CASE STUDIES ON FIGHTING MONEY LAUNDERING AND TERRORIST FINANCING: COMPLEX STRUCTURES

May 2021

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Preface

This case study pack has been prepared by the Compliance Committee of ICPAC and it endeavours to

provide insight on the identification and treatment of complex structures, through the presentation of

a number of case studies, based on common cases and typologies. Some details and information have

been altered and names of individuals and companies have been eliminated to avoid revealing the

actual cases and personal data.

The current document provides an overview of the methods and techniques commonly used to conceal

beneficial ownership. Adding numerous layers of ownership between an asset and the beneficial owner

and using different types of legal structures and arrangements in different jurisdiction, is a key method

used to disguise beneficial ownership and distance the beneficial owner from an asset.

There are few legal or regulatory restrictions on the establishment of chains of ownership within and

across jurisdictions. Legal persons are allowed to own shares in companies established in any country,

while many countries also allow legal persons to be registered as the directors of companies. Shell

companies, multiple jurisdictions, trusts and other legal arrangements enhancing anonymity are usually

featured in many complex structures.

Despite the fact that many complex ownership and control structures are actually set up for legitimate

business and purpose, these structures carry a high risk of being used to obscure beneficial ownership,

avoid taxation obligations, conceal wealth, and launder the proceeds of criminal activities. Complex

structures are also used in fraudulent investment schemes, false invoicing, and other types of fraud.

The purpose of this case study pack is to analyse how beneficial ownership is disguised using such

techniques. The understanding and assessment of such structures will form the foundation of the

assessment of the risks and vulnerabilities associated with the clients.

As there are no hard rules and easy solutions for recognizing money laundering, terrorist financing and

economic crime, it is crucial for members and students of ICPAC to remain alert and vigilant to the

Money Laundering (“ML”), Terrorist Financing (“TF”) and fraud risks by applying their professional

judgement, experience and professional scepticism.

Please note that all data and scenarios are examples of common cases and provided for illustration

purposes, some of which are presented in an extreme version, including more complex ownership and

control structures and analysing the proposed actions which ICPAC members should consider.

In all situations our client will be the company CyCo.

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Keywords and Terminology:

UBO: Ultimate Beneficial Owner

EU: European Union

EU UBO: Ultimate Beneficial Owner resident / national within the European Union

HR UBO: Ultimate Beneficial Owner resident / national in a high-risk jurisdiction

CyCo: Company “CyCo” is a Cyprus registered limited liability Company.

SPV: Special Purpose Vehicle

BVI: British Virgin Islands

SY: Republic of Seychelles

KY: Cayman Islands

MH: Marshall Islands

Cy Trust: Trust Registered in Cyprus

HR Trust: Trust Registered in a High-Risk Country

AML Law: The Prevention and Suppression of Money Laundering and Terrorist Financing Laws of 2007-

2021

CDD: Customer Due Diligence

SDD: Simplified Due Diligence

EDD: Enhanced Due Diligence

DoT: Declaration of Trust

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CASE 1

A. Structure

Case 1(a) Case 1(b) Case 1( c) Case 1(d)

EU UBO HR UBO

Cy PEP UBO

HR PEP UBO

SPV1 SPV1 SPV1 SPV1

(BVI)

(BVI) (BVI) (BVI)

CyCo

CyCo

CyCo

CyCo

B. Facts of the Cases 1(a) to 1(d):

• The operations of the CyCo are ignored for the purposes of this example.

• 100% of the share capital of the CyCo is held by an SPV, incorporated in the British Virgin

Islands (“SPV1”).

• Case 1(a) SPV1 is directly held by the UBO, an EU resident / national.

• Case 1(b) SPV1 is directly held by the UBO, a High-Risk jurisdiction resident / national.

