Prof Trevor Broom an imaginary character in the movie Hellboy; in one of the scenes said “…. I see the puppet…. But where is the puppeteer?” A puppeteer is the person who controls and owns puppet (s). Indeed, the puppeteer receives the cash and benefits of the puppet’s performance at events.
Beneficial Owner disclosure has in recent times gained considerable global attention. The revelations by the 2014 One Campaign Report – ‘‘a trillion-dollar scandal’’, the Africa Progress Panel and the Panama papers revealed how resource-rich countries, particularly those of the developing world are losing billions of dollars from corruption, conflict of interests, and tax avoidance practices involving shady deals for natural resources through complex structures and secret company ownership.
This article attempts to define beneficial owner with reference to both local and international standards. It goes further to spell out the various ownership structures of entities and their implications. It makes references to a few sections of Acts that seeks to lift the veil of beneficial owners behind legal arrangements, and entities. It states the possible risk associated with beneficial owners, and describes the role of banks in handling Beneficial Owner syndrome. The article finally suggests how banks and specialised deposit taking institutions can identify beneficial ownership in an organisation.
Who is a beneficial owner?
The First Schedule to the Companies Act, 1963 (Act 179) has been amended to define a beneficial owner in a much broader sense, by making reference to Extractive Industries Transparency Initiative-EITI and the Financial Action Task Force-FATF standards. In the context of Ghana, a Beneficial Owner, as stipulated in the Companies (Amendments) Act, 2016 means “an individual
- Who directly or indirectly ultimately owns or exercises substantial control over a person or company;
- Who has a substantial economic interest in or receives substantial economic benefits from a company whether acting alone or together with other persons;
- On whose behalf a transaction is conducted; or
- Who exercises ultimate effective control over a legal person or legal arrangements”
The Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) defines Ultimate Beneficial Owner as “an individual that ultimately derives the benefits of ownership or control of a juridical”
Simply put, a Beneficial Owner is a natural person who enjoys the benefits of ownership even though title is in another name.
Who is a natural person?
- The natural persons are those who own the controlling interests and those who comprise the mind and management of the company.
- The natural persons are the settlor, the trustee and person exercising effective control over the trust and the beneficiaries
Some techniques to conceal ownership and control by Beneficial Owners
Criminals employ a range of techniques and mechanisms to obscure their ownership and control of illicitly obtained assets. Identifying the true beneficial owner(s) or individual(s) exercising control represents a significant challenge for financial institutions, prosecutors, law enforcement agencies, and intelligence practitioners across the globe. Schemes designed to obscure beneficial ownership often employ a “hide-in-plain sight” strategy, leveraging local/global trade and commerce infrastructures to appear legitimate. However, visibility does not equate to transparency, and many of the tools that are designed to encourage business growth and development, such as limited liability corporations and nominee directorship services, can be used to facilitate money laundering, tax evasion, and corruption.
In some cases, Legal persons, principally shell companies, front companies and bearer shares, are a key feature in schemes designed to disguise beneficial ownership.
Shell company – incorporated company with no independent operations, significant assets, ongoing business activities, or employees.
Front company – fully functioning company with the characteristics of a legitimate business, serving to disguise and obscure illicit financial activity.
Shelf company –incorporated company with inactive shareholders, directors, and secretary and is left dormant for a longer period even if a customer relationship has already been established.
Bearer shares and bearer share warrants can also be used to hinder identification of a
company’s BO. If an entity issues bearer shares, the shareholder or owner of that entity is any
person who holds the shares (on paper) at any given time. Dividends are paid against the
presentation of paper shares, but the identity of the BO is not necessarily revealed. Bearer
shares allow the transfer of ownership by simply handing the shares to another person. If the
BO controls an entity through bearer shares, it is very difficult to determine his or her identity
because the authorities would have to discover who holds the paper shares at any given time
(and the shares can be held anywhere: in a safe deposit box, a bank, and so on). Some countries prohibit bearer shares and warrants and others require that they be immobilized in a custodial arrangement, but a few countries still allow them to be used freely and these countries should take measures to address the risks from bearer shares immediately.
