Financial Crime World

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Sanctions: Extending Prohibitions to Associated Individuals and Entities

In an effort to tighten the noose on individuals and entities involved in illicit activities, the United Nations Consolidated List has been extended to include associated individuals and entities. This means that asset freezes and financial services restrictions will now apply not only to designated individuals and entities but also to those who own or control them, as well as individuals and entities acting on their behalf.

Ownership

According to Section 2 of the Regulations, “owned” refers to having a legal entitlement, either directly or indirectly, to 25% or more of an entity. If this criterion is met, and the owner is also a designated individual or entity, then targeted financial sanctions (TFS) will also apply to the entity owned by the designated individual or entity.

  • The definition of “owned” includes both direct and indirect ownership.
  • For example, if a designated individual owns a corporation that in turn owns another corporation, all entities that are part of the ownership chain are subject to TFS.

Control

Similarly, “control” refers to exercising influence, authority, or power over decisions about financial or operational matters. This includes control as a result of trusts, agreements, arrangements, understandings, or practices, whether or not they have legal or equitable force and whether or not they are based on legal or equitable rights.

  • Satisfaction of at least one of the following criteria is sufficient to establish that a legal person/ entity is controlled by another legal person/entity:
    • Having the right or exercising the power to appoint or remove a majority of the members of the administrative, management, or supervisory body of the legal person/entity.
    • Having appointed, solely as a result of the exercise of one’s voting rights, a majority of the members of the administrative, management, or supervisory bodies of a legal person/entity who have held office during the present and previous financial year.
    • Controlling alone, pursuant to an agreement with other shareholders in or members of a legal person/entity, a majority of shareholders’ or members’ voting rights in that legal person/entity.
    • Having the right to exercise a dominant influence over a legal person/entity, pursuant to an agreement entered into with that legal person/entity, or to a provision in its governing instrument (articles of incorporation, etc.), where the law governing that legal person/entity permits its being subject to such agreement or provision.
    • Having the power to exercise the right to exercise a dominant influence referred to above, without being the holder of that right (including by means of a front company).

Reporting

Banks, financial service providers, and designated non-financial businesses and professions (DNFBPs) are required to report targeted financial sanctions measures to the Financial Intelligence Unit (FIU). This includes reporting any assets frozen or actions taken in compliance with the prohibition requirements of the Regulations, including attempted transactions. Specifically:

  • Banks, FPSs, and DNFBPs must submit a report if they find that one of their customers/clients is a designated individual or entity.
  • They are otherwise in possession or control of a freezable asset.
  • They are requested to provide a financial or related service prohibited by the Regulations.

Circumvention

The authorities have warned that individuals and entities may attempt to circumvent TFS by using non-designated individuals’ or entities’ bank accounts to hold funds and facilitate transfers. These actions may constitute a breach or circumvention of TFS and may result in criminal prosecution or monetary penalties.