proactive rather than reactive kyc reviews may enhance data...

Proactive Rather than Reactive KYC Reviews May

Enhance Data Precision, Upon which Accurate

Risk-Based Decisions Depend

By: Tessa Oudkerk – CAMS

T. Oudkerk 2016 Page 1

Table of Contents

Executive Summary .................................................................................................................................... 2

Introduction ................................................................................................................................................. 3

Performing KYC ......................................................................................................................................... 3

Customers of Financial Institutions .......................................................................................................... 4

Analysis ........................................................................................................................................................ 4

Risk-based decisions ................................................................................................................................. 4

Data precision and its impact on risk-based decisions ............................................................................. 4

The global interconnectedness of systems combating financial crime .................................................... 5

Frequency of KYC review .......................................................................................................................... 5

Structure, Status and Dynamism of Legal Entities .................................................................................... 7

Structure of Legal Entity ........................................................................................................................... 7

Dynamism of Legal Entity.......................................................................................................................... 7

Status of Legal Entity ................................................................................................................................. 8

Proactive rather than reactive and the impact of both approaches ........................................................ 9

Solution to proactive approach to KYC reviews .................................................................................... 10

Proactive KYC reviews ............................................................................................................................. 10

Conclusion ................................................................................................................................................. 11

Works Cited ............................................................................................................................................... 11

Appendices ................................................................................................................................................. 12


Executive Summary

The recommendations of the Financial Action Task Force (FATF) are “universally recognized as

the international standard for anti-money laundering and countering the financing of terrorism

(AML/CFT)”1. In the face of continuous innovative financial crime techniques and threats, FATF

is constantly reviewing and revising its recommendations to “ensure that they remain up to date

and relevant”2 and to safeguard the integrity of financial systems.

With relevance and currency the focus, FATF has enhanced its risk-based approach (RBA) making

it an essential foundation of a country’s AML/CFT framework. Understanding the diversity of

legal and financial systems worldwide, the implementation of the measures to combat money

laundering and the financing of terrorism and proliferation of weapons of mass destruction are

meant to be flexible and not prescriptive3. As such, FATF has not prescribed to financial

institutions the frequency of know your customer (KYC) reviews of legal persons.

The RBA operates on the basis of a customer becoming really known, depending on the level of

the individual’s assessed risks. Many banks tend to perform KYC reviews of their customers only

when a trigger event occurs, such as, a change in a person’s occupation4. Therefore, without a

trigger event, KYC reviews for some customers would never be performed and consequently,

banks would not ‘really’ know such customers. This manner of operation results in storage of

imprecise customer data and the production of inaccurate risk-based decisions.

The purpose of this paper is to provide a different point of view to combating financial crime,

which involves proactively reviewing KYC information of legal persons by financial institutions,

in order to enhance data precision and make accurate risk-based decisions. This paper will

concentrate mainly on KYC review of the company type legal person, particularly their status and

beneficial ownership. It will highlight how their dynamism and structure form the basis of their

complexity and the challenges faced by financial crimes investigators in identifying financial

crimes and most importantly the criminals. This paper will also explain how financial institutions

may adopt a proactive approach to KYC review of legal persons and the benefits of such an

approach.

The primary aim of this paper is to demonstrate to financial institutions (particularly banks),

company registries, anti-money laundering and compliance professionals and policy makers, the

value of a proactive approach to KYC review and the possible implications of pursuing a reactive

approach that is event driven or based on triggers.

1 FATF recommendations, 2012, International standards on combating money laundering and the financing of

terrorism & proliferation, p7. 2 About FATF, Who we are, <http://www.fatf-gafi.org/about/> 3 FATF recommendations 2012, p8, 55, 91. 4 LexisNexis Risk Solutions and ACAMS, Current industry perspective into Anti-Money Laundering risk management

and due diligence, December 2015, p12.


Introduction

FATF recommends that financial institutions5 and designated non-financial businesses and

professions (DNFBP), including the “gatekeepers”6, trust and company service providers (TCSP)7,

must know and understand their customers.

Not knowing a customer because of inadequate customer due diligence (CDD), according to the

Basel Committee on Banking Supervision (Basel), banks can be exposed to reputational,

operational, legal and concentration risks8.

For the purposes of this paper and for clarity, CDD and enhanced CDD are components of the

KYC process.

Performing KYC

The KYC process used by major authorities in the AML/CFT landscape, FATF, BASEL and

FinCEN is aimed at better knowing and understanding a customer.

Elements

of CDD

FATF BASEL FinCEN

1 Customer identification and

verification.

Customer acceptance

policy.

Customer identification and

Verification.

2 Beneficial ownership

identification and verification.

