Corporate Structuring – Key Takeaways
Corporate structuring is the way a company systematically arranges its legal entities, operations and ownership to achieve its business objectives. Companies use legal entity structuring for tax efficiency, optimum decision-making & governance, attracting investors, and risk management.
However, corporate structuring can be used to hide the beneficial ownership, the true origin of funds, and move illegal money into the legitimate financial system. Criminals use shell companies, complex corporate structures and jurisdictions with weak oversight to disguise illicit funds, which create ML/TF risks.
Ensuring enhanced transparency, beneficial ownership disclosure, and a clear understanding of the purpose of legal entity structuring helps Regulated Entities meet AML/CFT regulatory expectations.
Criminals use complex layering, cash-intensive front businesses, offshore tax havens, third-party assistance, and weak oversight jurisdictions to hide the beneficial ownership identity and conceal the origin of funds.
Criminals use shell companies and nominee shareholders to benefit from non-transparency and make it hard for one to know the true beneficial owner.
They further involve funds movement between multiple countries through exploiting loopholes and complicating the paper trail.
Risk factors involve money laundering, tax evasion, and sanctions evasion, which primarily result in regulatory fines.
Regulated Entities must identify the following ML/TF red flags or signals in complex corporate structures:
FATF requires Regulated Entities to acquire accurate and timely information about the ultimate beneficial owners (UBOs) or persons who own and control the legal entities. The requirement is mandatory to prevent misuse of corporate structuring for ML/TF activities.
Further, regulators mandate that countries should maintain proper information about legal persons and arrangements to ensure transparency. With this, Regulated Entities must apply Customer Due Diligence measures to identify and verify UBOs and develop a risk profile. Moreover, entities must conduct Enhanced Due Diligence for high-risk customers and obtain their source of funds/wealth information.
Non-compliance with regulatory obligations leads to regulatory penalties, license suspensions, and reputational damage for Regulated Entities. Also, corporate companies found to be involved in ML/TF activities result in criminal charges, shutdown or restructuring.
RapidAML Software gathers detailed information from varied sources to visualise and provide a holistic view of the company’s ownership. The software simplifies the complex structures to identify and verify the beneficial owners, enhancing KYC/KYB checks. Further, RapidAML’s advanced transaction monitoring software spots unusual money movements or frequent fund transfers to identify anomalies linked to corporate structures.
Moreover, the customer risk assessment software assigns high risk scores to shell companies, complex structures and helps compliance teams with EDD procedures. RapidAML provides a unified solution to onboarding, monitoring, and beneficial ownership analysis to prevent money laundering crime and comply with AML/CFT laws.
Corporate structuring risk in AML refers to the use of complex business ownership or arrangements to disguise illicit funds and engage in money laundering activities.
Corporate structuring facilitates anonymity and creates complexity in determining the origin of funds and the true beneficial ownership identity, enabling money laundering.
Financial institutions should use tools like RapidAML that automate KYB checks and other due diligence processes to uncover hidden ownership, monitor transactions, evaluate risk, and escalate investigations.
Due diligence measures involve identifying & verifying UBOs, screening against global watchlists & adverse media, developing risk profiles, and transaction monitoring, which helps mitigate corporate structuring risks.
Platforms such as RapidAML automate data collection and analysis of complex ownership structures to identify hidden UBOs and the origin of funds, which ensures transparency in corporate structuring.
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