Individuals and groups seeking to conceal the ownership of assets are most likely to exercise control over those assets via a combination of direct and indirect control, rather than strictly one or the other. In a majority of cases, the beneficial owner uses a combination of layering and direct ownership chains, as well as professional intermediaries and third parties exercising control on their behalf. Again, the beneficial owner can exercise only indirect control and retain direct control through a complicated structure without involving an intermediary. In many cases, the beneficial owner will maintain some level of direct control in a scheme, but will rarely do so without also involving an intermediary or “straw man” (informal nominee shareholders and directors, such as spouses, children, extended family, and other personal or business associates).
Nominee directors and shareholders, particularly informal nominees (or “straw men”), have in time past been used for a number financial crimes. The role of the nominee, in many cases, is to protect or conceal the identity of the beneficial owner and controller of a company or asset. A nominee can help overcome jurisdictional controls on company ownership and circumvent directorship bans imposed by courts and government authorities. While the appointment of nominees is lawful in most countries, the ongoing merits of this practice are questionable in the context of money laundering and terrorist financing.
The use of specialists and professional intermediaries has the potential to conceal beneficial ownership, particularly in cases where the proceeds of crime are significant. This means that complicity is not necessary to facilitate a scheme designed to obscure beneficial ownership, and that professionals can be unwitting or negligent in their involvement. This serves to highlight the importance of effective regulation of designated non-financial businesses and professions, and the need for increased awareness amongst professional service sectors. Nevertheless, law enforcement experience in some jurisdictions indicates that professional intermediaries are more likely to be complicit than unwittingly involved in money laundering cases.
Some forms of corporate ownership structures and their possible risk
Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 920) has pegged the threshold for reporting share ownership in banks and specialised Deposit-Taking Institutions at five percent (5%) and over. It is important to note that corporate ownership structures can be a good vehicle for beneficial owners.
Single-path indirect ownership
Company A indirectly owns 45% of Company C (75% of 60). Mr Z and X owns 9% and 6% of Company C respectively. If Company A is sanctioned, Companies B and C are “sanctioned by extension”. Same goes for Mr X, Z. This is because at every level, ownership =>5%. This is known as the “cascade down effect”.
Multiple-Path Indirect Ownership
Company A indirectly owns 45% of Company D (60% of 15% + 55% of 20% + 25%). If Company A is sanctioned, Company B and C are directly “sanctioned by extension”. And Company D is indirectly sanctioned by extension. This same principle runs through for sanctions against Company B and C on Company D and vice-versa.
Circular indirect ownership
Individual A effectively owns 100% of Companies A, B and C, despite on paper only owning 5% of Company A. An aspect of “Related Parties”. Sometimes designed to obfuscate, circular ownership is hard to assess. One method is to add up the percentages into each company from other companies, then look for any company with > 100%. This difference represents individual A. As individual A is the only person in the structure, the validity of the 5% figure can be called into question in some areas of compliance.
Company A1 directly owners 5% of Company C; Company A2 directly 6% of Company C. If Company A1 and Company A2 are parent and subsidiary respectively and are both sanctioned, then by some assessments Company C is “sanctioned by extension”. This is because the combined on ownership sanctioned companies at that level is greater than 5% (in this example, 11%).
Some international focus on beneficial ownership
Several international bodies and organisations focus on issues related to beneficial ownership, each with their own particular mission. An important development in recent years has been the G20’s call for more integrated cooperation between organisations on this issue, given the crucial role beneficial ownership information plays in tax transparency. The FATF and the Global Forum in particular have been given a mandate to align their technical work on beneficial ownership more closely, with a view to better serving the international community.