Customer

identification.

Beneficial ownership

identification and verification.

3 Understanding the nature and

purpose of customer

relationships to develop a

customer risk profile.

On-going monitoring

of high-risk accounts.

Understanding the nature and

purpose of customer relationships

to develop a customer risk profile.

4 Ongoing monitoring for

reporting suspicious transactions

and, on a risk-basis, maintaining

and updating customer

information.

Risk management. Ongoing monitoring for reporting

suspicious transactions and, on a

risk-basis, maintaining and

updating customer.

Table 1. The KYC process

Completion of the first three stages of CDD listed in Table 1 helps to determine the customer risk

profile. The fourth stage is noteworthy, in that, maintaining and updating customer information,

are to be done on a risk-basis. This adds a conditional aspect to updating customer information,

potentially allowing valuable updates to be ignored due to the assessed risk level of a customer at

the initial CDD stage.

5 U.S. CODE title31-subtitleIV, chap53, subchapter II, sec 5312. 6 Kevin L. Shepherd, International Bar Association, AML forum: Guardians at the gate: The Gatekeeper Initiative

and the risk-based approach for transactional lawyers, <http://www.anti-moneylaundering.org/Document/Default.aspx?DocumentUid=B4E5460D-0ADF-4B34-9FB3-EAEC0EE17B1F> 7 FATF recommendation 22. 8 Basel Committee on Banking Supervision, Customer due diligence for Banks, October 2001, p3.


Customers of Financial Institutions

Financial institutions have mainly two types of customers, private individuals and legal persons

(legal entities). The beneficial owners of legal entity customers are not specially defined by FATF,

however there is an indicative threshold of 25 percent ownership interest or a natural person

exercising control of the legal entity or holding a position of a senior manager9, given to determine

whether a person is a beneficial owner. This threshold has been adopted by FinCEN10.

Legal entities tend to be dynamic in structure. Consequently, beneficial ownership information

should be regularly reviewed, in order to develop a reliable, chronological list of the beneficial

owners of a legal entity during the lifetime of the business relationship.

Regarding KYC, Basel advises that banks should understand the structure and know the beneficial

owners of legal entity customers. In particular, Basel noted that “International Business Companies

(IBC) may make proper identification of customers or beneficial owners difficult”11.

In order to define legal entity customers, this paper will use the definition of legal persons provided

by FATF12 and for further clarity, the definition provided by FinCEN13.

The focus of this paper is mainly on legal entity customers of company type, including IBCs.

Analysis

It is suggested that the recently disclosed and heavily influential “Panama Papers” should give

banks a “glimpse into the kind of information on true, or "beneficial" owners that they regularly

should be obtaining to better understand the cross-border money flows they facilitate”14. However,

despite all the recent changes by various entities to rules, regulations and laws, the implementation

of a proactive approach to KYC review of legal entities by financial institutions, has not been

addressed.

Risk-based decisions

The RBA categorizes money laundering and terrorist financing risks as customer, product,

channels, geographic/country and other risks, highlighting the variable nature of risks. Based on

the risk identified, decisions are made about the level to be assigned to the assessed risk, the

measures needed to manage, prevent or mitigate those risks and at the same time being

commensurate with the risks identified.

Data precision and its impact on risk-based decisions

9 FATF recommendations, Interpretive notes to recommendation 10 par 5 (b). 10 FinCEN, Customer Due Diligence Requirements for Financial Institutions; Final Rule,2016, p29410 11 Basel, CDD for Banks, 2001, p8. 12 FATF recommendations, p119. 13 FinCEN Final Rule,2016, p29412 14 Panama Papers: US readies rule on shell companies, <http://www.cnbc.com/2016/04/07/panama-papers-us-readies-rule-on-shell-companies.html>


In the financial arena, CDD data collected for the purpose of risk assessment is qualitative data

and due to its descriptive nature, is much more difficult to interpret than quantitative data.

Nonetheless, such data needs to be precise, as well as accurate so that when interpreted, it gives a

clear and true picture of the customer. The lack of accurate risk-based decisions could mean that

the financial institution is non-compliant, which, in turn, equates to penalties.

The global interconnectedness of systems combating financial crime

There are multiple systems working independently and collectively, locally and globally, to

combat financial crime. These systems throw their punches in a variety of ways, including through

the use of laws, recommendations and international cooperation such as mutual legal assistance

and extradition, to name a few, as shown below:

USA PATRIOT Act

The USA PATRIOT Act provides that regulations should be adopted

“to encourage further cooperation among financial institutions, their regulatory

authorities, and law enforcement authorities, with the specific purpose of

encouraging regulatory authorities and law enforcement authorities to share with

financial institutions information regarding individuals, entities, and

organizations engaged in or reasonably suspected based on credible evidence, of

engaging in terrorist acts or money laundering.”15

Information shared includes that of accounts and transactions of questionable customers

who may be involved in money laundering or the financing of terrorism.

