Suspicion & its affect on your business

Simply stated, international and national measures to combat Money Laundering, require the reporting of any suspicion of money laundering in business activities. Usually attention is given to banking transactions.

Suspicion is defined as considering that something is wrong, without evidence or proof.

How could Anti-Money Laundering measures affect my honest business?

In business, as in life, those that follow the Law should have no fear of it. However it is important to recognise that, against all general principles of fairness, suspicion is enough to suggest that business activities might involve money laundering. Effectively a business can be “guilty” of suspicion before being shown to be innocent of money laundering.

Suspicion is a concept that incorporates many views, prejudices, misunderstandings and ignorance. There is often no rational reason for forming such a view. Notice of something small and merely unusual can be amplified by a series of other issues into something that is formally reported as suspicious.

Our concern is that clients should avoid any business practice that can give rise to suspicion.

Where do they find suspicion?

Whilst suspicion usually features a distinct event, this often builds upon a more general feeling that something might be wrong. Thus initial consideration might be given to a newly established business or activity, or the nature of a transfer or transaction.

Establishing a business or activity.

Companies are formed with a general declaration of purpose and it unlikely that forming a company would give rise to suspicion. However the names of those involved and convenience addresses for registered offices might.

After formation companies need many things before they can operate and this is the start of a process where their intentions are scrutinised. Typically banks are required to “know their customer” (KYC) or their customers business (KYB) in a process also known as “customer due diligence” (CDD). These requirements based on familiarity also extend to many professional advisors.

The activities of the business and the way they operate might be a source of suspicion. For some the use of some off-shore locations is good reason for suspicion. For others use of a less well known bank might concern. A desire for privacy or anonymity can be misinterpreted.

There may be good reason to re-consider ways of business that have been successfully applied for many years without question of their probity.

Transfers and transactions.

The most common source for suspicion features international banking. Countries of the EU must comply with directives on transfers and payments which set out key tests. Transfers in major currencies are regularly monitored by powerful systems. The KYC tests for both remitter and receiver are very important.

Avoid the unnecessary.

International operators need to ensure that there must be no underlying suspicion of money laundering. They should avoid any unnecessary suggestion that there might be. For example we might include basic advice for:

  • use of jurisdictions that would not alarm. Over 50% of all international transfers are considered to involve “off-shore” jurisdictions. However some jurisdictions are recognised as having greater probity than others.
  • transparency in accounting – even in jurisdictions where published accounts are not required. In such cases it is prudent to be able to demonstrate to supervisory bodies a capability to produce such accounting if required.

Every business has different possibilities for concern. For example a more detailed review might suggest:

  • a requirement that documents used in business should be seen as honest and accurate. Typically invoicing for “computer parts” or ubiquitous “consultancy” might highlight a concern. Innocently simple documentation can test credibility. Similarly related contracts, agreements or memoranda should be based on realism.  Documents also give attention to those involved and a need to consider any issues of association with others.
  • that beneficial ownership must be clear. Thus for example the face value of using an UK based LLP would be eroded by ownership through partners from a less well regarded jurisdiction.

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