• Case 1(c) SPV1 is directly held by a Cyprus PEP UBO

• Case 1(d) SPV1 is directly held by a PEP from a High-Risk Jurisdiction

• For case 1(a) the UBO is of normal risk and if no other negative findings exist normal customer

due diligence should be performed, while for cases 1(b), 1(c) and 1(d) the UBO due to either

being a PEP or an individual originating from a high-risk jurisdiction is classified as a high-risk

individual and EDD is necessary to be performed.

• Explanation (tax and/or legal professional advisor) must be obtained to understand as to the

purpose the structure was set up the way it was. Where such advice is not available, it may

be possible to draw inferences from background information, although this can be less

reliable. Consideration should also be given on the key competences and integrity of the

advisor of the client.

C. What are the considerations and documents that should be collected for the CyCo

during the Client Due Diligence?

• In accordance with article 61 of the AML Law, it is necessary to

a. identify the customer and verify the customer’s identity on the basis of documents, data

or information obtained from a reliable and independent source (see Annex III of ICPACs

AML/CFT Directive);

b. identify the beneficial owner’s identity and taking reasonable measures to verify that

person's identity so that the firm is satisfied that it knows who the beneficial owner is,

including, as regards legal persons, trusts, companies, foundations and similar legal

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arrangements, taking reasonable measures to understand the ownership and control

structure of the customer;

• In order to satisfy the above requirement for all cases 1 (a) to 1(d) it is necessary to identify

and verify the client and its business activities. In order to verify the client and its control

structure the following documents are necessary to be obtained:

a. Original Corporate Documents (used to certify true copies of originals) or certified copies

(refer to Annex III of the ICPAC AML/CFT Directive) should be obtained including

(Memorandum & Articles of Association, Certificate of Incorporation, Certificate of

Directors & Secretary, Certificate of Shareholders, Certificate of Registered Address);

b. Depending on the initial findings and review of the documents above, additional

documents, where applicable, that can be obtained are: Search from the Registrar of

Companies, Extract from the Corporate Register of Beneficial owner, Certificate of Good

Standing, Incumbency Certificate etc;

c. Recent Group Structure (within 6 months) signed by the UBO, Director, Secretary,

Authorized representative or person exercising significant control;

d. Financial statements, preferably audited under IFRSs, trial balance, tax returns or other

financial information;

e. Perform screening on the entity, the directors, the SPV1 and the UBOs (against PEP lists,

sanctions lists, adverse media and potential convictions), preferably through specialised

databases.

f. Assess and obtain information on the purpose and intended nature of the business

relationship and document your understanding of the business activities.

g. In the case of 1(b) to 1(d) where the client is considered high risk, carry out enhanced

due diligence, including taking measures to establish the client’s size and source of

wealth and funds.

• Make sure you review and understand the documented collected and document the

understanding and work performed.

D. What are the documents that should be collected for the Companies within the Group, i.e. for the SPV1, incorporated in the BVI?

• It is imperative that the Firm gathers information to verify the ownership of the CyCo leading to the UBO(s). Examples of documents that should be collected for the SPV1 are as follows:

o Apostilled recent Certificate of Incumbency issued by the BVI agent showing the SPV1’s

board of directors, shareholders, registered address and share capital; o Apostilled recent Certificate of Good Standing from the Registry of Corporate Affairs of

BVI to ensure the entities are not at the stage of liquidation or winding up;

• Additional documents where applicable depending on the initial review and findings could be:

o Certificate of Incorporation and any Change of Name Certificates from BVI etc;

o Memorandum & Articles of Association; o Financial Information, if available.

E. What are the documents that the Firm should collect for the UBOs and Directors?

For all cases 1(a) to 1(d) the following procedures should be performed:

• Identify and verify the UBOs’ and Directors’ identity by obtaining original or certified: o valid international passport or

o national ID, or a o valid driving license.

It is noted that the document obtained must contain the person’s photograph.

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• Identify and verify the place of residential address by obtaining some third-party evidence

such as:

o a recent up to 6 months utility bill, o the latest tax assessment,

o residence permit, o a recent up to 6 months bank statement,

o a recent up to 6 months bank reference or

o any other official document that states the residential address.