The Egmont Group

Financial intelligence units (FIU) are responsible for receiving and analyzing disclosures,

such as suspicious transaction reports, and other information relevant to money laundering

and terrorist financing, and disseminating the result of any analysis.16 They also co-operate

between and among FIUs worldwide, having regard to the Egmont Group’s statement of

purpose, which states that “co-operation between and among FIUs across national borders

both increases the effectiveness of individual FIUs and contributes to the success of the

global fight against money laundering and the financing of terrorism…”17 . Appendix III,

Case 5, gives an example of successful cooperation of the Egmont members.

In consideration of the efforts being made to cooperate internationally, it is quite logical to think

that the sharing of inaccurate and imprecise data or information, not just nationally, but

internationally, could be catastrophic to the global financial system.

Frequency of KYC review

15 USA PATRIOT Act, 2001, section 314(a)(1). 16 FATF recommendations, Interpretive notes to recommendation 29. 17 The Egmont Group of Financial Intelligence Units, Statement of purpose, The Hague, 13th June 2001.


To prevent the sharing of inaccurate information and decisions, a mandatory fixed frequency for

KYC reviews of legal entities by financial institutions, should be implemented by financial

institutions and recommended by FATF in order to ensure data precision and the accuracy of

decisions regarding legal entities. However, as shown below, legislative requirements,

international standards, rules and regulations do not indicate a specific time frame for the

frequency of KYC reviews of legal entity customers:

Regarding existing customers, FATF recommends that KYC reviews should be carried out

“on the basis of materiality and risk and at appropriate times, taking into account whether

and when CDD measures have previously been undertaken and the adequacy of data

obtained.” and regarding on-going due diligence, that financial institutions should ensure

that “data or information collected under the CDD process is kept up-to-date and relevant.”

18

Basel’s paper on CDD for banks states that KYC, being a core risk management feature,

should be complemented by regular compliance reviews and the intensity of the KYC

program should be tailored to the degree of risk.

FinCEN’s final rule requires that “ongoing monitoring for reporting suspicious transactions

and, on a risk-basis, maintaining and updating customer information”19 should take place.

FinCEN’s guidance for banks doing business with marijuana related businesses is more

prescriptive, stating that CDD should include “refreshing information obtained as part of

customer due diligence on a periodic basis and commensurate with the risk.”20

The fourth European Union Directive, Article 13 1(d) paragraph 14 provides that “The

need for accurate and up-to-date information on the beneficial owner is a key factor in

tracing criminals who might otherwise hide their identity behind a corporate structure.”

This EU directive goes so far as to recommend the use of a central database of beneficial

ownership information that is independent of companies.

It can be seen from the above that FATF, Basel and FinCEN, place the onus on financial

institutions to set the specific frequency for KYC reviews, conditional upon assessed risks. The

suggestion that KYC reviews be done on a periodic basis is given, even for business relationships

with marijuana-related businesses21, a business which is still partially illegal in the United States

of America. One would have thought that, given the history of marijuana, the CDD requirements

would have, at least, stipulated a specific frequency regarding KYC reviews, especially for legal

entities.

18 FATF, interpretive note recommendation 10 19 FinCEN Final Rule 2016, p29398. 20 FinCEN guidance, BSA Expectations Regarding Marijuana-Related Businesses, FIN-2014-G001, Feb 2014 <www.FinCEN.gov/statutes_regs/guidance/pdf/FIN-2014-G001.pdf)> 21 FinCEN Guidance, BSA Expectations Regarding Marijuana-Related Businesses, p3.


Structure, Status and Dynamism of Legal Entities

A proactive approach to KYC review is necessary due to the structure, status and dynamism of

legal entities.

Structure of Legal Entity

The structures of legal entity (LE) companies vary. Some may have simple structures as in

Diagram 1, consisting of one director, who is usually in the role of the manager, and one

shareholder/beneficial owner.

Diagram 1

A complex structure may have several directors and shareholders, some of whom may be either

natural persons or legal entities. The relatively complex structure in Diagram 2 has: Shareholder 1

is a legal entity (LE1) with 25 percent shares; Shareholder 2 is a legal entity (LE2) with 25 percent

shares, Shareholder 3 is a nominee shareholder with 25 percent shares, Shareholder 4 is a nominee

shareholder that is a legal entity (LE3) with 25 percent shares; and Shareholder 5 is a legal entity

(LE4) with 100 percent shares in a legal entity (LE2).

