Dodgy dealings are big business


Suspicious business practices have been a hot topic in the media lately. The now-infamous Panama Papers – a leak of more than 11.5 million files from offshore law firm, Mossack Fonseca – recently revealed how businesses and individuals can hide their dealings, avoid tax and even get around their obligations under legislation such as the Anti-Money Laundering / Counter Terrorism Financing (AML/CTF) Act.

In the case of the Panama Papers, Mossak Fonseca dealt with intermediaries for companies and organisations, which helped obscure the real owners of the money and assets being administered by Mossack Fonseca. While many of the accounts detailed in the Panama Papers are legitimate and legal, keeping ultimate beneficial owners obscured helps individuals and organisations indulging in illegal behaviour to go unnoticed.

Because of this, all the companies named in the Panama Papers leak – even those that have done nothing wrong – are now facing a hit to their reputations. The same is true for many of the businesses these companies are linked to, which are dealing with reputational damage by association.

On a local level, this event is a timely reminder for businesses of the importance of maintaining ongoing customer due diligence and understanding the beneficial ownership structure of any company they have a relationship with.

Who are you really dealing with?

Clearly, knowing who you are doing business with, managing the risk of fraud and ensuring you are meeting all AML/CTF obligations is of paramount importance. Ongoing customer due diligence is a necessity for businesses wanting to keep themselves safe – but, unfortunately, it’s one that some companies’ risk and compliance teams neglect.

The importance of regular checks can be lost as businesses focus on onboarding new customers faster, improving the customer experience and managing internal workloads.

Further complicating the issue is the fact that AML/CTF legislation is not strictly prescriptive on how frequently to undertake ongoing due diligence. The lack of guidelines on when to perform checks may contribute to the practice falling by the wayside.

What’s the worst that could happen?

For businesses that allow their ongoing due diligence to slip, the threat is two-fold.  

Without a thorough understanding of a company’s structure and the individuals involved in the business, bad behaviour can go unnoticed until a scandal, like the Panama Papers, makes it public. By that time, it’s too late – businesses involved with companies named and shamed for dubious practices will inevitably come off looking worse for wear.

On an even more serious note, allowing ongoing customer due diligence to lapse creates loopholes for companies and individuals with criminal intent to slip through, hiding among institutions that are taking part in legitimate offshore activity.

The key to saving your business from reputational risk

It’s tricky to know if a business you’re working with is putting you at risk until after an incident occurs. But there are things you can do to protect yourself from getting involved with high-risk entities. 

Thorough customer due diligence is the best thing a you can do to ensure you’re not fooled by untrustworthy businesses. Upfront checks are a vital step in ensuring customers and business owners are and do what they seem.

But don’t think you can ‘set and forget’. Due diligence shouldn’t be a one-time exercise. Make sure you have regular ongoing customer due diligence processes in place to keep your information up to date.

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