• Screen the UBOs and Directors against a specialist screening database and document findings.

• If a Face-to-Face meeting is not possible, the Firm should arrange for a video call to establish

direct communication with the client to mitigate the risk. The video call should be documented accordingly noting the date, time, position and title of the persons in the call, what was

discussed.

F. Additional Considerations for 1(b):

• Does the Client Acceptance Policy of the Firm allow the establishment or continuation of a

business relationship with a high-risk client? Has the Client Acceptance Policy (CAP) changed since the client was on-boarded?

• How would the level of Due Diligence change if the UBO is not from the EU but from a higher

risk jurisdiction?

• In addition to the above and as the UBO is from a high-risk country, the Firm should carry out EDD on the UBO, and establish and corroborate the UBO’s size, origin and source of

wealth [also refer to Guidance issued by ICPAC on “AML Guidance on establishing Source of

Funds (SOF) and Source of Wealth (SOW)” dated February 2018]. In addition, the Firm should apply additional increased on-going monitoring of transactions to mitigate the risk posed by

the UBO’s geographic location.

• Obtain additional identification documentation to verify the client’s identity such as a 2nd identification document.

• CV / Resume in order to verify the UBO’s experience, knowledge and skills and his or her

connection with the underlying activities of the client entity

• Reference letter from a reputable financial institution from the UBO’s home country.

• Senior management approval will be required for the establishing a business relationship or the continuation of business relationship, as the UBO is a high-risk person.

• The Firm should carry out extensive internet and media research using reliable sources to

determine, monitor and verify information on high-risk person.

G. Additional Considerations for 1(c):

• All of the above considerations for 1(b) are applicable and in addition the following: a. The UBO is a Politically Exposed Person [PEP] and as such, the provisions of the

relevant Laws and Regulations on PEPs must be applied, i.e. apply EDD procedures

and classify the client as high risk. Note: the same would have applied if the UBO was a close relative or close known

associate to a PEP. b. The Firm should identify the prominent public function of the PEP to assess the risk

posed by the UBO.

● Senior management approval will be required for the establishing a business relationship or the continuation of business relationship, as the UBO is a PEP.

H. Additional Considerations for 1(d):

• Consideration should be given to the client’s acceptance policy, i.e., whether the Firm should accept clients from these high-risk jurisdictions and if yes:

• As the UBOs originate from a high-risk third country, and are PEPs (with / without the same

third country nationality), the firms should pay additional attention and extensive transaction

monitoring to address the increased risk of bribery and corruption.

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• Additional scrutiny and attention should be placed while establishing the client’s source of wealth, and such information should be corroborated by collecting appropriate evidence (for

further details, please refer to ICPAC’s Guidance on establishing SoF and SOW.

I. What are the risks and potential threats arising from the aforementioned structure?

• Multilayer structure, including a BVI jurisdiction, which is a jurisdiction associated to limited transparency.

• Involvement of high-risk third country jurisdictions in the structure and PEPs

J. Any other considerations?

Once the amendment to the AML Law would allow for the electronic verification of corporates or

individuals then the requirement for certification of documents could be replaced by the option of

electronic verification.

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CASE 2

A. Structure

EU UBO

Nominees

SPV1

(SY)

CyCo

B. Facts of the Case 2:

• The operations of the CyCo are ignored for the purposes of this example.

• 100% of the share capital of the CyCo is held by an SPV, incorporated in the Republic of

Seychelles (“SPV1”).

• 100% of the share capital of SPV1 is held by a nominee shareholder, acting in a fiduciary

capacity, for and on behalf of an EU UBO.

• The same customer due diligence requirements should exists in the example 1(a) above and in

addition the following:

C. What are the additional factors that the Firm should consider regarding the structure?

• The Firm should consider the rational behind why the shares of the SPV1 are held in trust (using

a Declaration of Trust), consider whether the UBO is trying to obscure ownership, consider whether the nominee shareholder is a licensed service provider, the jurisdiction thereof etc.

