Dealing with clients whose ownership involves layers of different entities
This article explains the best practice for performing Client Due Diligence on clients whose ownership involves layers of different entities.
Company A is entirely owned by another company, Company B, which in turn is entirely owned by a single natural person. This person is a beneficial owner of Company A, and so must be identified as a CDD Candidate in its AML Workflow.
A trust has a corporate trustee company, which has effective control over the trust. The trustee company has two directors, Ms Jones and Mr Davies, who both must be identified as CDD Candidates in the trust's AML Workflow
Connect the entities' profiles
Completing CDD across the interconnected company and trust structures begins with ensuring all entities requiring CDD are loaded in Connectworks and correctly linked to each other.
First, check the Client list in Connectworks to ensure all the interconnected entities are loaded in Clients>All.
If they are not loaded (or if they only appear in your Clients>Contacts list) load the missing entities before proceeding.
Adding a company as a shareholder:
Navigate to the workspace of the company requiring its share parcel to be connected to another entity.
Then navigate to the Admin Tab.
Select the Other Organisations tab at the top.
If the shareholder entity does not appear in the Other Organisations tab, add it using "I would like to..." and then add the company/organisation.
When the shareholder entity name appears, check if it shows Nature: Client next to its name (see screenshot below) - this indicates linkage to a real client profile.
If Nature: Contact shows, this indicates the companies are not connected correctly. There is a duplicate profile held in your contacts list (likely created by a company's office import). You must follow the steps outlined in our article How to remove duplicate companies from your contacts list before proceeding.
Adding a corporate trustee to a trust:
1. Navigate to the trust workspace, then to the Parties tab.
2. Check if the associated company or trust shows the Nature = Client.
3. If Nature = Contact the companies are not connected. You must follow the steps outlined in step 4b of our trust set-up article here.
4. After adding the company and assigning its role in the trust, remove the unlinked duplication, as per Deleting an Associated Party Added in Error.
When the chain link appears your entities are connected correctly. Move on to the next step.
To perform Client Due Diligence, you must identify the natural person(s) who are the beneficial owners or who have the authority to act on behalf of your clients. When these natural persons are removed from the client by layers of ownership structure, there are two ways to complete the CDD process in Connectworks:
If the entity most closely related to the beneficial owners of your client is also a client of your firm, you should first perform CDD on that most closely related client, then link the record of that CDD to the CDD of the original client.
For example, say a client of your firm (Company A) is entirely owned by another client of your firm (Company B) which in turn is entirely owned by a single natural person. You want to identify this person as the beneficial owner of Company A.
In this case, you should complete the AML compliance workflow on Company B first. This allows you to verify the person's identity in relation to Company B.
When subsequently completing the AML compliance workflow on Company A, you will be able to select Company B as a CDD Candidate, and then link in the previously completed CDD determination on Company B without having to enter any further information (see screenshot below).
Alternatively, if the entity most closely related to the beneficial owners of your client is not itself a client of your firm, you can add the ultimate beneficial owners directly as associated parties of the client in order for them to be able to be selected as CDD Candidates in the client's workflow.
Q. I've imported a shareholder/trustee company to perform CDD and discovered it has another company as a shareholder! What do I do?
You have discovered a "Russian doll" of companies - unfortunately, it's a common situation! You need to proceed with importing the shareholder companies until you reach one with only natural-born persons as shareholders. Then perform the AML compliance workflow on each entity, starting with the furthest from the original entity and linking each completed CDD to the next.
Q. The second company is not one of my clients, so I cannot complete the AML compliance workflow on it. How do I perform CDD on the owners of the second company, so as to fulfil my obligations to perform CDD on my client company?
Option 1 (recommended): Even though it's not your client, we recommend importing the company on our $5 AML-only subscription, this will quickly bring through the director & shareholder information and enable you to perform CDD, which can then be linked back to your client entity.
Option 2: Alternatively, the owner/s of the second company can be added as an associated party of the first company, which will enable them to be selected as CDD Candidate/s in your client's AML workflow.
Q. How can I tell if a company or trust I’ve selected as a CDD Candidate has already had a full AML workflow completed?
This is displayed in the final workflow step "review and confirm". If you do not see the text "Based on CDD Determination made by (staff name) on (date)" then the AML Compliance workflow has not been completed for the associated entity.