Diagram 2

Dynamism of Legal Entity

A legal entity’s structure is dynamic due to the nature of company shares. At any point and time

during the life of the legal entity, shares may be transferred and depending on the amount of shares

owned after the transfer, the beneficial owners are determined.

In Diagram 2 above, if LE2 becomes the owner of 80 percent of the shares in Complex Ltd. then

LE4 is the ultimate and sole beneficial owner of Complex Ltd. If LE1 is struck off the register,

then the shares of LE1 go to the government.

Complex Ltd. Nominee Shareholder

3

Nominee Shareholder

4

Director

Shareh

old

er

1

Shareh

old

er

2

LE 3

LE 1 LE 2 Shareholder 5 LE 4

Simple Ltd Shareholder 1 Director


Without timely and astute KYC reviews, the bank’s record of the beneficial ownership information

would not reflect the true picture of the company’s beneficial owners or its structure.

Appendix III, Case 5, shows how share transfer to an offshore company was done merely to

facilitate money laundering and fraud. Case 42 shows the intricacies of beneficial owners of a

company, and the possibility of beneficial owners being “untraceable or wholly non-existent”.

Status of Legal Entity

The status of a company is of extreme importance to financial institutions; that is, whether it is

active or dissolved.

A company may be voluntarily or involuntarily liquidated and dissolved. The liquidation process

is managed by an appointed liquidator whose duty includes informing interested parties by

publishing relevant liquidation and dissolution notices in the local gazette and newspaper.

The jurisdiction for publication is slightly different for an IBC, a company whose business is

conducted in any jurisdiction offshore to where it is registered. The IBC’s liquidator is responsible

for publication of such notices in the local gazette and in the country or place where the company

has its principal office.

Apart from liquidation, a legal entity may be dissolved after being struck off the company’s

register for failing to comply with certain rules, for example, payment of the annual

fee/return. Before the company is struck off the register, a pending strike-off notice is sent

to the company and if there is no corrective action on behalf of the company, then it is struck

off the register and a notice of striking off and dissolution is published in the local gazette.

Two points are noteworthy regarding companies being struck off the register, and the publication

of their dissolution in the local newspaper. Firstly, an IBC, by law, does not do business in the

country in which it is incorporated, as such, the notices of striking off and dissolution that are

published in the local newspaper do not inform interested parties in the various countries where

the legal entity may be doing business and/or has bank accounts. Secondly, apart from IBCs,

companies that are registered in one jurisdiction may open bank accounts in other jurisdictions,

however, the striking off and dissolution notices are published only in the local newspaper.

When a company is liquidated and dissolved, it is the liquidator’s responsibility to inform all

interested parties, wherever the company conducted its business. On the other hand, when a

company is struck off the register, the responsibility to inform is that of the company’s registry.

In some instances, both the legal entity and its bank may not be aware that it has been struck off

the register. At times, it is the customer’s need to perform certain banking transactions, that gives

rise to its bank requesting from the customer, a Certificate of Good Standing, which, if the

company is struck off the register, cannot be obtained from the company’s registry.


The case of Omojole v HSBC Bank 22(see Appendix I), where the judge remarked that “there is a

real oddity about the history of this case” demonstrates the possible implications of a company

that is struck off the register. In this case a bank account was opened for a company and three years

later the company was struck off the register. The company’s bank accounts were dormant for 8

years after being struck off the register, and then were active for a period of 9 years thereafter,

with the account moving from a balance of £478.90 at point of dissolution to over £5 million. The

bank became aware that the company was no longer in existence, maybe because of a trigger alert

or other event.

It is a possibility that “ghosts” could use such an account, which in fact is owned by a non-existent

company, for many years, to launder money or finance terrorism. Appendix II is a section of a

UK Business forum discussion, which points out the possible effects of a struck-off company and

indicates that having the company struck off the register may be intentional on the part of the

owners. In view of the discussion regarding the struck-off status of legal entities, proactive KYC

reviews of legal entities is the recommended solution.

It is advantageous therefore, for financial institutions to be vigilant of the status of legal entities

and the changes in beneficial ownership information so as to prevent carrying on business with

accounts being used by “ghosts” and unwittingly facilitate financial crime.

Proactive rather than reactive and the impact of both approaches

The discussion on the structure, status and dynamism of legal entities and the cases referred to in

the appendices, all demonstrate the importance of such factors and why it is imperative that

financial institutions be proactive in their approach to KYC reviews of legal entity customers.