• It is imperative that a Declaration of Trust or Trust Deed is obtained linking the legal

shareholder of SPV1 to the Ultimate Beneficial Owner.

• The Firm should furthermore obtain sufficient understanding and information of the nominee

shareholder. Is the nominee shareholder a legal entity ie fiduciary services are provided by a regulated administration service provider (ASP)? If so, in which jurisdiction? If not, who is

providing the nominee services and why.

• If the nominee shareholder is an individual, again the reasons should be understood as to why the nominee shareholder exists. Could it be that it holds shares on behalf of a PEP?

• Customer due diligence requirements should be performed on the nominee shareholder either

as an individual or an entity as described in case 1 above. If the nominee shareholder is a is subject to professional registration and supervision in an EU country, then SDD could be

performed on the nominee shareholder.

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D. What are the risks and potential threats arising from the aforementioned structure?

• The Client’s ownership and control structure is complex, thus obscuring the identity of the

beneficial owner(s);

• In case the EU UBO was a PEP or the UBO originated from a high-risk jurisdiction, the same

additional requirements should be applicable as in cases 1(b) to 1(d) above.

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CASE 3

A. Structure

HR UBO CyPLC EU UBO

SPV1

SPV2

SPV3

(KY) (KY) (KY)

CyCo

B. Facts of Case No. 3:

• The operations of the CyCo are ignored for the purposes of this example.

• 100% of the share capital of the CyCo is held by three different SPVs, incorporated in the Cayman

Islands (“SPV1, 2 and 3”).

• 100% of the share capital of SPV1 (55% indirect ownership of CyCo) is held by a HR UBO

• 100% of the share capital of SPV2 (30% indirect ownership of CyCo) is held by a public Cyprus

entity listed in the Cyprus Stock Exchange Main Market.

• 100% of the share capital of SPV3 (15% indirect ownership of CyCo) is held by an EU UBO.

C. What are the additional factors that the Firm should consider regarding the structure?

• The indirect EU UBO has 15% of the CyCo’s controlling shares, thus the firm need not carry out

due diligence on the noted shareholders. Consideration should also be placed on whether the UBO has control via other means (e.g. holding a stake in the CyPLC).

• Since 30% of the CyCo’s shares are controlled by a publicly listed EU entity, SDD could be carried

out for the noted controlling entity.

• The Firm should carry out due diligence for the HR UBO holding indirectly 55% of the CyCo.

• The firm should establish and document the commercial and business rationale to demonstrate that

the client exists for a legitimate trading or economic purpose, including the rationale behind why the entity is owned through KY intermediary holding entities.

• Customer due diligence on the CyCo, SPV1, SPV2and HR UBO should be carried as explained in

case 1.

D. What Simplified Due Diligence Measures should be carried out for the CyPLC?

• As the CyPLC is a public listed entity on a European Main Market SDD measures can be carried out. This means that it is necessary to understand and document the activities of the public listed

entity and to identify the Directors and all shareholders above 25% indirectly. Verification procedures need to be carried out for the shareholders over 25%.

• An annotated printout from the website of the relevant body (CY Stock Exchange) should be placed

in the file giving information about the CyPLC, its principal activities, registered address, Stock

Exchange License /registered number, Directors and Shareholders for further reference.

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• Background screening is necessary to be run on the entity, the directors and its shareholders owning over 25% of the share capital. .

• In case the screening identifies that a shareholder with over 25% shareholding is a PEP, then EDD

should be carried on the PEP as described in case 1(b) above. If information on the shareholder is available from reliable and trustworthy sources then this information can be used as part of due

diligence and should be printed, signed, dated and placed into the client acceptance

documentation.

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CASE 4

A. Structure

Cy Trust HR Trust

SPV1

SPV2

(BVI) (BVI)

CyCo

B. Facts of Case No. 4

• The operations of the CyCo are ignored for the purposes of this example.

• The share capital of the CyCo is held by two different SPVs, incorporated in Marshall Islands

(SPV1 and SPV2) holding 65% and 35% respectively.