Based on the Global Forum’s use of the FATF’s definition on beneficial ownership, closer cooperation between the FATF and the Global Forum can lead to a greater synergy of work on beneficial ownership. This enhanced collaboration is being implemented in a number of ways, including participation in respective meetings at the institutional level and mapping exercises to analyse where the Global Forum and the FATF standards coincide.
The Global Forum on Transparency and Exchange of Information for Tax Purposes.
The Global Forum has a mandate to ensure effective implementation of international tax transparency standards amongst its members and other relevant jurisdictions. It has adopted standards for tax transparency for both Exchange of Information on Request (EoIR) and Automatic Exchange of Information (AEoI), and members undergo peer reviews to assess their compliance. In 2015, the Global Forum took steps to enhance its EOIR tax transparency standard by including the availability of beneficial ownership information, as required by the FATF 2012 Standards, as a requirement in its revised Terms of Reference (2016 ToR). All Global Forum member countries have committed to implement the EoIR Standard and undergo a peer review process to assess its effective implementation.
The AEoI standard also includes the concept of beneficial ownership, similar to the definition in the FATF Standards, as a cornerstone in the reporting of financial accounts. Thus, reporting financial institutions must identify the BOs of certain financial accounts and the country of tax residence, and when appropriate, to report this information to partner tax authorities.
More than 100 countries are committed to exchanging this information on an annual basis, with more member countries preparing to participate in AEoI in the near future.
FINANCIAL ACTION TASK FORCE-FATF
The FATF is an inter-governmental body responsible for setting international standards and
promoting effective implementation of legal, regulatory and operational measures to combat money laundering terrorist financing, and other related threats to the integrity of the international financial system. The FATF’s standards (the FATF Recommendations as adopted in 2012-Recommendation 40), including the concept of beneficial owners, are applied by over 200 countries, through a global network of FATF-style regional bodies (FSRBs) affiliated to the FATF. The FATF and its regional bodies conduct mutual evaluations to examine the effective implementation and compliance with the Recommendations.
Some essential FATF recommendations in respect of beneficial owner
The part of the FATF’s work on beneficial ownership that is relevant to the Global Forum can be grouped into two main categories:
- prescriptive recommendations applicable to AML-obliged entities (financial institutions and designated non-financial businesses and professionals (DNFBPs)) covering general customer due diligence (CDD) (Recommendations 10 and 22), record keeping (Recommendation 11), and introduced business (Recommendation 17); and
- general recommendations applicable to jurisdictions in relation to transparency and beneficial ownership of legal persons and legal arrangements (Recommendations 24 and 25).
Recommendations 10 and 22. CDD by financial institutions and DNFBPs
These recommendations require that financial institutions and DNFBPs- Designated Non-Financial Business or Profession carry out CDD measures to identify and verify the identity of customers, including beneficial owners, when: entering into business relationships; carrying out occasional transactions above USD/EUR 15,000 (or above USD/EUR 1 000 for wire transfers); there is suspicion of money laundering or terrorist financing; or there are doubts about the veracity or adequacy of previously obtained customer identification data.
Recommendation 11. Record keeping
Financial institutions should be required to maintain CDD records for at least five years from the date of the transaction or end of the relationship, with such information available to relevant domestic competent authorities upon request. The concepts of R.11 apply equally to DNFBPs- Designated Non-Financial Business or Profession (as required by R.22).
Recommendation 17. Introduced business rule
Financial institutions may be allowed to rely on the CDD conducted by another entity or person, provided they are reasonably assured that the identification and verification processes meet the FATF requirements and that the underlying records are reasonably provided upon request without delay. R.17 applies equally to DNFBPs- Designated Non-Financial Business or Profession (as required by R.22).
Recommendation 24. Transparency of legal persons
Jurisdictions must ensure there is adequate, accurate, and up-to-date information on basic and beneficial ownership of legal persons formed in that jurisdiction, and that such information can be provided to a competent authority in a timely manner.