The very informative survey conducted by LexisNexis and ACAMS (see Appendix IV) shows

that:

1. A large percentage of financial institutions use trigger events for the CDD update and the

main triggers were unusual transaction activity, and new KYC information such as change

in occupation, nature of business, additional parties in an account and additional

relationships. However, fewer financial institutions update CDD information regularly on

an annual basis. KYC information is also the most common trigger for enhanced CDD.

2. A large percentage verifies the status of beneficial owners mainly from government public

records and company formation documents.

Based on the survey responses, it is interesting to note that new KYC information is the most

common trigger for a KYC review and KYC information is the most common trigger for enhanced

CDD. It could be deduced, that if there is no trigger to do a KYC review in the first instance, then

there will be no enhanced CDD conducted thereafter. If however, financial institutions are

proactive in conducting KYC reviews then the possibility of enhanced CDD triggers increases.

22 [2012] EWHC 3102 (QB)


The analysis provided of the survey points out that smaller institutions are more trigger or event

driven, whereas larger institutions also use third-party data providers and “consistently rely on

both trigger events and periodic reviews to drive updating KYC information”23. The dependency

on trigger events to conduct KYC reviews is counter-productive because triggers such as new KYC

information, for example, may never occur for companies that have been struck off the register.

Solution to proactive approach to KYC reviews

In an interview with Juergen Mossack, co-founder of the Panamanian law firm Mossack Fonseca,

CNBC stated that “Mossack emphasized to CNBC that his firm does not regularly monitor the

activities of the companies it helps setup.”24 Even if a registered agent attempts to monitor a

company, the onus is on the company to disclose the nature of its business, which, of course, may

be verified. However, over time, a legal entity’s nature of business may change unknown to the

registered agent, and on record, the company remains in good standing.

The drawbacks of using only the RBA are namely, financial institutions:

Conducting business with non-existent companies (struck-off)

Storing incorrect records of legal entities and their beneficial owners

Making inaccurate risk-based decisions based on inaccurate customer information

Sharing inaccurate information and decisions locally and globally among financial

Intelligence Units and financial institutions.

Proactive KYC reviews

A proactive approach to KYC reviews by financial institutions may be achieved in the following

way:

Financial institutions with the cooperation of company registries nationally and

internationally, should create regional data warehouses, where data from all company

registries are centralized. The data would comprise legal entity and their beneficial

ownership information. The data is updated in real time by the company registries as legal

entity information changes. These third-party data sources are independent of companies

and more reliable than information sourced directly from the legal entities.

The data is then mined or processed so as to identify patterns and correlations and provide

hypothesizes.

Artificial intelligence is used to make decisions and predictions and generate alerts.

23 LexisNexis Risk Solutions and ACAMS, December 2015, p11 <http://www.acams.org/> 24 Eamon Javers and the Associated Press, Panama Papers' firm co-founder: We didn't know, CNBC <http://www.cnbc.com/2016/04/08/panama-papers-firm-co-founder-we-didnt-know.html>


Machine learning is incorporated to make the system more adaptable to new trends and

data so as to ensure the accuracy of the decisions made.

The basic operation would be that proactively, at stipulated times, which may be based on the

anniversary of the date of incorporation of the legal entity, financial institutions will check

each of their legal entity’s information, generated by the central system.

Additionally, proactive checks of the central system will be initiated depending on the risk

level of the legal entity, such as every three months if the entity is considered high risk.

The internal alerts or triggers of financial institutions will continue to be processed reactively.

Such an automated system, accessible to financial institutions, DNFBPs and other specified

authorities, will be fast, efficient, reduce the currently astronomical costs of conducting KYC

reviews, and erase the challenges posed by legal entity customers not informing financial

institutions of material changes in their KYC information.

Conclusion

Even though some financial institutions (mainly the larger institutions) carry out KYC

reviews annually, that time frame could still be too late because legal entities are dynamic and in

less than a year a legal entity may be struck off the register and shares transferred.

To ‘really’ know legal entity customers, financial institutions ought to proactively conduct KYC

reviews of such customers in order to update their status (active or struck off) and their beneficial

ownership information.

The proactive use of an automated third-party data source, combined with a reactive event driven

approach to KYC review of legal entity customers, is even more effective in combating financial

crime and will accomplish the goal of data precision and consequently, accurate risk-based

decisions.

Works Cited

Basel Committee on Banking Supervision, Customer due diligence for Banks, October 2001.

CNBC, US readies rule on shell companies, April 2016

<http://www.cnbc.com/2016/04/07/panama-papers-us-readies-rule-on-shell-companies.html>

CNBC, Eamon Javers and the Associated Press, Panama Papers' firm co-founder: We didn't


know, <http://www.cnbc.com/2016/04/08/panama-papers-firm-co-founder-we-didnt-know.html>

FATF, International standards on combating money laundering and the financing of terrorism &

proliferation, FAFT recommendations, 2012.

