The Role of Beneficial Ownership in Trade Based Money Laundering and Sanctions Compliance Abhishek Jain

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2 The Role of Beneficial Ownership in Trade Based Money Laundering and Sanctions Compliance Abhishek Jain Bureau van Dijk A Moody s Analytics Company

3 Introduction to Bureau van Dijk, a Moody s Analytics Company Established in 1991, now part of Moody s Analytics since Aug 2017 Extensive experience in providing Financial Institutions and Global Corporates worldwide with corporate financial and ownership information to assist them in their risk profiling activities and risk assessment processes. Data coverage: more than 200 countries, over 150 information sources.

4 Agenda Background The Challenges The Solutions Wrap-Up

5 Perceived threats to Bangladesh banks Source: Fintelekt

6 Example: Traditional Client KYC process Operational Challenges: 1. Multiple lists globally double matches 2. False positives Sanctions Lists High Risk EDD/ Investigation 3. OFAC or EU updates on Friday afternoons No Match Prospects KYC Sanctions Screening Risk Model Sanctions Lists Match Counterparty A Sanctions Investigations Low Risk Clients Transaction Monitoring system (Sanctions Screening) Counterparty B KYC Review/Refresh High risk Annually Low risk 3-year review Suspicious Activity FIU/Sanctions Investigation Accepted Counterparty C

7 OFAC s 50% rule and different ownership Aggregation rebranding of 50% rule to 0.1% rule? Sanctioned company A I Sanctioned Individual 100% 15% 40% Direct B F Aggregation 50% 70% Indirect C D Indirect 50% E Cascade

8 Simplified Trade based Money Laundering process Advance Payment for Exports Bangladesh garment manufacturer Overinvoiced Export (Garments) International organisation Hawala

9 Agenda Background The Challenges The Solutions Wrap-up 9

10 Globalization has created complex corporate ownership structures Owners Subsidiaries

11 One level of ownership is just the beginning..

12 Circular ownership Individual A 1% Company B 100% 99% Company C used to hide ownership from the traditional ownership thresholds

13 Change! Ownership is dynamic According to our records 6 Million avg/month 70mil That s equal to more than 200,000 per day; 8,800 changes per hour or 2 changes per second! Source: Orbis

14 To summarize.. Complexity Who is really the owner? Circular Ownership Who is really in control? Change Ownership is Dynamic 3

15 - More than 667 shadow sanctioned entities for Gazprombank alone - More than 8 levels down - Constant changes: acquisitions, names, percentages

16 But I don t have exposure to Russia Countries with 50% owned subsidiaries of a limited number of sanctioned entities Source: Orbis

17 Not concerned with US companies? Plenty of companies in the US with foreign ultimate ownership. The ownership in the example goes from USA to Italy, UK, Luxembourg, Cyprus, Bahamas x 4 and ends in Russia.

18 Agenda Background The Challenges INFLUENCE The Solutions & CONTROL Wrap-Up

19 Some proposed political solutions Europe : 4 th AML directive USA : Central beneficial owner registry FinCen CDD Rule Global : GLEIF Level 2 data collection Common source of the beneficial owner data: Company Driven

20 Source: Companies House UK

21 Source: Companies House UK & Orbis

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23 In an ideal world, a transparent solution would be: 1. All countries have publicly available company registries 2. No company filing exemption 3. Global unique identifier must be attributed companies 4. All companies must provide the name and unique identifier and percentage of the first level owners 5. Information is confirmed by an auditor or alternative third-party 6. Mandatory change notification.

24 A Solution where Multiple, Global Sources and Networks are available

25 AML processes in 2018 rely on Ownership Total links for owners and control - more than 424,000,000 More than 276,000,000 unique positions More than 148,000,000 ownership links More than 31,00,000 companies with 50% ownership but these are not widely applied yet.

26 Agenda Background The Challenges The Solutions Wrap-Up

27 Key Takeaways Limited access to global ownership data in Sanction programs have created unknow and risky sanctions exposure. Global Ownership can only be certain if your data source captures ownership across every country and companies of all sizes Automated data process based on multiple sources is crucial to detect ownership changes as and when they occur.

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