Recommendation 25. Transparency of legal arrangements
Jurisdictions must ensure there is adequate, accurate and up-to-date information on beneficial ownership of legal arrangements, and that such information can be provided to a competent authority in a timely manner.
THE EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE (EITI)
Anti-corruption groups are also pushing for greater transparency of BO information. For
example, the EITI has developed a global standard to require countries and companies to
disclose information on the governance of oil, gas and mining revenues. With regard tobeneficial ownership, EITI expects implementing countries to maintain a publicly available register of the beneficial owners of the corporate entities that bid for, operate, or invest in extractive assets, including the identities of their beneficial owners, the level of ownership, and
details of how ownership or control is exercised. EITI’s definition is not identical to the FATFstandard but it is similar in nature, although it allows some flexibility for each jurisdiction.EITI’s limited focus on a particular industry, although instructive, is not sufficiently broad asa basis for the exchange of information (EOI).
Some Ghanaian perspective on beneficial ownership
OWNERSHIP AND CONTROL STRUCTURE OF BANKS AND SPECIALISED DEPOSIT-TAKING INSTITUTIONS
Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930)
Section 49 (1) with title “Transfer of shares affecting significant shareholdings” states that “At the end of June and December of every year, each bank, specialised deposit-taking institution or financial holding company shall furnish the Bank of Ghana with a report listing the significant shareholders, including ultimate beneficial owners of shares, whether or not they are the owners on record.”
The Act further addresses extent of direct and indirect control and ownership interest by individuals (joint) or entities in other entities. This is firmly rooted under Section 47 and 46 [(1), (2) and (3)]. These sections of the Act give the Bank of Ghana the basis to monitor, regulate and concur on the control and ownership structure of financial holding companies. In addition, section 50 and 51 of Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) maps out the conditions under which there can be restrictions or caps on ownership of banks or specialised deposit-taking institutions. The act empowers the Bank of Ghana to zoom-in on who owns banks or specialised deposit-taking institutions whether direct or indirect.
BENEFICIAL OWNER REGISTER FOR COMPANIES
Companies (Amendment) Act, 2016 (Act 920)
There is a global consensus that central registers of companies are the most effective way of indicating information on the beneficial owners of companies to tackle corruption, money laundering and terrorism. Countries are therefore being compelled by International Protocols to put the necessary transparent measures in place to combat illicit activities (money laundering) perpetrated by companies.
Ghana was exposed in the First Follow-up Mutual Evaluation Report by the Inter-Governmental Action Group Against Money Laundering in West Africa-GIABA (an associate member of FATF in-charge of West Africa) in December 2010. It emerged that there was a lacuna in the existing Legislation in relation to the submission of details of beneficial owners by shareholders of companies to the Registrar General Department, Ghana. It was also noted that the information in companies’ register pertaining to legal ownership/control does not include information on beneficial ownership.
The Ministry of Justice, Attorney General’s Department, Minerals commission, Petroleum commission, the Public Sector Reform Secretariat, Financial Intelligence Centre (FIC), Registrar General Department (RGD), Ghana Extractive Industry Transparency Initiative (GhEITI), Natural Resource Governance Institute (NRGI), Open Government Partnership (OGP) and all relevant stakeholders worked in concert to rectify that anomaly and other issues that were raised by the report. Incidentally the Companies Act, 1963 (Act 179) was under review at the time and so it was amended to capture the Beneficial Ownership Register.
The Companies (Amendment) Act, 2016 (Act 920) addresses key issues and ensures compliance with the FATF Recommendations. This includes the following:
- To allow the Registrar of Companies to demand from prospective companies, information on beneficial ownership consistent with FATF Recommendations 24 and 25.
- Establishment of Beneficial Ownership Register.
- To grant competent authorities, in particular Law Enforcement Agencies (LEAs), the power to access basic and Beneficial Ownership Information.