• 100% of the share capital of SPV1 is held by a Cyprus Registered Trust

• 100% of the share capital of SPV2 is held by a Trust incorporated in a High-Risk Jurisdiction.

C. What are the risks and potential threats arising from the aforementioned structure?

• With the addition of a Trust at the Beneficial Ownership level the ownership becomes more complex

and obscured as there is less transparency as to who the Beneficial Owners are, and therefore,

additional requirements are necessary to clearly verify the client’s control structure.

• Inclusion of multiple jurisdictions and higher-risk jurisdictions

• Types of legal entities and other legal arrangements of higher risk (e.g. Trusts)

D. Additional documents to collect for the Trust:

A. Certified true copy of Trust Deed and any subsequent and/ or additional amendments – or

equivalent confirmation from the Trustees indicating:

a. the trustees, settlor, beneficiaries, protector (if any) and any other person exercising

control over the legal arrangement

b. information and evidence of the assets held by the trust e.g., financial statements, tax

assessment, sale purchase agreements, grant of probate etc

B. Certified true copies of documents confirming the registration date and number, where applicable

(e.g., proof of registration with the relevant supervisory authority or official register

C. Collecting KYC and performing background search and screening for all involved parties including

the settlor, trustees, beneficiaries, and protector (if any) and any other person exercising control

over the legal arrangement.

D. Understanding the reason, the structure was set up the way it was (e.g. for succession purposes?)

E. As the Trust is set in a High-Risk Jurisdiction an approval by senior management is necessary

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CASE 5

A. Structure

Case 5(a) Case 5(b)

Regulated Fund in EU

Unregulated Fund in EU

SPV1

SPV2

(BVI) (BVI)

CyCo

Same scenario as before but at the Beneficial Owner Level there is a Fund. Consider the following

scenarios:

• Case 5(c): How would the Scenario 5 (a) Change if the Regulated Fund was non-EU

• Case 5(d): How would the Scenario 5(b) Change if Unregulated Fund was non-EU

• Case 5(e): How would the Scenario 5(b) Change if Unregulated Fund was in a HR Jurisdiction

B. What are the risks and potential threats arising from the aforementioned structure?

• The Client’s ownership and control structure is complex, thus obscuring the identity of the beneficial

owner(s)

• Multiple jurisdictions and high-risk jurisdictions

• Types of legal entities and other legal arrangements of higher risk (e.g. unregulated funds especially

in high risk jurisdictions)

C. Documents to collect for the Regulated Fund in EU (Case 5(a)):

• As the Fund is regulated in EU an annotated printout from the website of the relevant body

(regulator) containing the address and its registered address should suffice.

• Information on the Authorised Fund Manager (refer to Appendix I below) i.e. obtain any

information on the Fund Manager and Board if any and document findings

• Consider performing KYC procedures for the Fund Manager if adequate information cannot be

obtained to ascertain integrity and authority of the Fund Manager.

• Perform screenings on the Fund Manager and Board Members if any and the Fund for negative

media, convictions, sanctions etc

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D. Documents to collect for all other Funds :

a. In case of 5 (b): Unregulated Fund in EU:

• Consider whether any considerations may exist for corruptions, bribes etc and consider

whether there are any restrictions within the CAP for approving such a business relationship.

• If the Fund is unregulated and operates in an EU country, then obtain all corporate

documents of the Fund and perform full KYC for the Fund Manager and those that govern

the fund (refer to Appendix I below).

• Perform screenings on the Fund Manager and Board Members, if any, and the Fund for

negative media, convictions, sanctions etc

b. In case of 5 (c): Regulated Fund in non-EU:

• If the regulated fund is located in a non-EU country which is not a high-risk third country

and applies AML/CFT procedures and measures equivalent to the EU directive, then the

same procedures apply as with Case 5(a) above.

