By Willem van der Merwe, Global Solutions Specialist
When opening international bank accounts, setting up an offshore trust or company or when requesting a specific international payment or transaction, the due diligence process can often be detailed and frustrating, with the international provider continuously returning with more requests and/or questions.
Frustrated clients often respond to this process by questioning: "I've been a client of this bank for decades, surely you know me?", or "Doesn't the bank already have all this information?".
So what is the reason for all the scrutiny and why have we seen an increase in these processes over the last years?
In principle and at it's core, the scrutiny is for the greater good. Globally, the world is fighting against criminals who are laundering money earned through illegal activities. In an attempt to block these criminal activities, countries across the world are expected to have sufficient rules and processes in place to ensure these criminals cannot operate. Countries are also expected to keep up with the international standard for the prevention of these crimes. The Financial Action Task Force "FATF" is a global watchdog, setting these international standards for global money laundering and terrorist financing. The FATF is responsible for the well-known black- and greylist and was responsible for placing South Africa on the greylist in 2023.
As the FirstRand Group has a banking license (FNB Channel Islands "FNBCI", a branch of FirstRand Bank Ltd) and a Trust Company (FNB International Trustees "FNBIT") in Guernsey, we will use Guernsey as an example. As a popular destination for investment and fiduciary solutions, Guernsey must ensure they comply with these international standards.
Both FNBCI and FNBIT report to the Guernsey Financial Services Commission (the regulatory body for the finance sector in Guernsey), tasked to ensure that the rules are followed in practice and to keep themselves off the black- and greylist.
As an example, if a client transfers funds to FNBCI, the Guernsey bank cannot rely on the fact that we have banked the client in South Africa. They need to act responsibly and ensure they know the client and understand where the funds are coming from, namely, that the funds are not derived from criminal activities and, as far as possible, that they will not be used to fund any criminal activities.
Should Guernsey, and businesses operating in Guernsey, fail to comply with these international standards, they risk being placed on the greylist. The greylisting of Guernsey can have a significant impact on such a jurisdiction, who is largely reliant on their financial sector, a major portion of their economy. In addition, directors of companies in Guernsey have a potential personal liability should any criminal activities occur under their watch. This liability can include fines, losing an operating license, and in severe cases, even jail time.
The following example illustrates what the service provider must look out for:
Key take-away
As we find ourselves in a global environment where regulatory pressures are increasing, we have a responsibility to ensure we know our clients; ensure we have the necessary supporting documents to prove this knowledge, and to educate our clients on the reasons for having a clear understanding of international transactions and structures.
