AML Digest July 2018 AML Digest July 2018

Caribbean AML|CFT Intelligence AML Digest | July/August 2018 ceding of jurisdictional competitive edge. Within the scope of the FATF guidelines, various countries have adopted varying models. Ways in which corporate vehicles are mis- used Cayman Islands have opted for a disaggregated sys- tem which leaves the beneficial ownership infor- mation intact with the service providers but which can be accessed by regulators through a dedicated plat- form. The platform will also provide UK authorities with access since Cayman is a dependent territory. How- ever the information will not be public. Most Caribbe- an countries will probably follow the Cayman dis- aggregated model with access to regulators and government agencies. The issuing of bearer shares is a rather old device used to obscure real share ownership. Essentially bearer certificates could be passed from person to person; the person in possession having de facto ownership. Beneficial ownership would be impossible to establish and many countries including Barbados do not recog- nise incorporation with bearer shares. Corporations have found a plethora of ways to cover their assets; the vexing aspect of which for the anxious The UK instituted a central register in 2016. Their cen- compliance officer pursuing the final revelation, is that tralised register will be open to the public as it is ar- these methods are often legal. gued that the more eyes which can see the infor- Shell Companies mation, the greater the likelihood this would result in The most popular method is the crea- more accurate information be- tion of shell companies. A shell com- ing submitted to the registry. It is pany can be defined as a non- further argued that such an ap- operational company—that is, a legal proach benefits not just the entity that has no independent opera- host country but any country tions, significant assets, ongoing busi- wishing to do business with UK ness activities, or employees. A service affiliated companies and that provider may set up a shell corpora- this in turn will be a huge deter- tion for a client and open accounts in rent to corruption and bribery the name of that shell corporation, in and will therefore benefit all order to disguise the client’s ownership parties. of the account or certain assets. It is The US is leaning toward legisla- then virtually impossible to find out the tion that would require benefi- true owner of the assets. Shell compa- cial ownership information to nies tend to have no physical office at the listed ad- be reported to the Financial Crimes Enforcement Net- dress. work (FinCEN), essentially creating a registry of benefi- Bearer Shares cial ownership information. The risk profile of a particular country now places heavy reliance on the extent to which the beneficial ownership regime has been effectively deployed. In the struggle to maintain correspondent banking rela- tionships, it is a key factor. It is also a critical require- ment is satisfying the key objectives of the BEPS pro- ject. Operational Entities Misuse of legal entities is often viewed almost exclu- sively as being a problem of non-operational compa- nies. A significant proportion of corruption cases in- volve the misuse of operational companies (that is, “front companies”). Legitimate operational entities have inflows and outflows of assets, which enable streams of illicit assets to be mingled with legitimate funds and thereby laundered. It is a difficult situation to monitor. It is the reason why when accounts are being opened, banks will ask for anticipated deposit 3

AML Digest July 2018 AML Digest July 2018 | Page 3