The passage of the Companies (Amendment) Act 2016 (Act 920) lays a firm legal basis for collecting and maintaining a national database on beneficial owners and their nature of interests including the details of the legal arrangements in respect of the levels of interest held in companies registered in Ghana. The law mandates the Registrar General’s Department to be the institutional body responsible for the collection and maintenance of Beneficial Ownership register in the country.
Companies Amendment Act 2016 (Act 920) which provides the legal basis for Beneficial Ownership disclosure in Ghana provides the names of beneficial owners shall be open to the public at a prescribed fee whiles all other detailed information will be open to only competent authorities.
Competent authority as defined in the law means a public authority with designated responsibilities for combating money laundering or terrorist financing, in particular the Financial Intelligence Centre and any other authority that has the function of investigating or prosecuting money laundering and associated predicate offences and terrorist financing.
SOME SECTIONS OF THE LAW IN RESPECT OF BENEFICIAL OWNERHIP
Anti-Money Laundering -Regulations-2011 (LI 1987)
This part of the law empowers banks and specialised deposit taking institutions to establish and implement the framework for identification and verification of customers by staff. There should be a concerted effort from the Board of Directors to the last person in a financial institution to ensure that processes and procedures of due diligence are mapped out and adhered to religiously. It sets the framework to some extent for identification and verification of individuals and entities.
Section (2) a, b,c,d,e and f states that the internal rules of an accountable institution related to the establishment and verification of identity shall;
(a) provide for the necessary processes and working methods which will cause the required particulars related to the identities of parties to a business relationship or single transaction to be obtained on each occasion when a business relationship is established or a single transaction is concluded with the institution;
(b) provide for steps to be taken by the relevant staff members aimed at the verification of the required particulars related to the identity of parties to a business relationship or single transaction.
(c) provide for the responsibility of the management of the accountable institution in respect of compliance with the Act, these Regulations and the internal rules;
(d) allocate responsibilities and accountability to ensure that staff duties related to the establishment and verification of identities are complied with;
(e) provide for disciplinary steps against the relevant staff members for non-compliance with the Act, these Regulations and the internal rules; and
(f) take into account any guidelines related to the verification of identity which may apply to that accountable institution.
Section 13 (d) Each accountable institution shall maintain identification procedures that provide that the identity of a person is established where a third person acts on behalf of that person.
Section 16(a), (b) An accountable institution shall identify a beneficial owner, and take reasonable measures to verify the identity of a beneficial owner by obtaining from the beneficial owner’s;
- full name,
- date of birth,
- current permanent residential address,
- nature of business,
- National Identification Card number, valid passport number, valid driving licence number or current National Health Insurance Card number.
- Spouse’s name
- Address of spouse
Appendix 1 of the BOG/FIC Anti-Money Laundering and Combating Terrorist Financing Guidelines 2018 has enumerated the information required of individuals, entities to enable banks establish their true identity. In the same vein, the guideline spells out exemption on whose identity should not be verified under point 2.8 (c). Some of these include were;
- the agent is acting on its own account and not on any other person or entity’s behalf.
- the client is a bank, broker, fund manager or other regulated financial institutions;
- all the businesses are to be undertaken in the name of a regulated financial institution.
Anti-Money Laundering (Amendment) Act, 2014 (Act 874)
Section 23 of Act 749 amended, Sub-section (8, 9) states that “An accountable institution shall maintain identity information on a settlor, a trustee and a beneficiary of a relevant trust.” “A nominee in relation to shares and debentures shall maintain relevant ownership information where the nominee acts as the legal owner on behalf of any other person.” These sections of the amended Act empower financial institution to request and keep records of those information.
RECORD KEEPING OF IDENTIFICATION DOCUMENTS
Anti-Money Laundering (Amendment) Act 2014 (Act 874)
Beyond the identification and verification process the law makes it mandatory for accountable institutions to keep records of customers’ identification documents, and the verification of results of identity documents. This is clearly stated under, section 24 of Act 749 amended (1) An accountable institution shall keep books and records with respect to their customers as set out in subsection (2) and shall ensure that the records and the underlying information are available on a timely basis to the Centre and other competent authorities.
