Are your business partners real or a Trojan Horse? Detecting and preventing anonymous shell companies

Transcription

1 Are your business partners real or a Trojan Horse? Detecting and preventing anonymous shell companies

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3 What you should know about shell companies 1 What is driving the interest in shell companies? April 2016, the International Consortium of Investigative Journalists (ICIJ) broke the story globally that they had been investigating a very significant leak of documents from the law firm Mossack Fonseca in Panama. May 2016, the ICIJ released additional records relating to about 214,000 offshore shell company accounts. September 2016, ICIJ leaked documents providing names of politicians and others linked to more than 175,000 Bahamian companies registered between 1990 and What does this mean? Leaked data indicates that Mossack Fonseca law firm was instructed to set up offshore companies for clients. Officers of these companies have also been identified in the data. Among the issues for clients is whether the beneficial owner(s) of such entities might have used the offshore structure or vehicle for the purpose of paying bribes, tax evasion, money laundering or other financial crimes. The data is available to all, including regulators. Numerous publicized resolutions with regulators point to shell company involvement in illicit activities. 3 What are regulators saying? Agents and intermediaries are of real interest to us. Our natural curiosity is piqued further if those agents or intermediaries take the form of companies based in a jurisdiction that permits beneficial ownership to be concealed. Alun Milford, General Counsel, UK Serious Fraud Office, EY 14th Global Fraud Survey Download the entire survey 4 What are the risks? Traditional due diligence of customers and vendors is not sufficient. Customers or vendors can bypass sanction lists by the use of the shell companies, because shell companies do not appear on sanction lists. Companies may not know who they are dealing with, because the true identities and purpose of the business relationship may be obfuscated by the use of an outwardly acceptable company name, or is represented to be run by a management team or governed by a board comprised of members whose names appear to be acceptable individuals. Perceived contractual protections may not exist or may be significantly weakened if the third party is a fictitious entity. Information is now available to address the risks. Not taking reasoned action could subject your Company to financial and reputational harm for unknowingly engaging in transactions with criminal, corrupt or sanctioned individuals or entities. Decreased transparency leads to increased risk What is your exposure to shell companies? 1

4 Responding to this threat The recent media attention surrounding the use of shell companies in international fraud, corruption and money-laundering scandals has spawned global interest in the use of foreign jurisdictions for corporate transactions. The risks a company faces from the illicit use of shell companies are many. Conceal bribes and kickbacks Corruption Embezzlement Conflict minerals Bypass trade sanctions Circumvent sanction/pep lists Trade-based money laundering Organized crime Facilitate fictitious billings Vendors and suppliers Employees and beneficiaries Corruption via fake employees Embezzlement Customers Bypass trade sanctions Circumvent sanction/pep lists Tax evasion Trade-based money laundering Organized crime Conceal corporate transactions Financial statement fraud Corruption Asset misappropriation Corporate org. structure Anonymous company risks Mergers and acquisitions Anonymous company risks Conceal ownership Circumvent sanction/pep lists Corruption Facilitate fictitious billings Joint ventures Corporate assets (sales and purchases) Conceal ownership Bid rigging/false bids Corruption via asset S/P Asset misappropriation EY s approach to enhancing your due diligence is designed to efficiently ingest large volumes of structured accounting data to identify entities and transactions that are at higher risk of being a shell company. Enhancing your due diligence is a response to this threat. We see three main steps to enhancing a company s diligence efforts: Enhanced due diligence Data management tools Vendor and customer master data Publicly available data Structured ICIJ Anomaly detection tools Text mining and search Investigation tools Data output assessment and review Summary level due diligence 1 Data collection on customers and vendors Apply data 2 detection 3 Due diligence tools Panama Papers entities Directors, intermediaries and beneficiaries Repeat the process: continuous monitoring (on-site, centralized, outsourced) Management review SQL and Perl data processing tech stack Visualization and risk ranking Findings and recommendations Case review Data refresh or calibrating Identify existing relevant internal information (e.g., customer, vendor, employee master) and collect available data on known riskier entities (ICIJ, sanctions lists, government and other organizations alerts). Apply data anomaly detection tools to identify potential common threads between internal and external data sources. Aggregate and risk rank entities. Assess the due diligence on identified entities and prepare finding and recommendations. 2 What is your exposure to shell companies?

