A range of risks
Ensuring UBOs are not linked to criminal activity or sanctioned entities is critical to an institution’s know your customer (KYC) and anti-money laundering efforts. Using UBO registers is a good start, but greater insight is needed. Financial institutions must be able to connect the dots between UBOs and their colleagues, business relationships, friends and other associates to identify hidden connections. Failure to understand these deeper relationships could lead to a range of risks, including:
Financial risk – Institutions that don’t meet the transparency and reporting requirements for beneficial owners could face monetary fines as well as regulatory action.
Criminal risk – A bank may be sued for negligence if failure to properly carry out its KYC obligations is proven to have abetted criminal activity.
– License revocation is a potential penalty for any financial institution that does not meet AML requirements or remedy breaches in oversight.
– No financial institution wants to see its name splashed over the media as having lax processes that might have supported fraud, money laundering, corruption or other crimes. Any action that undermines the integrity and trustworthiness of an institution can have a long-lasting and detrimental impact on business.
In other words, mitigating risk is not just a regulatory obligation, but is also smart business practice.
Protecting your organization
In spite of noble efforts at standardization, inconsistencies in data, formats, accessibility, and reporting persist, complicating efforts to identify and verify beneficial owners. Due diligence is also time consuming – particularly when compliance teams must source and compile information manually from various reports across jurisdictions.
Collaboration among regulators, law enforcement, financial institutions, and technology firms to develop an easily accessible single registry of UBOs that harmonizes data and reporting formats can help prevent bad actors from misusing the financial ecosystem. However, until this is a truly workable reality across jurisdictions, a strong offense is your best defense.
To identify UBOs like our fictitious Ken Brown who have no red flags or adverse media, consider these actions:
Cast a wide net
– Embrace searches on social media, the dark web, and other online and off-line sources to identify adverse media and the broadest range of relationships possible.
Connect the dots
– Use the latest technology to mine unstructured data to identify suspicious activity and hidden links to potential bad actors. Perform entity resolution on beneficial owners that may be serving as a proxy for a criminal.
Incorporate ongoing monitoring
– Ensure UBO checks are done on a regular basis to stay on top of ownership changes and evolving regulatory requirements.
Train and retrain
– Provide ongoing training to analysts to identify unusual account activity, questionable ownership, and suspicious relationships.
Embrace a risk-based approach to KYC
– Use risk management solutions to quickly and efficiently check UBO data against internal thresholds of high-risk countries, individuals, and business sectors.
As loopholes close, bad actors will search for other vulnerabilities in the financial infrastructure that will enable them to mask their identity and activities. Willing UBOs that can fly under the radar of AML/KYC checks might very well become a new lifeline.
Protect your organization with proven risk and compliance solutions
from LexisNexis® Risk Solutions.