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Regulators shine a spotlight on shell companies

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Regulators in the region have extended their focus on ultimate beneficial ownership (UBO) to include shell companies in a bid to better identify which natural persons are profiting from certain fund transfers, according to an anti-money laundering (AML) expert.

Hue Dang, ACAMS

“I don’t think shell companies are something new anywhere. Every country has nominee companies, and usage of legal persons in business activities are quite standard practices,” Hue Dang, CAMS-Audit, APAC head of the Association of Certified Anti-Money Laundering Specialists (ACAMS), told Asian Private Banker.

She added that scrutiny on shell companies is an extension of regulators’ UBO-related concerns, as the veil of shell companies makes it more difficult for watchdogs to identify who benefits from illicit transactions.

“One of the key challenges in money-laundering prevention is illicit fund flows and what criminal organisations are trying to do is take advantage of the jurisdictional differences in corporate structures and data privacy issues to enable these illicit fund flows to go undetected,” she said.

“So the more jurisdictions a transaction is run through, the more difficult it is to track who was the originator and who is the ultimate beneficial owner. That’s why one of the key areas of focus by international bodies such as the Financial Action Task Force is the importance of international cooperation and public/private-sector partnerships.”

Earlier this week, Valerie Tay, head of AML at the Monetary Authority of Singapore (MAS), told media — including Reuters and Business Insider — that the regulator has identified an increase in the use of shell companies to evade detection and that banks have been closing several onshore shell company accounts engaged in unlawful transactions.

The regulator added that the increased use of shell companies for questionable transfers is not an issue unique to the city-state.

In late July, for instance, Hong Kong’s Securities and Futures Commission (SFC) announced regulations to combat ‘back-door listings’ — i.e. transferring the listed status of one company to another by selling a major portion of the former’s assets to the buyer. The new rules target shell companies in particular.

“Shell companies have their important role in business activities, but misuse of them will enable money-laundering activities to take place,” said Dang.

“With Hong Kong and Singapore being the third and fourth-largest financial centres outside of New York and London, the regulators in both jurisdictions have in place robust legal and enforcement regimes, with increased focus on improving controls across the financial community, including addressing compliance in the DNFBPs [designated non-financial businesses and professionals] sector.”

Rather than focus solely on financial institutions, regulators are growing increasingly aware of non-financial illicit transactions taking place through avenues such as real estate, art, and jewellery. Therefore, DNFBPs include real estate agents, art and jewellery salespeople, as well as accountants, lawyers and trust services firms who assist in setting up legal entities.

Proper UBO disclosure has been a priority for regulators in recent years. In March 2018, the Companies (Amendment) Ordinance 2018 (CAO) and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) came into effect in Hong Kong, requiring companies and trusts to maintain a register of individuals with significant control (a PSC register) that must remain available for public inspection.

Meanwhile, Singapore’s Companies (Amendment) Act 2017 states that all Singapore-incorporated companies, including foreign firms, must maintain a register of controllers at the FATF-recommended 25% threshold.

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