AML /CFT frameworks Offshore

Question 1

Outline why offshore centres vulnerable to ML

Answer 1

Secrecy laws

Asset protection legislation

Products & Services

+legal persons

+legal arrangements

Question 2

Outline issues facing secrecy laws & confidentiality provisions

& asset protection legislation

Answer 2

1) Difficult to achieve cross broader exchange of info for purposes to prevent & detect ML

Such laws hinder transparency / prevent info about suspicion reaching FIU / prevent investigations to detect / cannot share info to others

SARs & STRs violate professional secrecy / possible penalty imposed

2) ensure assets structure only attacked by local courts

More mostly for authorities outside jurisdiction to move attack / complex rules

Question 3

Outline issued faced for products & services

Answer 3

Products that increase vulnerability offshore ;

Legal persons (incorp by law)

Legal arrangements (trust)

Provides opps to distance themselves from proceeds of crime & benefit also

Question 4

Outline examples how extensive use of legal persons vulnerable to ML

Answer 4

Legal persons contract in own name

Extent of info available on registar varies between jurisdictions (info on BO at time of incorp but no obligations to update changes)

Often required to inform identify of shareholders/ use of nominees by offshore SP

Disclose RO address / SP address recorded / physical presence not necessarily there

Bearer shares render CDD

Difficulty regulator identifying human face of company, if owned by another, registered elsewhere or shares owned by arrangements

Question 5

Outline examples how extensive use of legal arrangements vulnerable to ML

Answer 5

Existence not a matter of public record / benefit of info available only valuable as contained in TI/ ROM - minimal

Dummy settlors used / no longer prevalent in practice / DOT now used to conceal settlor

Class of beneficiaries used to conceal who benefits

Blind trusts / Use of well known charity as beneficiary / true appointed at later date

Question 6

Outline ways of recognising ML / red flags

Answer 6

• receipt of unusual large cash deposits
• receipt of funds / followed by immediate request to be paid
• use of multiple transfers where single payments could have been used
• reluctant to receive payments directly
• requests for 3rd party receipts / payment without explanation
• use of multiple bank accounts or entities that don’t serve purpose / complicate structure = layering
• use of dummy settlors
• use of blind trust / legitimate use understood
• reluctant to provide usual CDD & direct contact
• lack of commercial rationale for structure
• client internet profile has adverse info involving financial crime
• lack of legal/ tax advice for complex structures - multiple entities or jurisdictions
• unexpected early repayment loans
• use of safe deposit boxes = no reasonable cause
• dealings with practices & parties locate well know terrorist/ crime areas
• purchase of insurance together with subsequent cancellation despite surrender values
• lack of concern over costs of transactions / don’t try to minimise costs
• lack of desire to receive reports on performance or balances

Question 7

Outline impact of AML/ CFT legislation on admin environment offshore

Answer 7

• operate strict regulated environment
• maintain polices & procedures / CDD
• increase standards of documentation & revoked keeping to demonstrate compliance
• receive training
• work in org adequately staffed compliance department / MLRO - deal wth SARs
• resistance on long standing business relationships - info updates
• resistance on increased costs for work / bring files up to date
• requirement to undertake reg reviews of clients (periodic) / facilitate monitoring of transactions & CDD
• increased awareness & open sourced public info to monitor for adverse info in respect of customers