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Annex 1. Red Flags for Concealment of Beneficial Ownership

Effective from 7/6/2021

The following are indicators that Financial Action Task Force (FATF) member states have observed in connection to abuse of legal persons and arrangements. This is not an exhaustive list of every potential indicator of illicit activity involving legal persons and arrangements, but it represents a wide range of behaviours and activities that should prompt LFIs to investigate further, to consider closing or not opening an account, and to consider filing an STR.

Indicators Related to the Customer

 The customer is reluctant to provide personal information.
 The customer is reluctant or unable to explain:
 
  otheir business activities and corporate history
  othe identity of the beneficial owner
  otheir source of wealth/funds
  owhy they are conducting their activities in a certain manner
  owho they are transacting with
  othe nature of their business dealings with third parties (particularly third parties located in foreign jurisdictions).
 
 Individuals or connected persons:
 
  oinsist on the use of an intermediary (either professional or informal) in all interactions without sufficient justification;
  oare actively avoiding personal contact without sufficient justification;
  oare foreign nationals with no significant dealings in the country in which they are procuring professional or financial services;
  orefuse to co-operate or provide information, data, and documents usually required to facilitate a transaction
  oare politically exposed persons, or have familial or professional associations with a person who is politically exposed;
  oare conducting transactions which appear strange given an individual’s age (this is particularly relevant for underage customers);
  ohave previously been convicted for fraud, tax evasion, or serious crimes;
  oare under investigation or have known connections with criminals;
  ohave previously been prohibited from holding a directorship role in a company or operating a trust and company service provider (TCSP);
  oare the signatory to company accounts without sufficient explanation;
  oconduct financial activities and transactions inconsistent with their customer profile;
  ohave declared income which is inconsistent with their assets, transactions, or lifestyle.
 
 Legal persons or legal arrangements:
 
  ohave demonstrated a long period of inactivity following incorporation, followed by a sudden and unexplained increase in financial activities;
  odescribe themselves as a commercial business but cannot be found on the internet or social business network platforms (such as LinkedIn, XING, etc.);
  oare registered under a name that does not indicate the activity of the company;
  oare registered under a name that indicates that the company performs activities or services that it does not provide;
  oare registered under a name that appears to mimic the name of other companies, particularly high-profile multinational corporations;
  ouse an email address with an unusual domain (such as Hotmail, Gmail, Yahoo, etc.);
  oare registered at an address that does not match the profile of the company;
  oare registered at an address that cannot be located on internet mapping services (such as Google Maps);
  oare registered at an address that is also listed against numerous other companies or legal arrangements, indicating the use of a mailbox service;
  owhere the director or controlling shareholder(s) cannot be located or contacted;
  owhere the director or controlling shareholder(s) do not appear to have an active role in the company;
  owhere the director, controlling shareholder(s) and/or beneficial owner(s) are listed against the accounts of other legal persons or arrangements, indicating the use of professional nominees;
  ohave declared an unusually large number of beneficiaries and other controlling interests;
  ohave authorised numerous signatories without sufficient explanation or business justification;
  oare incorporated/formed in a jurisdiction that is considered to pose a high money laundering or terrorism financing risk;
  oare incorporated/formed in a low-tax jurisdiction or international trade or finance centre;
  oregularly send money to low-tax jurisdictions or international trade or finance centre;
  oconduct a large number of transactions with a small number of recipients’
  oconduct a small number of high-value transactions with a small number of recipients;
  oregularly conduct transactions with international companies without sufficient corporate or trade justification;
  omaintain relationships with foreign professional intermediaries in the absence of genuine business transactions in the professional’s country of operation;
  oreceive large sums of capital funding quickly following incorporation/formation, which is spent or transferred elsewhere in a short period of time without commercial justification;
  omaintain a bank balance of close to zero, despite frequent incoming and outgoing transactions;
  oconduct financial activities and transactions inconsistent with the corporate profile;
  oare incorporated/formed in a jurisdiction that does not require companies to report beneficial owners to a central registry;
  ooperate using accounts opened in countries other than the country in which the company is registered;
  oinvolve multiple shareholders who each hold an ownership interest just below the threshold required to trigger enhanced due diligence measures.
 
 There is a discrepancy between the supposed wealth of the settlor and the object of the settlement.
 Individuals, legal persons and/or legal arrangements:
 
  omake frequent payments to foreign professional intermediaries;
  oare using multiple bank accounts without good reason;
  oare using bank accounts in multiple international jurisdictions without good reason;
  oappear focused on aggressive tax minimisation strategies;
  odemonstrate limited business acumen despite substantial interests in legal persons;
  oprovide falsified records or counterfeit documentation;
  oappear to engage multiple professionals in the same country to facilitate the same (or closely related) aspects of a transaction without a clear reason for doing so.
 