• The firm should document the measures taken to establish that the non-EU country applies

AML/CFT procedures and measures equivalent to the EU directive

c. In case of 5 (d): Unregulated Fund in non-EU:

• If non-EU country is not a high-risk country and has equivalent AML/CFT requirements to

an EU country, then same as Case 5(b) above.

d. In case of 5 (e): Unregulated Fund in an HR Jurisdiction:

If the Fund is unregulated in HR Jurisdiction, then EDD should be followed including the procedures

described further down:

• Consider whether any considerations may exist for corruptions, bribes etc and consider

whether there are any restrictions within the CAP for approving such a business relationship.

• Obtain all corporate documents for the Fund and Full KYC for the Fund Manager and those

that govern the fund.

• Perform screenings on the Fund Manager and Board Members if any and the Fund for

negative media, convictions, sanctions etc

• As the Fund is set in a High-Risk Jurisdiction an approval by senior management is necessary

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CASE 6 A. Structure

UBO1

HR PEP UBO 2

UBO3

SR1 EU PLC BVI2

(BVI)

CY PLC1 BVI1

EU Co2 EU Co3

EU CO1 CyCO3

CyCO1 CyCO2

CyCo

B. Facts of Case No. 6 and considerations:

• CyCo is a joint venture by two consortiums CyCo1 and CyCo2

• We need to find the UBOs from both sides of the consortium as both have equal participations

in the decision making of the company.

• Who are the individual(s) exercising control over the CyCo/our client?

• The effective shareholding of UBO1 is 32.5%, while the indirect effective shareholding of UBO2

is 22.5% and of UBO3 is 27.5%

• Strictly speaking, as UBO2 is below 25%, one may say that we do not need to perform CDD.

However as this is a PEP, one should consider the influence that he may exert from his position

as a PEP to the benefit of his own interest and the entities in the consortium and decide whether

to perform CDD procedures.

• Another factor to consider is the relation between UBO2 and UBO3 if for example is husband

and wife then CDD on both should be performed due to combined percentage.

• EU PLC is listed in a main market and is controlled by many shareholders none of which is over

10%. However even if there were shareholders over 25% we would still not have performed

CDD for any of its shareholders as their indirect effective shareholding is much below 25% and

secondly as the EUPLC is listed on a main market we would have followed SDD procedures.

• If one of the shareholders of the EU PLC was a PEP we would still follow the same procedures

and only in the case that he exerted influence from his PEP position (despite having low

ownership percentage) we would have considered the possibility to perform EDD on the

shareholder. In such a case we consider what information is publicly available.

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• A recent group structure within 6 months should be requested by the company to be signed

by a knowledgeable party such as a group director, an auditor, a shareholder etc in order to

ensure its accuracy and completeness.

C. Complexity Features:

• Multiple ownership layers

• Multiple jurisdictions

• Joint Venture considerations and indirect effective shareholdings

• Higher risk jurisdictions

• PLC considerations

D. What are the considerations and documents that should be collected for the CyCo

during the Client Due Diligence?

• We need to consider the documents to be collected for all companies leading to the UBOs from

both sides of the consortium.

• For the immediate shareholders i.e. CyCO1 and CyCO2 we need to collect all statutory

documents as described in case 1 above.

• We would also collect all statutory documents for the entities just before the UBOs (holding

companies), so that we are in a position to ensure who the real UBOs are in each of the holding

entities.

• In the case that we have Cy or EU Companies then the documentation is as described in case

1 section C above while for BVIs collect the documents as described in case 1 section D above.

• In the Case of EU PLC please consider the documents collected in case 3 section D above.

• For the intermediary companies EU Co1, EU Co2, CY PLC1 form one side of the consortium and

Cy CO3, EU Co3, BV1 only collect the shareholding certificate in order to verify the structure.

In the case of BV1 an incumbency certificate would be necessary to confirm the shareholders.

• Where it is very difficult to obtain the shareholding certificates or there are much more

intermediary companies and it is difficult to collect such documentation, then we need to ensure

that the group structure provided is verified by the auditors of the holding entities of both sides

of the consortium i.e. of SR1, EU PLC and BV2 (if only one auditor audits the whole structure

even better) and then we can rely on his representations as long as the structure is annotated

i.e. named, titled, signed and dated by the auditor itself.