5 Why EY EY can support you in investigation, remediation and ongoing compliance As part of our commitment to building a better working world, EY can support you in developing high standards of compliance to safeguard your company s reputation and assets. EY has extensive experience working with companies to update and improve their compliance programs in order that they may address ever-changing threats. Our leading-edge technologies, paired with our industry knowledge, allow us to assist our clients in a cost-effective way when they are subject to government scrutiny and inquiries. Our teams include Certified Anti-Money Laundering Specialists (CAMS), former law enforcement officers, former regulators, CPAs, CFEs and forensic accountants. We can help you with: Due diligence and enhanced due diligence Anti-bribery and anti-corruption investigations Anti-money laundering and sanctions investigations Trade-based anti-money laundering investigations Fraud risk assessment Data/trend analysis of transactional activities Recovery and extraction of forensic data E-discovery High-risk data analytics What is your exposure to shell companies? 3

6 EY FIDS When facing acts of fraud, government investigations, regulatory inquiries, major litigation, or transactional disputes, clients turn to EY for timely and experienced assistance. Our forensic accountants and technologists, most of whom are certified fraud examiners, anti-corruption specialists, anti-money laundering professionals and other credentialed specialists work with our clients legal counsel, internal audit teams and compliance departments to investigate and evaluate complex issues and develop practical solutions that address operational challenges. Our multidisciplinary professionals are leaders in their field, drawn from both industry and the public sector, including the U.S. Department of Justice (DOJ), Federal Bureau of Investigation (FBI) and Securities and Exchange Commission (SEC). We apply the collective knowledge and insight gleaned from working across industries and geographies to help our clients conduct fraud risk assessments, institute proactive anti-corruption programs, utilize forensic data analytics, and address complex business and financial challenges to help corporations to manage risk and improve regulatory compliance. 155 locations in 72 countries 213 partners 4,500+ FIDS professionals 130+ countries in which FIDS has performed investigations or compliance work Industry focus Financial services Life sciences Energy Aerospace and defense Retail and consumer products Diversified industrial products Real estate and construction Media and entertainment Technology Automotive How we can help Fraud and investigations Investigations Financial reporting and securities fraud Bribery and corruption Money laundering Employee fraud Embezzlement Corporate compliance, anti-fraud, anti-bribery and corruption Anti-corruption program advisory Assessments, monitoring, improvements Policies and training Integrity diligence Channel partner and vendor due diligence M&A target background checks Watchlist and sanctions compliance support Third-party management program design and administration Forensic technology and discovery services Forensic data analytics Anti-bribery/anti-corruption (ABAC) analytics Anti-fraud analytics Risk assessment Dispute and damage analysis Predictive modeling Information governance Program development and assessment Big Data discovery, inventory and contextual data classification Data mitigation services for cloud migration or risk remediation Defensible data disposal Cybercrime investigation Incident preparedness and response services Cyber breach diagnostics Cybercrime forensics Cyber analytics Insider threat analysis ediscovery Preservation and collection of ESI Computer forensics, data mining and analysis Early case assessment Technology assisted review Managed document review ediscovery advisory services

7 Countries with dedicated FIDS professionals FIDS forensic data centers Transaction forensics Pre-acquisition anti-corruption due diligence Contractual language assessment Post-acquisition analysis and integration/forensic look back Post-closing assistance with preparation of accounting mechanism Pre-arbitration dispute analysis Fund/strategic acquirer activities, including pre-ipo compliance and diagnostic review Portfolio company/subsidiary activities, including compliance review Insurance and federal claims services Damage documentation Claims preparation Assessment of environmental and sustainability programs Financial reporting Interaction with government and insurance officials Identification of leading recovery options Guidance on applying for and using recovery funding Compliance with legal and regulatory requirements Government contract services Allowable costs Audits and investigations Business systems Claims and disputes Commercial item acquisition Contract pricing and proposal support Cost accounting standards Federal supply schedules Grants and cooperative agreements Indirect cost rates Termination proposals, both for convenience and for default Dispute services Damage quantification and analysis Calculations of amounts due Expert reports and witness testimony Contract compliance disputes Post-acquisition disputes Intellectual property disputes Investigating allegations in class action litigation Alternative dispute resolution

8 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited,a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com EYGM Limited. All Rights Reserved. EYG no Gbl ED none This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please referto your advisors for specific advice. ey.com