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What are the international and country-specific regulations that clients must comply with?

August 2019 - Corporate tax. Legal Developments by IR Global.

More articles by this firm.

The following article discusses session one in the IR Global Virtual Series on 'Know Your Customer - Ensuring legitimacy in business transactions '

Nicholas V. Chen – China (NC) We operate in both China and Taiwan which are mature jurisdictions as investor destinations and sources of outbound investors and capital.

In recent years, both Taiwan and China have become increasingly large net exporters of technology, investors and investment funds. Our business works with private and publicly listed multinational corporate and financial vehicles, private family groups as well as state-owned enterprises.

In every transaction, whether one is acting as a professional service provider or intermediary representing a client, or if one has direct privity of contract in a transaction with a China/Taiwan counterpart, it is important to prudently manage one’s risk. This requires the implementation of proper market specific Know Your Client (KYC) due diligence, as well as Source of Funds due diligence. In other words, is the counterpart ‘clean’ and are the transaction funds clean.

As the Organisation for Economic Cooperation and Development (OECD) rolls out its AML/KYC rules globally, both Taiwan and China have also many locally-enforced laws and regulations that dovetail to ensure consistent compliance against tax evasion, money laundering, sanctions and terror-financing. The enforcement efforts against corruption have been widely publicised and expanded; professionals and private parties ignore these realities at their peril. China has imprisoned over 1.2 million persons (government and party officials) on corruption charges alone.

In previous years, where legal and regulatory gaps existed in cross-jurisdictional enforcement, we are now seeing coordinated and consistent enforcement, transparency and accountability being required by regulators and regulated parties in both jurisdictions. What is important to remember is that (i) both the giver and the getter are both liable, (ii) cross-border ‘blind spots’ have been eliminated with global cooperation across jurisdictions, and (iii) ‘shell companies’ and ‘nominees’ are now subject to strict scrutiny. In addition, not only is a direct party liable, but also professional service providers are exposed for involvement in a suspect transaction.

As China and Taiwan are subject to both international and local AML/KYC laws, professional service providers must take additional steps to protect themselves (and their clients). This should be done both at the client onboarding stage as well as during the entire term of the professional relationship.

Professional service firms are now required to proactively safeguard against anti-money laundering (AML) and many other compliance issues. It's irresponsible to be doing any business without disciplined due diligence and caution. This is especially challenging since the international KYC/AML requirements apply, but there is no single easy online database service to complete a desktop onboarding check.

Jessica Staheli – US, California (JS) To echo what Nick said, our responsibility is also to protect and guide our clients, because the main issues when they come to us are data security and regulatory protection for cross-border deals.

General Data Protection Regulations (GDPR) are the big concern these days, but the work that we do is a more in-depth report as part of know your client (KYC).

This includes searches conducted via the US Treasury's Office of Foreign Asset Control's (OFAC) Sanctions Program, but these are baseline searches and we search records in-country as part of closing the deal. We prepare reports for clients who are based in the US and doing business abroad, or vice versa.

We also emphasize compliance to make sure that all the proper authorisations and disclosures are in place and that the reporting guidelines are met, which can vary between countries. We've seen an explosion of cross-border deal work in our business over the last five to seven years, including transactions where only pieces of the deal are international.

We walk through the deal with our clients and apply the necessary regulations, before advising them on what we can do and what they should be doing to protect themselves. Most of what we're doing is for European Union (EU) countries and Latin America, but a very strong third would be Hong Kong and Singapore.

Luis Santine – Dutch Caribbean (LS) The international financial sector of Curaçao strives to maintain its status as a premier and high quality, globally competitive financial centre that has invested heavily in establishing a robust regulatory regime with supervision that meets or exceeds international standards. Our strength lies in the diversity of services and vast knowledge and experience that we can offer: our regulated, compliant, and transparent infrastructure as well as innovative and diverse jurisdictional products.

Curaçao currently complies with all the requirements of the EU Code of Conduct against harmful tax practices, and has adopted, among other things, the EU Savings Directive as well as measures against money laundering and the financing of terrorism. Curaçao is an accepted jurisdiction by the OECD and Financial Action Task Force (FATF), and has been awarded Qualified Intermediary (QI) status by the United States Internal Revenue. Curaçao strives to remain an internationally-compliant jurisdiction, evidenced by its ever-growing network of bilateral tax information exchange (TIEA) and double taxation treaties (DTA).

InfoCapital provides a broad range of services to mostly corporate, but also high net-worth clients around the world. We ensure that all entities serviced by our firm are fully compliant in their relevant jurisdictions. For all client inquiries, an in-depth KYC and customer due diligence (CDD) will be done as part of a risk-based approach. The CDD investigations are performed through screenings, international database scans, sanction and other monitoring lists, as well as verifying IDs and other documents. InfoCapital will also consult its international and local network for additional references.

