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Sanctions Guidelines: Understanding Ownership and Control

The Anti-Money Laundering Council (AMLC) has released new guidelines on understanding ownership and control in the context of financial sanctions. These guidelines aim to provide clarity on when an entity or individual is subject to financial sanctions, even if they are not listed on the consolidated list.

Mistaken Identity: Safe Harbor Provision

In cases where a freeze has been implemented based on mistaken identity, individuals and entities involved will be protected from administrative, criminal, or civil proceedings as long as there was no bad faith, gross negligence, or malice involved (Rule 11.b, TF-IRR).

Ownership and Control

Financial sanctions apply not only to designated persons but also to entities that are owned or controlled by them. This includes entities that may not be listed on the consolidated list.

Beneficial Ownership

Beneficial ownership refers to any natural person who has ultimate control over a legal person or arrangement. This can include individuals who own 20% or more of the legal person, as well as those with ultimate effective control.

Example: Entity X and Entity Y

Suppose research shows that the majority owner or beneficial owner of Entity X is designated Entity Y. In this case, Entity X would also be subject to financial sanctions, even though it is not listed on the consolidated list.

Minority Interests

If a designated person has a minority interest in another legal person or entity, financial sanctions do not necessarily apply. However, vigilance is required in case the stake increases to greater than 20% or they obtain majority ownership.

Control

The AMLC considers control to be established if one of several criteria is met, including:

  • Having the right to appoint or remove a majority of members of an administrative body
  • Having appointed solely as a result of voting rights a majority of members of an administrative body
  • Controlling alone a majority of shareholders’ or members’ voting rights in an entity
  • Having the right to exercise a dominant influence over an entity

Examples of Circumvention

Designated persons may attempt to circumvent financial sanctions by using non-designated persons’ bank accounts or economic resources. Examples include registering assets in associates’ names or using non-designated persons’ accounts to hold funds and facilitate transfers.

Duty to Preserve Frozen Property or Funds

Upon receipt of a freeze order, covered persons and government agencies must immediately preserve the subject property or funds and serve a copy of the notice on the owner or holder. Failure to comply may result in imprisonment ranging from six months to four years and fines of at least PHP500,000.

These guidelines aim to provide clarity on financial sanctions and promote compliance with anti-money laundering regulations. As the global fight against money laundering continues to evolve, it is essential for individuals and entities involved in international transactions to understand these guidelines and ensure they are not inadvertently violating financial sanctions.