E. What are the considerations and documents that should be collected for the UBOs

during the Client Due Diligence?

• For UBO 1 and UBO 3 collect the same information as stated in case 1 section E.

• If information should be obtained for UBO 2 as a PEP then collect similar information as to case

1 section H (d).

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Case 7:

A. Structure:

UBO1 UBO2

SPV1

SPV2

(KY) (KY)

CyCo

Subsidiary holding EU Asset Property

B. Facts of the Case No. 7:

• The CyCo is the sole shareholder of a limited liability company incorporated within the EU which

manages real estate property. The CyCo also provided an unsecured long-term loan to its subsidiary.

• The source of income of the CyCo are dividends from the EU subsidiary and interest income from

the loans granted to the subsidiary. C. What are the factors that should be considered regarding the subsidiary?

• The Firm should review the underlying asset, understand the subsidiary’s operations and assess

the risk posed by it.

• The Firm should also obtain the subsidiary’s financial information and/or financial statements and obtain information.

• Where corporate documents of the subsidiary, or memorandum and articles of association,

certificate of Incumbency from the authorities indicating the share capital, shareholders, director, registered address, recent extract from the 3rd country registrar of Companies equivalent, exist,

they should be obtained.

• A thorough understanding of the activities including but not limited to the counter parties involved,

major clients and suppliers, the decision makers in the entity (e.g. Board of Directors), the contracts entered into etc

• Do the activities of the subsidiary require licensing? If so, does the entity have such licenses from

the authorities?

• The customer due diligence procedures for CyCO and above all the way to the shareholders are similar to those of case 1 (a).

D. What are the risks and potential threats arising from the aforementioned structure?

• The Client’s ownership and control structure is complex, thus obscuring the identity of the beneficial

owner(s);

• The structure includes jurisdictions of higher ML/TF risk;

• Unsecured loans could pose a higher risk.

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Case 8:

A. Structure

UBO1 UBO2

SPV1

SPV2

(SY) (SY)

CyCo

Subsidiary operating in a HR Industry

B. Facts of case No. 8

• The CyCo holds 100% of the share capital of a subsidiary in a high-risk industry such as casino

and operates in a high-risk jurisdiction.

• The customer due diligence procedures to be followed for all entities up to the UBO are similar to those of case 1 (a)

C. What are the risks and potential threats arising from the aforementioned structure?

• The structure is very similar to case 7 however the difference is that the subsidiary of our client

‘CyCO’ operates in a High-Risk Industry.

• The structure includes jurisdictions of higher ML/TF risk.

• The industry in which the Group operates poses a higher corruption and bribery risk as defined

by the EU Commission, FATF, EU Tax lists etc.;

• The Client’s ownership and control structure is complex, thus obscuring the identity of the

beneficial owner(s);

E. What are the factors that should be considered regarding the subsidiary?

• Same considerations as case 7 and in addition the following:

• We need to understand the subsidiary’s operations and assess the risk posed by it.

• Do the activities of the subsidiary require licensing? If so, does the entity have such licenses

from the authorities?

• Consider the geographic location of the subsidiary and whether EDD measures need to be carried out due to its location.

• The Firm should also obtain the subsidiary’s financial information and/or financial statements

and obtain information.

• Where corporate documents of the subsidiary, or memorandum and articles of association, certificate of Incumbency from the authorities indicating the share capital, shareholders,

director, registered address, Recent Extract from the 3rd country registrar of Companies

equivalent exist, they should be obtained.

• The customer due diligence procedures for CyCO and above all the way to the shareholders are similar to those of case 1 (a).

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Case 9:

A. Structure

UBO1

SPV1

(MH)

CyCo

`

Polish Co

High Risk Jurisdiction (selling the commodity)

Polish Management Co

High Risk Jurisdiction

(manufacturing commodity)

Polish Co (Warsaw Stores)

Polish Co (Kraków Stores)

B. Facts of Case No. 9

• 100% of the share capital of the CyCo is held by an SPV, incorporated in the Marshall Islands

(“SPV1”).

