estate in London. At the time the properties were purchased and before the publication of the Papers, the connections to the PEPs were unknown and commonly undisclosed.

In the first week of 2022, Indian authorities announced a series of investigations focused upon a number of citizens named in the Papers. Previously, within other leaks from the International Consortium of Investigative Journalists (ICIJ), the same authorities identified $2.7billion of foreign assets held by Indian Nationals.

More recently, the ICIJ has published a Russian-specific report which presents data regarding 800 Russians who feature in the Pandora Papers.

Help is at hand

Professional enablers including lawyers, company formation, and management agents helped the PEPs and their representatives to incorporate offshore companies in jurisdictions such as the British Virgin Islands (BVI), Belize, Panama, Seychelles, and interestingly the state of Wyoming in the United States.

You can do it in the U.K. too

It is important to remember the U.K. is offshore to Europe and all other countries. Consequently, U.K. incorporated companies, as well as partnerships, often feature in money laundering investigations and allegations. Limited companies and partnerships incorporated in the U.K. have consistently featured in Laundromat investigations undertaken by the Organised Crime & Corruption Reporting Project (OCCRP).

There are multiple regulated businesses offering the sale of companies and partnerships incorporated in the U.K., supported by a range of services. Services include the management of bank accounts and the provision of nominee parties and acting as directors and shareholders (owners). The marketing upon one website of such a regulated U.K. company management and formation agent states-

“The nominee shareholder service is usually combined with the nominee director service. With the help of nominal shareholders, you can completely exclude your presence in England, even when dealing with banks.”

This service appears to suggest an individual’s connection to, and ownership of a company can be withheld, even hidden, from a bank. Of course, this service is available to PEPs as well as other business people.

The real deal

Within the real estate transactions, the vendors, and their connected parties, including lawyers and bankers are often unaware the buyer or seller is ultimately a PEP. All of this means the interconnected parties may unknowingly become involved in laundering the proceeds of grand corruption, funds stolen from countries by despots and their associates. Of course, anti-money laundering and financial crime professionals can play a role here and stop their banks or firms from being used to facilitate these crimes.

Legislative changes

More recently, the US government has introduced legislation that specifically targets the risks posed by PEPs and those who seek to hide their identities, ownership, and control of assets, funds, or securities. The Anti-Money Laundering Act 2020 (AMLA) has created specific criminal offences, which target professionals and others who hide or disguise PEP participation, ownership, and control of assets, accounts, and transactions. This includes falsifying or misrepresenting a material fact from a financial institution.

The Department of Justice (DoJ) and the Federal Bureau of Investigations (FBI) have worked in partnership to pursue cases against senior foreign political figures and the combined kleptocracy unit. Jointly they pursued the corruption allegations against FIFA and its executives, as well as PEPs from other jurisdictions, including Ukraine and Russia. These new laws will be used against professional enablers, including lawyers who use fraud and deceit to help PEPs steal money and launder the same in the U.S.

The longer arm of US law

All USD transactions are cleared in the state of New York and as such, they are subject to both U.S. federal laws and New York state laws. Consequently, USD transactions initiated anywhere in the world can fall under the jurisdiction of criminal laws in the U.S. and New York. This gives U.S. law enforcement a long arm, but AMLA has now made this a little longer. AMLA now has given U.S. law enforcement the legal right to subpoena records, including account records for any correspondent bank maintaining a USD clearing relationship in the U.S. This new legal tool will enable U.S. law enforcement agencies to request a court issue a subpoena for records related to transactions cleared through the USD respondent account.

Some financial service professionals will mistakenly perceive they and their customers are not subject to U.S. laws if they do not physically execute transactions in the U.S. Pointedly, banks and parties operating outside of the U.S. are not compelled to transact using USD, but if they chose to do so, they will make themselves subject to applicable U.S. laws. The USD is a piece of sovereign U.S. property, it is a representation of the U.S.

Governance of the risks

PEPs who transact using USD will be subject to AMLA, as will other regulated firms and banks who facilitate such transactions. Thus, there is a need for financial crime compliance professionals to manage the risks presented by PEPs who hide and those who hide them. Below are some of the risk factors which may be present when a PEP is hiding within a transaction:

Offshore company – in particular from countries, states, and jurisdictions which have featured in prior money laundering cases and leaks.
The use of accommodation addresses.
The presence of corporate shareholders.
Newly incorporated companies.
The presence of nominee parties, including partners, directors, and owners.
A chain of professionals involved in a transaction, including lawyers, accountants, and consultants.
Requests for the signing of additional confidentiality agreements, above and beyond standard terms and conditions.
The use of non-corporate email addresses, such as Hotmail, Gmail, and Yahoo.
The use of mobile phone numbers which use international dialing codes for countries that do not appear in the transaction.
Customers who refuse to answer questions about the source of funds, source of wealth, and the reasons for using offshore corporate entities.
Customers who complain at being asked to answer ‘intrusive’ questions.
Always remember, you are in charge of anti-money laundering, you set the anti-money launder, and know your customers’ terms of business for a customer or a transaction.

Additional controls

The Pandora Papers, the Panama Leaks, and many more investigations reference the presence of professional, commonly regulated enablers assisting PEPs to launder their money. Lawyers and accountants, have historically assisted PEPs to pay school fees, buy properties, make investments, and even purchase private planes. Thus, when a firm or bank becomes part of a transaction to facilitate the purchase of property or a plane, undertaken using an offshore company, it will be prudent to ask questions and request formal attestations.

Smart financial crime compliance professionals will likely design a questionnaire and attestation document which seeks to establish the presence, participation, control, or ownership of a PEP or a number of PEPs. When the answers to questions propose there are no PEPs involved, other professionals including regulated counterparties should be asked to attest and personally sign, confirming they as an individual with due authority have analysed a transaction, customer data, and other relevant records and have no knowledge of the presence, control, participation or ownership by a PEP or PEPs.

Such attestations and certifications will help firms to demonstrate an endeavour to comply with AMLA and other applicable laws/regulations, while simultaneously demonstrating responsiveness to the issues and trends presented within the Pandora Papers, Panama Leaks, etc…

When concerns remain

There will be instances when financial crime compliance professionals will have exhausted all available, internal, and open-source due diligence resources, but will remain concerned about a prospective customer or proposed high-value transaction. In some instances, it will be both wise and necessary to engage a third-party due diligence provider in order to address any concerns and seek to ensure there are no PEPs hiding within a transaction or prospective relationship.

Nowadays, there is an increasing need for certainty within high-risk, high-value customer relationships and transactions, thus transparency should be obtained or provided by others.

Martin Woods – June 2022

Contributor to Square Facts, Martin Woods, industry expert.