FATF, About FATF, Who we are, 2016, <http://www.fatf-gafi.org/about>

FinCEN, Customer Due Diligence Requirements for Financial Institutions; Final Rule, Federal

Register, Vol. 81, No. 91 , May 2016 , Rules and Regulations.

FinCEN guidance, BSA Expectations Regarding Marijuana-Related Businesses, FIN-2014-

G001, Feb 2014 , <www.FinCEN.gov/statutes_regs/guidance/pdf/FIN-2014-G001.pdf)>

Kevin L. Shepherd, International Bar Association, AML forum: Guardians at the gate: The

Gatekeeper Initiative and the risk-based approach for transactional lawyers, <http://www.anti-

moneylaundering.org/Document/Default.aspx?DocumentUid=B4E5460D-0ADF-4B34-9FB3-

EAEC0EE17B1F>

LexisNexis Risk Solutions and ACAMS, Current industry perspective into Anti-money

Laundering risk management and due diligence, December 2015, <http://www.acams.org/>

Omojole v HSBC Bank [2012] EWHC 3102 (QB)

The Egmont Group of Financial Intelligence Units, Statement of purpose, The Hague, 13th June

2001.

The Egmont Group of Financial Intelligence Units, FIUs in action, 100 sanitized cases from the

Egmont group, 1999,

<http://www.egmontgroup.org/library/download/21?phpMyAdmin=1b8c4dca9046t6509c6bc>

The fourth EU directive paragraph 14.

UK Business forum on: What happens if a Company is struck-off by Companies House,

retrieved July 2016, <http://www.ukbusinessforums.co.uk/threads/what-happens-if-company-

struck-off-by-companies-house.96716>

USA PATRIOT Act, 2001, section 314.

U.S. CODE title 31-subtitleIV, chap53, subchapter II, sec 5312.

Appendices

Appendix I

Caselaw example of a company being struck off the register and bank accounts active.

Omojole v HSBC Bank [2012] EWHC 3102 (QB)

Approved Judgment, Mr. Justice Cooke:


“I am content in this case to make an order whereby various sums, which had been paid into an

account or a series of accounts in the name of Almo Engineering and Equipment Limited (Almo)

with the defendant HSBC Bank PLC, should be paid to the payers of those sums. There is a real

oddity about the history of this case, which I need not go to in any detail. It is necessary simply

to say that in October 1985, the first defendant Dr. Omojole opened an account with the bank

for Almo, that being a company, which he had formed at an earlier stage with a view potentially

to doing business in this country. He paid in the sum of £500 in order to put the account into

credit and provide some funding for the company. The company never undertook any business

activity at all in the United Kingdom.

2 In 1988, the company was struck off the register for failure to file annual returns and as at July

1988, the sum of £478.90 was then held in the account being the balance of the £500 less various

bank charges no doubt. The particulars of claim to which there is a statement of truth say that Dr

Omojole did not know that Almo had been struck off the register until on or after 19 March

2012. The accounts remained dormant until February 1996 but thereafter, sums were paid into

this account or other accounts of Almo, as it was supposed to be with no one, it appears,

appreciating that Almo was no longer in existence because it had been struck off. Between 1996

and 2005, sums in excess of £3 million were transferred from the accounts of the second

claimants, a Nigerian company, of which Dr Omojole is also a shareholder, into the Almo

accounts. Those sums were invested to produce interest in other Almo accounts with the benefit

of advice from the senior premier relationship manager of the defendant bank. The current

amount, which, it appears, is now held by the bank, is a sum in excess of £5 million and a smaller

sum of some US$72,000.

3 On 19 March 2012, the bank was in contact with Dr Omojole, who had issued a written order

for payment of the sum of £100,000 from the “Almo” account. At that point, it seems that the

bank realised that Almo was no longer in existence or at least if it did not realise at that point, it

did shortly after inquiries that were made. Thereafter, the bank seems to have found itself in a

difficulty that it felt it could not observe any instructions given to it because the company had

ceased to exist. It was suggested that assets in the account had passed as bona vacantia to the

Crown. The reality of the position is that, save for the sum of £478.90, which was apparently in

one of the Almo accounts at the point the company went out of existence, the other monies had

all been paid by the Nigerian company, the second claimants, at a time when Almo was no longer

in existence. The assets, therefore, could never at any stage have belonged to Almo save for the

£478.90. It is plain from the particulars of claim, and indeed from the witness statement, that as

a matter of law, these larger sums paid after the extinction of the company must be held by the

bank on resulting trust for the payer, in this case the second claimant Fred Refrigeration and

Company Limited, the Nigerian company, and I so declare.

