Corporate Registry: Powerful tool in fighting money laundering and other financial crimes
In today’s times, criminals have adopted more sophisticated approaches, including the exploitation of legal structures, to launder criminal proceeds and execute other financial crimes, making it challenging for the regulatory authorities to detect and prevent the same. Here, the role of the country’s corporate registry cannot be discounted, which promotes transparency around the ownership and control structures, boosting accountability in the economy.
The use of corporates, especially shell and shelf companies, is growing worldwide, wherein the money launderers create complex structures to obscure the owner’s identity and move the criminal proceeds from one country to another. Further, the criminals exploit the Non-Profit Organizations (NPOs) to raise and provide funds to the terrorist organizations. These legal persons or legal arrangements are deployed in all three stages of money laundering – placement, layering, and integration, adversely impacting the integrity of the economy.
Only when the beneficial owners and the controlling minds behind these structures can be decoded the misuse of these can be controlled. Thus, the Customer Due Diligence process of the Anti-Money Laundering (AML) program provides for identifying the beneficial owners and verifying their identity using independent, reliable sources. And what else can be a reliable source to verify these details other than the corporate registry?
In this article, let us explore how corporate registry can be leveraged as a powerful tool to effectively fight financial crimes, creating transparency around the existence and nature of the legal structure with whom the business relationship is established.
What is a Corporate Registry?
A corporate registry is a centralized system maintaining and managing the information and documents about the business entities operating in the jurisdiction. The Corporate Registry is generally managed by the government or regulatory authority, instilling credibility of the data and records maintained. The Corporate Registry maintains the information about the companies, covering the following:
- Legal form of the business
- Unique identification of the business
- Registered place of business
- Current status – active or dormant
- Nature of business activities conducted
- Ownership structure
- Compliance records of the business, etc.
How can the Corporate Registry be leveraged in fighting money laundering and other financial crimes?
A corporate registry can be used to detect the instances where criminals are trying to exploit the legal structure and prevent the conclusion of money laundering activities.
Given the information in the Corporate Registry, the reporting entities can rely on this database to verify the corporate customer’s information, including the beneficial ownership structure, and make an independent, informed decision on the customer’s risk profile. The overall quality and effectiveness of the reporting entities’ Customer Due Diligence measures are enhanced when backed by the Corporate Registry.
The legitimacy of the corporate customer and the nature of business activities presented by the authorized person can be cross-verified with the data available with the Corporate Registry. This will enable the reporting entity to determine whether the company is a legitimate business regulated by some laws and supervised by regulatory authorities.
Further, the details about the customer’s financial information and the location of the business, as available with the centralized repository, also help in understanding the company’s financial background and its association with high-risk countries.
One essential information about the customers for verification of which the corporate registry can be a great source is the beneficial ownership structure and the senior management looking after the routine operations of the customer.
It is not just restricted to the CDD process of corporate customers, but the power of the corporate registry can be leveraged to enhance the CDD measures in the case of individual customers as well. When conducting KYC for the natural person, the corporate registry can be referred to for understanding the person’s association with any business organization. This information can help the reporting entity understand the person’s financial position. Further, the database can also serve as a platform to search for any enforcement matters pending against the person or the company he is associated with, which may or may not relate to any financial crime.
Some illustrations as to when the reporting entity can use the Corporate Registry in the course of AML Measures
Example 1:
A natural person is intending to buy a property worth INR 1 crore. The reporting entity enquired about the source of wealth of the person but is not satisfied with the same. In such a case, the reporting entity can refer to the Corporate Registry to check the person’s association with any business organization and his/her designation (if holding a key managerial position). It may also access the financial information about the person’s remuneration (if a key managerial person in a listed company).
Example 2:
A private limited company intends to avail of the services, but its authorized signatory is reluctant to share information about its beneficial owners and senior management. Here, the reporting entity can access the corporate registry to understand the company’s business activities and gather information about the shareholders, beneficial owners, board of directors, and the company’s financial statement. These details would help the reporting entity determine the customer’s risk profile and decide whether to deal with the company.
Example 3:
A company has approached a bank seeking a loan of INR 4 crores. Before extending the loan, the bank intends to understand the company’s loan repayment capacity. For this, the bank can access the corporate registry and review the company’s financial statements to determine its financial position and ability to repay the debt and make a final decision on whether to offer the requested loan.
Strengthening the Corporate Registry as an AML tool
To use the corporate registry as a powerful solution empowering the jurisdiction’s AML/CFT regulations, the concerned authorities must ensure the information’s completeness, accuracy, and timeliness. The information captured about the business activities, owners and senior management personnel, place of business operations, financial status, etc., must be comprehensive and up-to-date.
Any reference to outdated data or incomplete data in the repository can be exploited by the criminals as an opportunity to launder funds or finance terrorist organizations.
For this, the regulatory authorities may introduce laws and rules mandating the corporate entities to register the information with the Corporate Register immediately upon incorporation and when any critical business information changes. This will serve two purposes –
1) making sure that required information about the business is available in a consolidated database which can be used as a reliable source of cross-verification of the information furnished by the entity itself, and
2) with a mandatory reporting requirement, the criminals may refrain from using the legal structure or shell companies to execute the financial crimes.
Moreover, the regulations may prescribe for mandatory filing of certain declarations or reports with the corporate registry, giving information and status of the company’s operations, followed by an independent inspection or assessment, bringing in more confidence in the centralized information maintained by the corporate registry.
With the transparency and accountability infused through the corporate registry, the AML measures of the reporting entities and the country’s AML landscape can be fostered.
Let AML India be your partner in your AML compliance journey!
Compliance with AML regulations calls for developing policies and procedures to identify and report suspicious transactions. One such measure to be documented and implemented across the organization is Customer Due Diligence. Let AML India handhold you in your AML compliance development and implementation drive, making it more customized to your business and creating awareness among the team around AML efforts. AML India helps identify the best AML practices, including using the corporate registry when applying Customer Due Diligence measures.
Leverage the power of the Corporate Registry to stay safe against financial crime and regulatory compliance.
About the Author
Pathik Shah
FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)
Pathik is a Chartered Accountant with more than 25 years of experience in compliance management, Anti-Money Laundering, tax consultancy, risk management, accounting, system audits, IT consultancy, and digital marketing.
He has extensive knowledge of local and international Anti-Money Laundering rules and regulations. He helps companies with end-to-end AML compliance services, from understanding the AML business-specific risk to implementing the robust AML Compliance framework.
