Beneficial ownership laws now extend to all business relationships. Learn how companies can protect themselves with an effective AML (anti-money laundering) and KYC (know your customer) compliance program.
Your company works with a huge network of vendors, suppliers, customers and third-party intermediaries. Question, do you really know who you're doing business with? You better, companies need to comply with anti-money laundering and anti-corruption laws, as these laws are not just for financial institutions.
In the US, companies must comply with important basic AML criminal statutes, 18 United States Code Sections 1956 and 1957. Under Section 1956, it is unlawful to “conduct or attempt to conduct” a financial transaction with proceeds known to be derived from illegal activity. Under Section 1957, it is illegal to conduct a monetary transaction in an amount greater than $10,000 with property known to be derived from criminal activity.
Dirty money — money from corrupt politicians, criminals, terrorists, etc. — can sneak into your value chain. If it does you face loss due to fraud, penalties, fines, loss of business, and loss of reputation.
Companies need to take the same precautions and follow the same procedures that banks use. You need to KNOW your customer/supplier/vendor. Not just their company name and where they do business from. You need to know who owns the entity, the actual beneficial owner. BELLIN CEO and Founder Martin Bellin states:
“Global treasuries need to be aware of all those changes impacting their workflows and reporting requirements … sanction screening will become standard for all corporates.”
The concept of beneficial owner is coming into vogue recently, due to the Panama Papers. The Panama Papers, in a nutshell, is a journalistic investigation into the hiding of dirty money in a complex weave of shell and holding companies, legal entities, off-shore accounts and other tangled financial structures through a Panama based legal firm. It demonstrates the extent to which the beneficial owners, the actual person who benefits from the dirty money, go to hide their identity. It also demonstrates the amount of dirty money is staggering with estimates ranging from 7 to 32 trillion dollars being hidden.
All that money is trying to be “cleaned” and one powerful method is doing legitimate business with the dirty money. Want to sell a jet? Here’s some money for you. We want to buy 1 million widgets, please invoice this company. Many businesses will turn a blind eye to where the money comes from but that is playing with fire.
First of all, you’d have to explain to the companies that you do business with where you got the funds. Your suppliers, your customers, your third parties, all face the same laws and all have a big self-interest to investigate your financial background
If you’re going to need access to cash at some point (and what businesses don’t?), then your compliance program will come under scrutiny by the bank.
And, Governments getting increasingly tough on terrorism, are increasing their scrutiny on these financial corruption channels. Recently, US Secretary of State John Kerry said, “The fight against corruption has to be a global security priority of the first order.” Laws and procedures to analyze a company’s whole financial networks will get stronger.
So, of course, you won’t purposefully accept dirty money. But how do you investigate and what do you watch out for? To protect your company, to reduce your risk to fraud and exposure to dirty money, use the same processes and best practices the banks do.
- Identify the people. You need to know the beneficial owner. Either it’s on the paperwork or you need to dig deeper. Ensure that is the actual person, using modern identity verification.
- Perform due diligence. Where are they receiving funds from? What is the nature of their business? Are they a PEP (politically exposed person) or otherwise on a watchlist?
- Monitor on an ongoing basis. It’s not enough to just check once and be done with it. Ownership can change, people can become exposed, or supply chains transform to include new, unwanted agents.
Here at Trulioo, we’re helping hundreds of financial institutions with their AML and KYC compliance needs. We help them cut the risk of fraud and reduce the costs of compliance by using comprehensive ID verification and watchlist monitoring technology with the highest security standards.
Instead of wasting time and money implementing a cumbersome, inefficient manual system for AML/KYC compliance, integrate the same automation technologies that leading financial institutions and fintech companies are using. Contact Trulioo today and learn how you too can reduce fraud, mitigate risk and satisfy compliance obligations across borders in seconds.