4 As for the £478.90, the treasury solicitor has been notified and has chosen to take no action in

relation to this matter nor to appear before the court: nor I should say has the bank. As to that

sum, if it had indeed passed as bona vacantia to the Crown that would be subject to equities in


any event. The equity here must be in favor of the payer Dr. Omojole himself who originally put

money in that account in the hope and expectation that it might be used by that company as his

company for his business purposes, which it never was. In those circumstances once again, the

right order must be for that sum to be returned to the payer but in this case the personal payer,

Dr. Omojole, as opposed to the second claimant Fred Refrigeration and Company Limited. So I

make the order sought for a payment of £478.90 to Dr. Omojole and for the balance of the sums

standing to the accounts ostensibly in the name of Almo in favour of Fred Refrigeration and

Company Limited of Nigeria.”

Appendix II

UK Business forum on: “What happens if a Company is struck-off by Companies House”

The sections quoted below were taken directly from the above UK Business forum discussion:

“I and a number of other building trades are currently owed a substantial amount of money by a

limited company.

I notice from the Companies House register that the debtor company has not filed accounts that

were due on 13th May 2008. Upon speaking to Companies House I understand that it is likely that

moves are in place to strike the company off for failure to comply.

1) If this happens, what happens to the monies owed to the various debtors?

2) Companies house informed me that once the notice to strike off is issued I can file an objection,

however the only way I will know that such notice has been filed is to check the register on a daily

basis or alternatively buy the London Gazette every day. Is there an easier way of monitoring this,

or can I file an objection in advance?

3) Companies house are unable to tell me what period will elapse between serving notice and the

striking off being affected. Is this right?

Any advice would be appreciated.”

“Hi, I am new to this forum and have just read your comments. I am in a similar position to Jez I

am owed a lot of money from a company who started going into creditors voluntary insolvency

but never paid the practitioner to do the work so they pulled out, they have done nothing since, not

filed any accounts etc. etc, companies house cannot contact them and they are now proposing to

strike them off.

From what I have seen and heard this would result in the company being dissolved and save the

directors paying out to close the company down.

From the comments on the forum it would also mean creditors lose all their money and the

directors walk away laughing.

I don't have the funds to chase through the courts and know that if I do pursue them they would

not fight it as they would let me close them down.

It looks like the company is just having a good laugh and using companies house to do the work

for them.


The directors have moved house, closed their office, changed their mobile numbers and cancelled

email accounts - hence companies house not being able to get a response from them.. I do know

where one of them now lives and have found out the company has no money as he used it to pay

off a rake of CCJ's...

Is the law a complete ass or are there any steps we can take to bring the directors to task and either

get something from them or have them end up in jail.”

Appendix III

Three samples of a compilation of 100 sanitized cases on successes and learning moments in the

fight against money laundering from Egmont group Member: Financial Intelligent Unit (FIU)

Case No. 5

“A bank noticed that a business account that had been dormant for some years suddenly became

active with large-scale fund transfers. The bank account was originally registered to a company

registered in an offshore jurisdiction. After US$150,000 was credited into the account, the firm

used the funds to buy shares of a recently privatised Eastern-European company - ‘ABC Corp’.

Three months later Brian, the representative who originally opened the account, deposited a total

amount of US$250,000 in cash into the company account. Immediately after depositing the money,

he wanted to transfer US$100,000 into a personal account at another bank.

He claimed that the money came from his personal funds. When the bank asked him about the

origin of these personal funds, he submitted commercial documentation showing that he had sold

shares of ABC Corp - worth US$150,000 - for US $250,000 to another Eastern-European company

‘DEF Corp’. The difference of US$100,000 Brian explained as risk compensation, in the event the

initial US$150,000 worth of shares invested in company ABC had been devalued. This would have

been fairly high return on capital, when one takes into account that a return of US$100,000 over

just three months would have equalled an annual interest rate of over 200 percent. The bank

disclosed the transactions to the national FIU. By checking the records of its own intelligence and

financial databases and liaising with other Egmont members, the FIU developed information that

indicated Brian was the real owner of the offshore company.

Also, it discovered that Brian was a member of the board of directors of company ABC.

This suggested that the shares in company ABC might well have been knowingly sold at a low

value to the offshore company before being sold onwards for a higher price to a third party. In

effect, Brian siphoned off US$100,000 profit by using his own offshore company as a ‘hidden’

stage in the share transfer.

The FIU notified the corresponding law enforcement authorities that Brian was suspected of

money laundering and fraud. As a result of the police investigation, Brian was arrested and

prosecuted, with the court also confiscating the US$100,000 involved.”

