It is important to understand the rationale of any cross border transactions or proposed transactions to be conducted by your customer to determine that the source of funds for the proposed transaction(s), or the proposed transaction itself, is legitimate in the country where the business is sourced. For instance, the financial institution should be aware of any possible exchange control or tax violations that the transaction might be committing.
Use of Offshore Financial Centres
While there are well-regulated Offshore Financial Centres (“OFCs”), the primary attraction of the offshore sector remains the frequent existence of legal frameworks designed to obscure the identity of beneficial owners, to promote regulatory and supervisory arbitrage, and to provide mitigation or evasion of home-country tax regimes.
Some OFCs offer the ability to form and maintain a variety of legal entities, such as international business companies (IBCs), "exempt" companies, trusts, investment funds and insurance companies. To maintain the anonymity of the true beneficial owner of these entities, many are formed with nominee directors, nominee officeholders and nominee shareholders, and may use a complicated 'trust' structure to further hide the persons behind the business.
Although most OFC's do not now permit the use of bearer shares (shares that do not name the owner - ownership is based on physical possession), they can still be found.
The continued selling of "economic citizenship," (passports sold to foreigners who promises to invest in the country) if improperly controlled, creates yet another impediment to law enforcement.
Use of Complicated Multi-Jurisdictional Structures
Although there are many legitimate reasons for the use of mulii-jurisdictional structures, usually for tax efficiency, it should be noted that such structures may be used to hide the identity of the ultimate beneficial owners or other contolling parties. Furthermore, the use of multi-jurisdiction structures complicates the issues of information collection and creditor rights made more difficult by the hurdles faced when dealing with cross-border applications.
Therefore it is key to validate the rationale and letgitimacy behind the structure, especially when the structure utilises jurisdictions that are under-regulated and/or lack transparency.