BENEFICIAL OWNERSHIP AND POSSIBLE RISK
The absence of beneficial ownership registry is a global problem. It presents a significant vulnerability to the national and global financial system. This is because experience the world over has shown that the identity of beneficial owners of some companies are shrouded in secrecy and this has the tendency of fuelling national and global corruption, money laundering, movement of illicit money inflows into countries and terrorism financing etc. Again, the absence of beneficial ownership registry makes it easy for money launderers and criminals to create inextricably interwoven webs of connections and contacts to outwit the audit trail of proceeds of crime.
Anonymity enables many illegal activities to take place hidden from law enforcement authorities, such as tax evasion, corruption, money laundering, and financing of terrorism. For example, money laundering can involve complex operations and transactions to make money from illicit sources, such as drug trafficking or tax evasion, appear legal. A drug trafficker, for instance, could set up a night club in order to appear to have legal sources of income from the sale of tickets and alcohol, while in reality the money is from the sale of drugs. In a business setting, it is therefore important to know the BOs of legal entities and arrangements to prevent misuse. That is why the FATF, and later the Global Forum, have included beneficial ownership
requirements in their standards and conduct assessments across jurisdictions on availability of beneficial ownership information in their systems. Determining whether the countries have access to information on the BOs of legal entities and arrangements is important in combatting tax evasion, corruption, money laundering, and the financing of terrorism.
Imagine an individual, Peter Peterson, who wants to evade taxation in his country A. If Mr Peterson owns several properties in country A, and holds bank accounts and investments there, all in his own name, it would be very easy for country A’s authorities to detect that Peter Peterson is not paying taxes. The authorities would be aware of all his assets (for example, through systematic crosschecks with the agency responsible for the registration of real estate), that they have not been declared, and that the related taxes on wealth and income have not been paid. But if Peterson wants to obscure his income or property ownership, he can easily create corporate structures across various jurisdictions to make it much more difficult to identify his ownership.
How can banks identify Beneficial owners of entities?
Admittedly, the various sections of laws stated in this write-up for the purposes of due diligence are not exhaustive. There are a lot more but for the purposes of time and space I have limited my references. In practice, how should banks conduct themselves to fulfil these laws, policies and directives?
Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) are the only anchor for banks and Specialised Deposit-Taking Institutions to ensure good identification and verification of their customers. Customer Due Diligence refers to all process, procedures and efforts in the identification and verification of both the client and beneficiary including but not limited to continuous monitoring of the business relationship with the financial institution. This implies customer due diligence does not end after on-boarding a customer. It permeates every aspect of customer engagement from pre on-boarding through on-boarding to account closure.
Each bank or specialised deposit-taking institution has a peculiar way of prospecting for customers. For some financial institutions, the intent to open an account is initiated via an online application. This must be followed-up with a branch visit for proper customer engagement. Financial institutions that do not have online application model need to lay the grounds for prospective customers to present a physical application at any branch of the financial institution. It is imperative to note that, all the schemes used to prospect for new customers (account opening) should be concluded with a thorough bank staff-customer engagement. Thus, some interpersonal interactions between both parties to help the bank to further understand all nuances that surround the customer or legal arrangements (e.g. Trust).
In the ordinary scheme of things most prospective customers (if not all) will be silent on the “unseen hands” behind the account. This does not vitiate any financial institution of the responsibility of determining who is behind every entity that wants to engage that financial institution. Every point of engagement in the build-up process of account opening and account transactions is vital. The bank staff that engage such prospective customers must ask relevant questions and follow through with reasonable rebuttals where necessary. The staff must be well trained to understand the possible web structure of ownership that can exist beyond what is stated on company registration documents.
