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

The following article discusses session one in the IR Global Virtual Series on 'Know Your Customer – Ensuring legitimacy in business
transactions &#39

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.

CONTRIBUTORS

Jessica Staheli (JS) Scherzer International – U.S –
California www.irglobal.com/advisor/jessica-staheli

Luis Santine Jr. (LS) InfoCapital Advisory & Management
– Dutch Caribbean www.irglobal.com/advisor/luis-santine-jr

Nicholas V. Chen (NC) Pamir Law Group – China www.irglobal.com/advisor/nicholas-v-chen

Theodoros Kringou (TK) Infocredit Group Ltd – Cyprus www.irglobal.com/advisor/theodoros-kringou

Dunstan Magro (DM) WDM International – Malta www.irglobal.com/advisor/dunstan-magro

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