Some US correspondent banks have abandoned the region, making the whole process of onboarding clients through local banks overly complex. At the same time, this makes things very secure, because of all the compliance-related aspects and regulations that are in place.

The pressure on Curaçao is constant and twofold, not just from a banking perspective, where the pressure is coming mostly from US correspondent banks, but also from international organisations like the EU and the OECD.

The Caribbean region as a whole has had to tighten its ship as much as possible and I think that’s not always recognised. It’s very much being reflected in how we have improved and solidified the whole compliance aspect of our service offering.

Dunstan Magro - Malta (DM) AML has been with us for quite some time and I've seen it evolve since the early 2000s.

At the time legislation to combat money laundering was basically addressing the seizure of the proceeds of crime coming from drug dealing or the sale of weapons of mass destruction. Today the anti-money laundering and the counter of financing of terrorism legislation has become so sophisticated that any transactions in excess of EUR10,000 have to be monitored. As we speak, anti-money laundering legislation is continuously adjourned, in that. for example, whilst at EU level, member states have to transpose the 5th AML Directive by 10th January 2020, the framework for the introduction of the 6th AML Directive is also in place. In Malta, like Curaçao, we are subject to intense pressure from the international community because unfortunately we are erroneously perceived to be a tax haven. Although this pressure is welcome as we all strive to enhance legitimate business whilst blocking unwanted business, nevertheless, at times practitioners and service providers, who are classed as obliged persons, face a mammoth task to ensure full compliance.

In Malta we have two sets of laws in this area. We have the main act, which is the Prevention of Money Laundering Act, and then we have the Prevention of Money Laundering and Financing of Terrorism regulations. These two sets of laws are implemented by the regulatory body in Malta - which is the Financial Intelligence Analysis Unit (FIAU). The FIAU have also come up with a set of rules (the implementing procedures) to provide guidance as to how obliged persons are to act. Needless to say, that we are also bound to comply with the EU AML Directives and Regulations.

The classical compliance routine rotates around client identification and verification of the client identity. Where these procedures are concerned, we have to always put at the forefront the basic risks which we have to face. The risk inherent in the client business must also be properly evaluated. Consequently, we have to analyse the acceptance of a client by referring to the geographical risk, the customer risk, the service offering to the client and the delivery channel used to offer the services to the client.

With these things in mind, we have to come up with policies and procedures which will dictate our risk appetite. We are obliged to tackle politically-exposed persons, because they are perceived to be the higher risk. If we find something which raises suspicion, we are obliged to file a suspicious activity report.

Malta also effectively encourages the onboarding of all the recommendations put forward by the Financial Action Task Force (FATF). We are also subject to visits by Moneyval, which is a monitoring body established by the Council of Europe. Its job is to monitor the standards of every jurisdiction within the EU, regarding anti money-laundering and the financing of terrorism.

Theodoros Kringou – Cyprus (TK) Cyprus is considered as one of the most attractive jurisdictions for investment across Europe for several reasons. It is not easy for new investors to receive approval however, because of the due diligence regulations and strict controls.

During the last decade Cyprus has been a target of many European countries, due to its perceived lack of money laundering regulations, however stricter compliance practices, introduced after the banking sector’s collapse in 2013, are changing that perception.

Similar to many European countries, Cyprus is subject to the regulations of the EU as well as the ones imposed by the local regulatory authorities. The fifth edition of the Directive on the Prevention of Money Laundering and Terrorist Financing was issued by the Central Bank of Cyprus which shows that supervised entities are obliged to comply with the law and adopt due diligence procedures to get to know all their clients, without exceptions, as well as to monitor the status of their clients.

In addition to the due diligence regulations of the AML directive, new controls were imposed relating to transactions incurred by shell or shelf companies. In particular, the Central Bank of Cyprus issued a circular to all regulated financial institutions, specifically focused on the way banks and other regulated entities must deal with such companies.

Although the stricter controls adversely impacted the attractiveness of the country as an investment destination, the aim of such controls is to prevent money laundering or counter terrorism activities throughout the country, or through the use of any local financial institution.


Jessica Staheli (JS) Scherzer International – U.S - California

Luis Santine Jr. (LS) InfoCapital Advisory & Management – Dutch Caribbean

Nicholas V. Chen (NC) Pamir Law Group – China

Theodoros Kringou (TK) Infocredit Group Ltd – Cyprus

Dunstan Magro (DM) WDM International – Malta