Week 6 - AML & Offshore Flashcards
Summarize the FATF Recommendations
FATF - The Financial Action Task Force is a voluntary body set up to standardize how ML is defined across the world & to set processes to allow authorities to deal with each other.
There were 40 recommendations (+9).
In summary they called to: implement international conventions, criminalize ML enable POC confiscations, implement customer due diligence (KYC) (Suspicious transaction reports) etc, establish FIUs (EGMONT)
Then there was 9 special recommendations relating to financing of terrorism:
- implementation of un instruments
- criminalizing the financing of Terrorism & assoc. ML
- freezing/ confiscating terrorist assets
- reporting suspicious transactions
- international cooperation
- alternative remission
-wire transfers
- non profit organizations
- cash couriers
Key issues that FATF recognized
- Use of legal persons (legal entity not a person!)
To disguise ownership & to hide the people controlling the entity - Use of Professionals
For advice & assistance on ML - NCCT (Non Cooperative Countries & Territories)
Offshore & Tax Havens. Places that won’t cooporate with AML.
Legal Persons (legal entities) & why they matter to ML
- Companies & Corporations
Have different degrees of openness in company records / registrars
Bearer shares (gives ownership of a company to whoever has the paper doesn’t have to have a name on it). Not allowed in all countries. Big red flag. - Partnerships (can be used for tax avoidance - the Dutch Sandwich - Nike - google)
- Trusts (a legal arrangement that allows a person or entity (trustee or settlor) to transfer assets to a separate entity (trustee)
- States / Territories such as African Narco states (completely corrupt states like Somalia)
Summarize AML Measures
- KYC / Customer Due diligence CDD
- Record keeping
- Extension of reporting requirements to various professions such as dealers in high value items jewellers etc, real estate, law firms
- STRS (suspicious transaction report) & CTRs (cash transaction records - record the movements of large amounts of cash)
To include Financial Institution & Other Professionals - FIUs. Egmont group of FIUs. Informal international gathering. Over 100 countries have FIUs now. Collect info on STRs. Analyses reports and make requests for prosecution. Not normally LE but some are combined.
Summary of Offshore & Tax Havens and Non Cooperative Countries & Territories
FATF NCCT black list. Mostly empty since 2006 for political reasons. Currently (Jan 2024) 3 countries - Iran, North Korea, Myanmar
Controversial
EU NCCT list for tax purposes (tax ‘havens’)
As of 20/02/24 is 12 countries:
American Samoa, Anguilla, Antigua & Barbuda, Fiji, Guam, Palau, Panama, Russia, Samoa, Trinidad & Tobaga, US Virgin Islands, Vanuatu.
What are TCSPs
(Trust & Company Service Providers)?
These are entities that offer services related to the creation, administration, and management of trusts and companies for clients.
- often based in offshore locations
- can provide full corporate services to run your company (e.g a phone answering service to boost illusion of a real co.)
- can communicate with them by email / online / phone (no need to travel)
- they can provide full nominee services (e.g you can nominate shareholders or the director)
- send & receive documents on your behalf - LE trip wire
- they are subject to ML laws but usually themselves based offshore with nominee directors & shareholders also using trust arrangements
An example of one is www.tridenttrust.com
remember the examples online - how easy it is to set up an offshore company in Panama via a TCSP
What is an International Business Corporation?
An International Business Corporation (IBC) is a legal entity that operates across national national borders. Often set up in jurisdictions where tax regulations are favorable.
- they are a tax free company not permitted to engage in business within the jurisdiction it is incorporated in.
- they are a legal foreign person (entity). Usually exempt from tax, beneficial owners are kept confidential. Some states allow bearer shares (Panama, Seychelles)
What is an FCS?
Financial Corporate Services (like TCSPs) - offer similar services to create an offshore company and associated full management.
What is a shell bank?
(From FATF) ‘a bank incorporated in a jurisdiction in which it has no physical presence & is unaffiliated with a regulated financial group’.
The EU AML Directive prohibits financial institutions from initiating or maintaining correspondence with shell banks & must also avoid indirect relationships with them.
A specific ML risk is particularly via correspondent banking relationships* established by shell banks.
*A correspondent banking relationship is a financial arrangement between two banks, often in different countries, where one bank (correspondent bank) provides services on behalf of another (respondent bank). These services typically include facilitating cross-border transactions, currency exchange, and access to financial networks.
- shell banks are easy to set up online with use of a financial service
What is a legal person?
A legal person refers to an entity recognized by law as having legal rights and obligations similar to those of a natural person. This includes corporations, partnerships, and other organizations that can enter into contracts, own property, and be held liable for legal actions. This concept allows businesses to operate independently from their owners, with distinct legal identities.
Good ML Example
Form two companies, one in Seychelles and one in Cyprus. BOTH have the
same name
Seychelles company provides its bearer share to the Cyprus one (Cypus owns both)
Open bank accounts in each country (via introduction service online), Seychelles company’s account in Cyprus, and vice versa
One part is now in the Euro
banking system – very important. We have created an offshore – EU system that
allows us to operate within both spheres, that is effectively anonymous if done
correctly.
Financial transfers can be made to either company, and we could deposit
them with either entity, or in either account.
Could create a trust around the Cyprus entity to add another layer of
protection. The beneficiary of that trust owns the true
controlling share.
