Effective customer due diligence (KYC/CDD) includes so many moving pieces, and perhaps none is more of a challenge than tracking down Ultimate Beneficial Owners (UBOs) for the purposes of OFAC and other sanctions screening.
And for many institutions, that UBO challenge has multiplied as global business and technological advances far outpace systematic and uniform regulatory and business practices from nation to nation.
A case in point is the challenge posed by Li Fangwei, a Chinese national accused by the U.S. Government of supplying ballistic weapons technology and materials to Iran in violation of sanctions aimed at deterring Iran from gaining further ground in its nuclear weapons program. We reported on Li and his sanctioned companies recently in this blog, but it’s worth emphasizing further his role as a UBO.
The U.S. Department of State, in concert with other U.S. government agencies, announced in late April that the U.S. government is offering a reward up to $5 million for information leading to the arrest and/or conviction of Li, who goes by the alias Karl Lee.
According to the indictment, Li “controls a large network of front companies and allegedly uses this network to move millions of dollars through U.S.-based financial institutions to conduct business in violation of the International Emergency Economic Powers Act (IEEPA) and the Weapons of Mass Destruction Proliferators Sanctions Regulations, which prohibit such financial transactions. Li Fangwei is also charged with conspiring to commit wire fraud and bank fraud, a money laundering conspiracy, and two separate counts of wire fraud in connection with such illicit transactions,” the State Department announced.
Undoubtedly, the financial institutions that have conducted business with Li or his front companies can expect intense scrutiny from examiners regarding their failure to identify him as an ultimate beneficial owner (UBO) within their CDD/KYC practices and solutions. And while there are high regulatory stakes and expectations on institutions regarding identifying UBOs, it can be a very difficult task.
“Determining the UBO is the hardest part of any onboarding regimen, but it is the only part that will keep you from violating international sanctions,” said Frank Cummings, CEO of AML Partners and expert in AML and onboarding risk. “It’s tough because there is no silver bullet in determining UBOs. There are various data-specific companies that can help, but ultimately this tends to become a question of perseverance, commitment of resources, and excellent and systematic investigation into UBOs during KYC/CDD onboarding. And once that process is in place to accurately identify UBOs of all customers, the best CDD/KYC software solutions will store that UBO data and include integrated sanctions and negative news screening and verifications within the application. Staying on top of UBOs from the identification to the screening to the verification of screening results is a cornerstone of successful Compliance.”