Case No. 42

“A group of several Eastern European companies owned accounts at several different banks within

the country. The business sectors in which the companies operated varied widely, but the one thing

these companies had in common was the movement of their funds. The companies’ representatives

deposited large amounts of cash, averaging sums of US $ 40,000 to US $ 60,000 on a frequent

basis. Immediately after depositing the money, the representatives always ordered transfer of the


funds abroad to a number of different accounts belonging to other companies overseas. The

explanations given for the transfers by all companies were that the deposits were for advance

payment for commodity imports, and banking staff had been shown invoices and foreign trade

documents to support this explanation.

Some bank officials had their suspicions about the authenticity and validity of the submitted

documents. They wondered whether the deposited money really originated from commercial

activities. The companies almost never submitted bills of entry or original invoices that could

certify real commodity imports. Within a short time of each other, several banks decided to make

suspicious transaction reports to the national FIU.

By analyzing the companies and individuals involved in the cash deposits, the FIU identified that

the disclosures were linked. The FIU was able to check tax and customs registers to ascertain that

the companies were fictitious, insofar as they did not have any identifiable level of business

activity, customs’ registration or commodity import transactions.

The foreign trade documents submitted at the different banks as supporting documentation proved

to be false. The FIU then submitted an intelligence request to FIUs in other countries, trying to get

some information on the beneficiaries of the money sent abroad. Most of the beneficiaries - both

companies and individuals - turned out to be either untraceable or wholly non-existent. A few were

companies with connections to individuals known to be involved in crime, while others were

registered in offshore jurisdictions, making identification of owners highly difficult. The FIU

collated and analyzed the intelligence received before providing an intelligence package to the

corresponding law enforcement authorities for active investigation.

Investigations quickly revealed that the American dollars originated from an organized network of

companies, which were smuggling high value goods into the country.

Transferring funds offshore through cash deposits into the various banking institutions enabled the

controllers to avoid significant amounts of taxes. As a result of the investigation, six individuals

were arrested and the courts seized more than US$500,000”.

Case No. 64

“A European FIU received an anonymous disclosure about Josie, which claimed that she was

committing large-scale tax evasion. The FIU decided to undertake a preliminary investigation into

Josie’s finances to determine whether the allegation was true.

The FIU established that Josie had opened a bank account several years ago. She had told the bank

at the time that she was a representative of an offshore company and that she was acting on its

behalf. The FIU discovered that in addition to Josie’s claimed connection to this offshore company,

at that time she had also controlled a company that had been trading but had not been registered

with the authorities. It appeared that the cover story of the links with the offshore company had

allowed Josie to obtain a company account without alerting suspicion.

According to the FIU’s investigation, Josie had arranged contracts with various Eastern European

companies. These contracts stated that Josie’s company was to undertake construction work and

supply equipment. When using Josie’s services, the foreign companies transferred their payments

to the offshore company’s bank account, thus avoiding any record of taxable activity taking place

within the jurisdiction.


A significant number of Eastern European companies had credited Josie’s bank account over the

years, as by not paying tax she had been able to reduce her costs and thus offer a cheaper service

than legitimate suppliers. The FIU calculated that Josie had received over US $ 2,50,000, although

Josie had already taken the majority of this money out of the account.

Armed with the knowledge that Josie had operated a non-registered company, the FIU surmised

that it would be interesting to look at her tax declarations. It came as no surprise that Josie had

failed to declare any income and had never paid taxes on her earnings.”

Appendix IV

Excerpts of the survey conducted by LexisNexis Risk Solutions and ACAMS, December 2015:

Current Industry perspectives into anti-money laundering risk management and due diligence

“The purpose of this study is to garner a first-hand look from AML Compliance professionals

around the world to understand their perspective and appreciate ongoing compliance challenges

through their eyes. More than 800 compliance professionals responded to our questionnaire with

52 percent of respondents having customers in the US.”

Question 1

“Is your organization’s CDD information updated on a regular basis or only when there is a

triggering event? {More than one response allowed -747 respondents}”

Question 2

“Which of the following best represents how frequently your organization updates its customer

profiles? Answered only by respondents who update customer profiles on a regular basis.

{433respondents}”

Question 3


“What would typically trigger a review/update of CDD information? Answered only by

respondents who update customer profiles only when there is a triggering event. {More than one

response allowed – 397 respondents}”

Question 4

“What sources does your organization use to verify the status of Beneficial Ownership? Answered

only by respondents who verify the status of Beneficial Ownership. {More than one response

allowed - 308 respondents}”

Question 5

“How frequently, if at all, do the following impact your financial institution’s decision to perform

EDD on a customer? {765 respondents}”

proactive rather than reactive kyc reviews may enhance data...

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