This article explains best practice for performing Client Due Diligence on clients whose ownership involves layers of different entities. For example:
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.
Connecting the entity profiles
Completing CDD across interconnected company and trust structures begins with ensuring all entities requiring CDD are loaded in Connectworks and correctly linked to each other.
First, check your clients list in Connectworks to ensure all the interconnected entities are loaded in your Clients>Companies and Clients>Trusts lists. If they are not loaded (or if they only appear in your Clients>Contacts list) load the missing entities before proceeding.
Connecting the profiles
Adding a company/trust 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..." then "add existing organization".
- When the shareholder entity name appears, check if it shows the "Chain link" next to its name (see screenshot below) - this symbol indicates linkage to a real client profile.
- If no chain link shows, this indicates the companies are not connected correctly. There is a duplicate profile held in your contacts list (likely created by a companies 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:
- Navigate to the trust workspace, then to the Parties tab.
- Check if the associated company or trust shows the "Chain link" (see screenshot above)
- If no chain link shows the companies are not connected. You must follow the steps outlined in our trust set-up article here.
- After adding the company and assigning its role in the trust, remove the unlinked duplication, as per Deleting A Relationship With A Beneficiary Or Trustee.
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 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 into 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. It is this person that you want to identify 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, 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 into 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 owners of the second company can be added as associated parties of the first company in order for them to be able to be selected as CDD Candidates in the first company’s workflow.
Q.How can I tell if a company or trust I’ve selected as a CDD Candidate has had a full CDD workflow completed?
This is displayed in the final workflow step "review and confirm" (highlighted in the screenshot below).
Important - 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.
Q. I’ve selected a trust or company as a CDD Candidate. Have I completed my due diligence requirements if I just record the trust or company’s identifying information?
Not necessarily. The Act disqualifies entities other than natural persons from being beneficial owners; so when an entity owns (or has control over) one of your clients, you need to navigate through those ownership structures until you reach the natural persons that ultimately own or control the client.
To do this in Connectworks, you either need to ensure that the individual beneficial owners have a direct relationship as associated parties to your client, or that the selected CDD Candidate is itself a client to which the individual beneficial owners have a direct relationship.
Q. I’ve completed the AML Compliance workflow on a client that contains a company or trust as an associated party. Do I now have to go back, add that party as a CDD Candidate, and re-do CDD for the client?
There will be a lot of client entities (mostly trusts) that fall into this category (mostly with respect to trustee companies as CDD candidates). In most cases, firm's will have completed the AML compliance workflow on the trust and the trustee company separately.
Whether you elect to restart a completed AML compliance workflow so that a trust/company can be added in as a CDD Candidate is a decision for your firm to make. Consider the risk posed by the client/s in deciding whether to do this. If you decide not to re-do the AML compliance workflow it will still be possible to link the records together when its CDD is next scheduled to be updated.