Have you ever thought that hiding illegal money and establishing companies in other countries could be so easy for the elite class?
It seems like a dream to some, but for the business elite and politicians, it is just like playing online card games.
This was revealed first when investigative journalism in 2013 exposed the business elites and politicians’ hidden assets in foreign jurisdictions.
The revelation was not less interesting than reading a spy novel. Further offshore leaks also reveal how these criminals used different methods to money money and do money laundering and other crimes.
With these offshore databases, extra pressure was also put on the financial institutions to add extra layers to their monitoring and screening process while conducting customer due diligence.
But how can financial institutions do this? This blog will discuss how offshore leak databases can be an additional opportunity for them to combat money laundering and other financial crimes.
Understanding the offshore leaks
At its simplest, offshore databases are best known as the compiled list of those people who have established offshore companies in a jurisdiction other than their home country.
The offshore leaks made headlines when the first offshore leaks were exposed by Investigative journalists in 2013.
These leaks exposed the millions of files and data of people of higher politicians or business elites.
The purpose of establishing these offshore companies was to evade taxes, hide their assets, and conduct other illicit activities like money laundering and terrorist financing.
Top Key finding of Offshore leaks
1. Scope and Scale
The detailed document compiled by the ICIJ surprises the common man with the scale of The Offshore Leaks database, which includes millions of documents of financial transactions involving offshore entities in tax havens around the world.
The offshore leaks also exposed the 120,000 offshore companies and trusts linked to them, which were obtained by individuals residing in more than 70 countries and territories.
2. High-Profile Individuals and Entities:
Another key finding of these offshore companies was that the most numerous high-profile individuals were involved in them.
Even politicians who obtained their money through corruption and fraud were hiding their money by establishing offshore companies in jurisdictions with weak compliance regulations.
3. Mechanisms of Secrecy:
Why do the elites opt for this approach? The documents answered this query by highlighting the various strategies used by criminals to maintain the secrecy of their ill-gotten money, such as using shell companies, creating complex trust structures, and nominating directors.
These mechanisms helped individuals and entities to obscure their ownership and control of assets, making it difficult for authorities to trace financial flows.
4. Legal and Ethical Implications
One thing you need to understand is that not all the activities exposed in the offshore leaks are illegal, but there are some ethical questions about the establishment of such offshore companies.
These companies are often created by avoiding taxes and transparency or by moving illegal money to such jurisdictions.
How business can enhance their compliance efforts
1. Enhanced Due Diligence (EDD)
First, businesses need to incorporate offshore databases into their compliance efforts because they provide a comprehensive structural overview of the people involved in the crime and the category of their crime.
So, while onboarding new clients, financial institutions need to do comprehensive due diligence to ensure that they are getting someone involved who was part of criminal activities.
2. Risk Assessment
Assessing risk mitigates the chances of money laundering almost at this stage. However, for this, businesses need to implement a strategy that could benefit them. For example, screening and monitoring the offshore databases to identify high-risk jurisdictions, industries, and entities.
This strategy is very beneficial for companies, as it creates profiles for high-risk individuals to mitigate the chances of money laundering.
3. Customer and Partner Screening
Screening and monitoring have always been beneficial for companies that try their best not to get involved in illegal activities.
With a comprehensive screening process, companies can screen customers, partners, and vendors to check their names against different offshore leaks, such as the Panama leaks.
This will ensure that your financial institution is complying with the AML regulations.
Leverage offshore leaks to screen customers, partners, and vendors. Cross-referencing names and entities mentioned in leaks with existing databases can help identify potential risks and ensure compliance with AML regulations.
4. Transaction Monitoring
Using the offshore exposes the different methods and patterns used for money laundering and other financial crimes. Businesses can use this knowledge to refine their transaction monitoring systems, flagging suspicious activities more effectively.
For financial institutions, mitigating the chances of money laundering and other financial crimes isn’t less than a headache.
They have to go through various steps to ensure no one uses their platform for illegal activities.
But despite investing too much in compliance activities, businesses still have to face hefty penalties for not detecting the money’s financial crime activities.
So what should businesses do then? Incorporate the best AML software that is capable of screening and monitoring customers against sanctions lists and offshore database leaks to allow businesses to make a better strategy against such entities.
