Strengthening AML/CFT controls on risks of misuse of legal persons/arrangements and complex structures

The Monetary Authority of Singapore, MAS, has published a new guidance entitled “Strengthening AML/CFT controls and practices to detect and mitigate risks of misuse of legal persons/arrangements and complex structures“. The publication follows an inspection of several financial institutions (FIs) during which MAS noted issues concerning the identification of beneficial owners in complex structures and the intermediation of questionable fund flows, thereby potentially enabling money laundering (ML) or the financing of terrorism (TF). The guidance applies to the following key business areas – as quoted: „Banking, Trust Business, Capital Markets Services, Financial Adviser, Payments , Insurance, Insurance Broker“.
#### In this document, the regulator presents
1. typical typologies of perpetrators using complex firm structures and legal person arrangements to conceal the true identity of beneficial owners (BOs) for ML and TF purposes;
2. corresponding case studies to illustrate these typologies;
3. MAS‘ findings from the inspections with respect to the efforts FIs have undertaken to detect potentially misused legal person arrangements and firm structures; and
4. MAS‘ expectations in this context.
Below, there’s a brief summary of the last point (MAS‘ expectations). For more information on the other issues, please consult the original guidance.
##### MAS expectations as to measures FIs should take to identify true beneficial owners of accounts and potentially misused legal structures
MAS expects firms to be vigilant about red flags that may indicate concealed beneficial ownership and thus may necessitate further due diligence. Red flags include sudden changes in corporate structures and BO ownership through nominee shareholders without a clear economic rationale. FIs are expected to gather enough information to assess the legitimacy of complex ownership structures. Such assessment must be an essential part of a firm’s customer due diligence (CDD) and shall be used to determine the need for more stringent AML and CFT risk assessment of the client.
In this context, FIs should:
– educate their front-line staff about red flags related to complex ownership structures;
– conduct additional checks or verification when doubts arise regarding customer declarations;
– establish clear accountability and processes for timely escalation of concerns about ownership structures; and
– take appropriate risk mitigation measures when concerns arise.
With respect to escrow arrangements, FIs should also be cautious, as such arrangements are often used for illicit purposes. FIs should:
– understand the purpose of escrow accounts and transactions involving escrow agents; and
– be vigilant about red flags and unusual transactions, conducting scrutiny when necessary, and filing suspicious transaction reports (STRs) whenever needed.
To conclude, MAS notes that FIs need to address information silos and ensure that relevant information on customer accounts, questionable BO structures, and questionable transactions is shared across business units in a prompt manner.