• SPV1 is directly held by the UBO, an EU resident / national.

• The CyCo holds 100% of the share capital of an entity incorporated in Poland and a high-risk

Jurisdiction.

• The Polish Co holds 100% of the share capital of a management Company and in turn the

Management company holds the share capital of 2 retail stores (Polish Companies, which

operate in Warsaw and Krakow delicatessen stores.)

• The High-risk jurisdiction and its subsidiary manufacture commodities (flour).

• The High-Risk Jurisdiction entity sells commodities to the group.

• The CyCo also owns a trademark (delicatessen) which is licensed to the other group companies,

which operate stores within Europe.

100%

100%

100% 100%

100%

100% 100%

100%

20

• The CyCo leases the trademark and receives royalty income from the group entities.

• There is also financing within the Group: the BVI grants loans to the CyCo which then grants

loans to the EU subsidiary.

• Consolidated FS are prepared on the level of the CyCo.

C. What are the risks and potential threats arising from the aforementioned structure?

• The structure includes jurisdictions of higher ML/TF risk.

• The structure includes multiple jurisdictions.

• The Group’s underlying income is cash based (walk-in the stores)

• The Due diligence required for the Source of Funds at the Level of the CyCo should take into

consideration the activities of both the EU and High Risk Subsidiaries as funds flow upwards

towards the CyCo

D. What are the factors that should be considered regarding the subsidiaries?

• Similar to Case 7, the Firm should obtain:

▪ the subsidiaries’ financial information and/or financial statements, understand the financial profile of the Group, understand the SoF of CyCo including an analysis of the operations of

the EU subsidiaries and the High-Risk Jurisdiction ▪ the Corporate documents of the subsidiaries or certificate of Incumbency from the authorities

indicating the share capital, shareholders, director, registered address, Recent Extract from the 3rd country registrar of Companies equivalent.

▪ Understand whether licensing is required.

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Appendix I

Below is an indicative list (not exhaustive) of the considerations and verification documents that should

be obtained during the due diligence process, for TRUSTS and FUNDS:

TRUSTS:

• Ascertain the legal substance (discretionary, fixed, charitable etc), the nature of activities and

purpose of establishment of the trust.

• Ascertain the source and origin of funds of the trust/settlor.

• Ascertain the name, date, and jurisdiction of establishment.

• Obtain trust deed / trust agreement or extract from the Trustee.

• Obtain financial statements, if available or other financial information (e.g. management

accounts)

• Verify the identity of the settlor, trustee, beneficiaries, and protector (if applicable) and any other

person exercising control and carry out identification procedures as per Law and Director.

FUNDS: ALL Funds

• Ascertain the purpose/objective of operation and verify the legitimacy thereof.

• Obtain the necessary license or authorisation from a regulatory authority from the country of its

incorporation and operation.

• Understand whether the fund is subject to supervision for the prevention of money laundering

and terrorist financing purposes.

REGULATED Funds

• If subject to Supervision, then License should suffice.

• Consider whether Fund Manager is Authorised and by whom.

• If authorised by EU or equivalent then print out any information available by Authorising

Authority, annotate and document in file.

• If not authorised by EU or Equivalent, then Full KYC on Fund Manager

• Identify other governing Body within the Fund e.g names & contact details of Board of Directors.

• No further verification requirements necessary.

UNREGUATED Funds In addition to the above for all Funds obtain the following:

• Obtain Articles & Memorandum and registration documents by the competent authority

• Full KYC on the Fund Manager

• Obtain a list of members of the directors / management committee and carry out identification

and verification procedures as per the Law and Directive

• Obtain sufficient information to understand the control structure and management of the

business activities (e.g. carry out verification on the identity of investment managers, investment

advisors, administrators, custodians etc).

• Obtain financial statements, if available or other financial information (e.g. management

accounts)