Michael Calleja | Senior Compliance Services Executive
The FIAU recently updated a Guidance Note about obtaining Source of Wealth Information for parties beyond the customer from July 2022. This revision is crucial for understanding its effects on clients and practitioners and may be accessed here. The Note aligns with Regulation 7(1)(c) of the PMLFTR. Its application should match the services each subject person offers, based on their insight into the customer’s finances. This guidance complements the Implementing Procedures – Part I and other FIAU sector-specific procedures.
For ease of reference, we will be summarising the main points as follows:
- The guidance emphasizes the importance of understanding the purpose and intended nature of the business relationship to establish the customer’s business and risk profile. While this is straightforward for individual customers, complexities arise when dealing with corporate entities or legal arrangements. Unnecessary data collection could contravene the risk-based approach and raise data protection concerns.
- During a business relationship, specific transactions might necessitate further information, especially if they result in significant resources being allocated to the customer. Understanding the origin of these resources is crucial, especially in assessing the risk of money laundering or terrorist financing.
- For body corporates like companies undertaking commercial activities, understanding the source of wealth is vital. If a body corporate is financially established, its commercial activities are likely its wealth source. However, if it’s newly established, understanding how it plans to finance its activities becomes crucial. The focus is not just on the availability of resources but on how they were acquired or generated. Understanding how a body corporate plans to finance its activities can also shed light on the actual beneficial owner, especially if control is exercised through means other than shareholding or voting rights.
- In cases where the beneficial owner is a Politically Exposed Person (PEP), establishing their wealth source becomes even more critical, regardless of the funding amount. This helps in identifying potential illicit gains flowing through the corporate entity.
- Senior managing officials, as per Regulation 2(1) of the PMLFTR, might be considered as beneficial owners. However, they are unlikely to be injecting funds or assets into the body corporate. If they do provide financing, it’s essential to understand their wealth source, especially if they are PEPs. The main concern is ensuring that PEPs, when acting privately, do not misuse corporate entities for illicit activities like corruption, bribery, or money laundering.
- Subject persons must be cautious not to solely focus on the beneficial owner for financing. There may be instances where significant capital is introduced without changes in beneficial ownership. In such cases, understanding the origin and derivation of the funds is crucial.
- Both trusts and foundations serve estate management and charitable functions. The rules for body corporates apply to them, particularly in identifying the wealth origin of founders or settlors. Administrators, trustees, and beneficiaries are beneficial owners, but their wealth source is only needed if they financially contribute. For trusts or foundations with limited starting funds, it’s vital to know future financial inputs and verify the sources of added assets or funds.
- Insofar as Associations are concerned, these vehicles, commonly established for social, cultural, and philanthropic purposes, primarily derive their wealth from membership fees, fundraising, donations, or government grants. Subject persons should seek additional information on significant donations, including the donor’s wealth source.
- Determining a third party’s wealth source isn’t just for corporate entities. When a third party covers an individual’s expenses, like loans or property costs, the subject person must evaluate the ML/FT risk and understand the third party’s role. The relationship between the customer and third party is crucial, especially for large sums. For example, a parent funding a child requires verifying the parent’s wealth. If there’s no evident relationship, the ML/FT risk is high, demanding detailed verification.
Aspida – Malta, a leading consultancy firm specializing in Governance, Risk, and Compliance, offers tailored support services to navigate these complexities. Drawing from the latest regulatory guidance notes and industry best practices, our team ensures that your organization remains ahead of the curve, safeguarded against potential risks, and fully compliant with all regulatory obligations. Partner with Aspida and empower your business with the expertise and insights needed to thrive in today’s challenging regulatory environment.
For a discussion on options available to facilitate your requirements, please contact firstname.lastname@example.org in the first instance.