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COMPLEX CORPORATE STRUCTURES AND CDD
Caribbean Development Bank, Barbados November 2015
Complexity in Corporate Structures
Dr. Toussant Boyce
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OUTLINE – A BROAD OVERVIEW
1) Complex Corporate Structures
2) Due Diligence of Complex Corporate Structures
3) Sources of Complexity
4) Facilitators of Complexity
5) Using Complex Corporate Structures to launder corrupt proceeds
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complexity obscures beneficial ownership and controlmisuse of corporations (legal persons) and trusts (legal
arrangements) reliance on specialized intermediaries and professionals multiple multi-jurisdictional vehicles (Matryoshka) can sometimes be relatively easily created and dissolved
Complex Corporate Structures – AML risks and features
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Organization Lawyer“S” Country B
Country E (Anonymous)
Is this a suspicious Complex Corporate Structure in a Money Laundering Scheme?
Country A (Distinct Group of Persons)
Companies
Country D
Administrator of Offshore Corporate
Entities
Country C
Offshore Corporate Entities
LawyersHolders Trust Accounts
Holder of 100% bearer share capital
Transfer of large amounts of money
Transfer of large amounts of money
Funds to be deposited or transited
Receipt of cash
Transfer of funds
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Is this a suspicious Complex Corporate Structure in a Money Laundering Scheme?
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Albert Einstein
“Everything should be made as simple as possible, but not one bit
simpler”
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1. COMPLEX CORPORATE STRUCTURES
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“Corporate vehicles play a complex, varied and essential role in modern economies…..it is important to bear in mind that of the millions of companies that exist, the vast majority engage in legitimate business, and only a small minority are misused….
In considering the misuse of corporate vehicles, it will be essential therefore to distinguish between those vehicles that pose a high risk and those that pose a low risk in relation to money laundering and terrorist financing.”
(FATF, 2006)
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When is a complex corporate structure suspicious?
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A Complex Legitimate Corporate Vehicle Structure
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Organization Lawyer“S” Country B
Country E (Anonymous)
Complex Corporate Structure in a Money Laundering Scheme
Country A (Distinct Group of Persons)
Companies
Country D
Administrator of Offshore Corporate
Entities
Country C
Offshore Corporate Entities
LawyersHolders Trust Accounts
Holder of 100% bearer share capital Laundering
proceeds of narcotics importing operation
Importation of narcotics
Importation of narcotics
Responsible for drug shipments
Transfer of large amounts of money
Transfer of large amounts of money
Funds to be deposited or transited
Receipt of cash
Transfer of funds
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Note: “Chaining” corporate vehicles to obscure beneficial ownership
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2. DUE DILIGENCE OF COMPLEX CORPORATE STRUCTURES
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Simplifying CDD – “ownership and control”
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Simplifying CDD – “ownership and control””
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BSA AML Manual 2014
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• Customer has established multiple accounts in various corporate or individual names that lack sufficient business purpose for the account complexities or appear to be an effort to hide the beneficial ownership from the bank.
• Transaction structure appears unnecessarily complex and designed to obscure the true nature of the transaction.
BSA AML Manual 2014
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“Complexity” as a risk factor
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CDD Rule of thumb: Three Layer Complexity Test
Whenever more than three layers of legal persons and arrangements separate the end-user natural persons (substantive beneficial owners) from the
immediate ownership or control of a bank account the potential client has a high burden of
proof to demonstrate the legitimacy and necessity of such a complex organization before the bank
will consider establishing a relationship.
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Often the rationale is that the complex structure is the most economically advantageous and this view is
supported by an expert opinion certifying the legal validity and fiscal appropriateness of the structure.
Compliance officer can request a copy of that opinion to be vetted and validated by their own in-house
legal department and other experts.
Legal Opinions
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Integrate typologies and examples of typical and atypical complex corporate structures into your
in-house CDD training.
Training
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3. SOURCES OF COMPLEXITY:LEGAL PERSONS AND LEGAL
ARRANGEMENTS
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4. FACILITATORS OF COMPLEXITY: TRUST AND COPORATE SERVICES PROVIDERS
(TCSPs)
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Designated Non Financial Business and Professions
• Includes all those persons and entities that, on a professional basis, participate in the creation, administration and management of trusts and corporate vehicles.
Trust and Corporate Service Providers impact complexity
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“Complex methodology used by TCSPs on behalf of money launderers to obscure beneficial ownership of legal structures used in money laundering schemes.”
Professional facilitators use corporations and trusts to drive complexity
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5. USING COMPLEX CORPORATE STRUCTURES TO LAUNDER PROCEEDS
OF CORRUPTION
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NOTE
Synergism of Corruption and Money Laundering.
Intersection of Crime, Corruption, Money Laundering and Terrorist Financing
Remember that Terrorist Financing can be from legitimate sources not only from criminal acts.
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Laundering the Proceeds of Corruption
e.g. most PEPs who are subject to disclosure requirements and ethical restrictions against
kickbacks, self dealing and conflicts of interest often abuse complex corporate structures to hide
their criminal assets.
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PINOCHET CASE
• Augusto Pinochet former President of Chile established complex corporate vehicles to hide his corrupt assets through offshore shell corporations and a trust as nominal owners of US bank accounts and other investment vehicles - even after indictment in Spain and word wide freezing orders and confiscation civil recovery orders.
• Was assisted by US bank Bank’s KYC documentation only listed the corporations- not Pinochet as the owners of the accounts despite fact that Bank had set up the accounts and knew that Pinochet was the beneficial owner. Bank was convicted.
Laundering the Proceeds of Corruption
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THANK YOU!