Based on a risk based approach and the risk appetite of banks, financial institutions must apportion their verification resources. Banks must give 100% resources to verify in detail high risk account including PEPs accounts and less resources to medium and low risk customers. This is explained to mean that, generally in the face of scarce resources, financial institutions must give high priority to high risk and PEP accounts.
The Registrar General Department can assist in verifying entity registration documents manually if anybody writes to them or electronically by registering on their website; all at a fee through a dedicated portal on their website. Bankers should seek to ask relevant questions and expect reasonable answers. Example, asking questions that seem to suggest connection between surnames of some directors/secretaries to well-known personalities in society and politically exposed persons must be handled tactfully in order not to offend the sensibility of the prospective customer but still bring out the information that is required for the bank to make a decision. Seeking to know why there has been a change of company name, change in ownership structure (addition of director (s), director (s) leaving, shareholding swap or exchange), or location of office etc. are all relevant areas to be understood by the bank.
Particular attention should be paid to shareholders, signatories, or others who inject a significant proportion of the capital or financial support or otherwise exercise control. Where the owner is another corporate entity or trust, the objective is to undertake reasonable measures to look behind that company or entity and to verify the identity of the principals. What constitutes control for this purpose will depend on the nature of the entity, and may rest in those who are mandated to manage the funds, accounts or investments without requiring further authorization, and who would be in a position to override internal procedures and control mechanisms. For partnerships, each partner should be identified and it is also important to identify immediate family members that have ownership control.
Pointers in determining Beneficial Ownership account opening.
There are electronic means of ascertaining to a large extent the related parties of an entity and by extension beneficial owners of that entity. These web-based electronic platforms in most cases give significant leads that pave the way for further questioning or probe. There are several industry players that offer these services in this space. Some of these service providers include and not limited to Accuity, LexisNexis, ACCPA-AfriPEP, World-Check etc. At the slot of a name (individual, entity, shipping vessel etc) tend to give all known related persons or parties to that name. In some cases, it provides all adverse media publications (if any) against that name. Again, most of these web-based platforms have the capacity of screening name (s) against the various major international sanction lists for possible matches. Besides these softwares, there are websites (EU Sanction List, OFAC Sanction List, UN Sanction List, Her Royal Majesty Sanction list etc) dedicated to publish periodic list sanctioned individuals, entities, shipping vessels etc.
Until at a time the RGD Register for Beneficial Owners is fully operational there should be a perfect blend of the electronic and manual search for possible beneficial owners in entities or legal arrangements that express interest to engage banks for account opening, subsequent or ad hoc transactions.
The financial institution is among the most vulnerable entry points for proceeds of crime. The only defence that banks have in the fight against beneficial ownership is customer due diligence in the strictest sense. There are several laws, policies and directives directed to unveil the beneficial owners of entities and legal arrangements. A good implementation of these laws is in the bosom the Board, Management and staff of financial institutions so the full support of all and sundry is required.
There should be a concerted effort by all financial institutions to guard against entry of new entities with undisclosed beneficial owners and sniff existing customer database for such characters who were not detected at on-boarding by the customer due diligence radar. Concerted effort in the sense that, when one financial institution fails to detect entry of beneficial owners, the whole financial system has failed. This is because the moment such proceeds of crime are introduced into the financial system, it becomes difficult if not impossible to trace them.
All hands-on deck, no financial institution should be allowed benefit from non-compliance. Whenever customers notice Bank A is strict on requirement and Bank B is not, in most cases they move to Bank B (the non-compliant bank). This can adversely affect the banks that comply in several ways.
In addition, the management of banks and specialised deposit taking institutions should endeavour to ensure that their staff are well-trained and supervised to administer a meaningful customer due diligence policy because in the end it is their due diligence that will save the financial system.
The writer is a Banker and a Compliance Professional. A certified member of the Association of Certified Compliance Professionals in Africa-ACCPA.
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