 Examination of business records indicate:
 
  oa discrepancy between purchase and sales invoices;
  odouble invoicing between jurisdictions;
  ofabricated corporate ownership records;
  ofalse invoices created for services not carried out;
  ofalsified paper trail;
  oinflated asset sales between entities controlled by the same beneficial owner;
  oagreements for nominee directors and shareholders;
  ofamily members with no role or involvement in the running of the business are listed as beneficial owners of legal persons or arrangements;
  oemployees of professional intermediary firms acting as nominee directors and shareholders;
  othe resignation and replacement of directors or key shareholders shortly after incorporation;
  othe location of the business changes frequently without an apparent business justification;
  oofficials or board members change frequently without an appropriate rationale.
 
 Complex corporate structures that do not appear to legitimately require that level of complexity or which do not make commercial sense.
 Simple banking relationships are established using professional intermediaries.
 

Indicators of shell companies

 Nominee owners and directors:
 
  oformal nominees (formal nominees may be “mass” nominees who are nominated agents for a large number of shell companies);
  oinformal nominees, such as children, spouses, relatives or associates who do not appear to be involved in the running of the corporate enterprise.
 
 Address of mass registration (usually the address of a TCSP that manages a number of shell companies on behalf of its customers).
 Only a post-box address (often used in the absence of professional TCSP services and in conjunction with informal nominees).
 No real business activities undertaken.
 Exclusively facilitates transit transactions and does not appear to generate wealth or income (transactions appear to flow through the company in a short period of time with little other perceived purpose).
 No employees (or only a single employee). Pays no taxes, superannuation, retirement fund contributions or social benefits.
 Does not have a physical presence.
 

Indicators about the transaction

 The customer is both the ordering and beneficiary customer for multiple outgoing international funds transfers.
 The connections between the parties are questionable, or generate doubts that cannot be sufficiently explained by the client.
 Finance is provided by a lender, whether a natural or a legal person, other than a known credit institution, with no logical explanation or commercial justification.
 Loans are received from private third parties without any supporting loan agreements, collateral, or regular interest repayments.
 The transaction:
 
  ois occurring between two or more parties that are connected without an apparent business or trade rationale;
  ois a business transaction that involves family members of one or more of the parties without a legitimate business rationale;
  ois a repeat transaction between parties over a contracted period of time;
  ois a large or repeat transaction, and the executing customer is a signatory to the account, but is not listed as having a controlling interest in the company or assets;
  ois executed from a business account but appears to fund personal purchases, including the purchase of assets or recreational activities that are inconsistent with the company’s profile;
  ois executed from a business account and involves a large sum of cash, either as a deposit or withdrawal, which is anomalous, or inconsistent with the company’s profile;
  oappears cyclical (outgoing and incoming transactions are similar in size and are sent to, and received from, the same accounts, indicating that outgoing funds are being returned with little loss) (aka “round-robin” transactions);
  oinvolves the two-way transfer of funds between a client and a professional intermediary for similar sums of money;
  oinvolves two legal persons with similar or identical directors, shareholders, or beneficial owners;
  oinvolves a professional intermediary without due cause or apparent justification;
  oinvolves complicated transaction routings without sufficient explanation or trade records;
  oinvolves the transfer of real property from a natural to a legal person in an off-market sale;
  oinvolves the use of multiple large cash payments to pay down a loan or mortgage;
  oinvolves a numbered account;
  oinvolves licensing contracts between corporations owned by the same individual;
  oinvolves the purchase of high-value goods in cash;
  oinvolves the transfer of (bearer) shares in an off-market sale;
  oa loan or mortgage is paid off ahead of schedule, incurring a loss;
  oincludes contractual agreements with terms that do not make business sense for the parties involved;
  oincludes contractual agreements with unusual clauses allowing for parties to be shielded from liability but make the majority of profits at the beginning of the deal;
  ois transacted via a digital wallet.
 
 The funds involved in the transaction:
 
  oare unusual in the context of the client or customer’s profile;
  oare anomalous in comparison to previous transactions;
  oare sent to, or received from, a foreign country when there is no apparent connection between the country and the client; and/or are sent to, or received from, a low-tax jurisdiction or international trade or finance centre;
  oare sent to, or received from, a jurisdiction that is considered to pose a high money laundering or terrorism financing risk.
 
 Unexplained use of powers of attorney or other delegation processes (for example, the use of representative offices).
 Unexplained use of express trusts, and/or incongruous or unexplained relationships between beneficiaries and the settlor.
 Unexplained or incongruous classes of beneficiaries in a trust.