Business has become virtually important for money launderers or tax evaders. With money launderers or tax evaders now preferring to use cash-based companies as these companies prefer their customers to pay with cash for their goods and services.
Where there are high volumes of cash transactions in the business, money launderers are most likely to partner with those kinds of businesses to increase the regulator’s impossibilities of tracing the initial recipient of the dirty money.
Where there is partnership formed between the launderer and the cash-based company, the launderer deposits/invest its money into the company which then deposit all the money into its business accounts (dirty money mixed with clean money). Fake invoices and receipts will be created by the company to account for the cash (dirty money).
Such dealings generate the entrance of politeness and spotless cash into the financial systems. To further increase the regulator’s impossibilities of tracing the initial recipient of the dirty money, the company then transfer the funds to another company before returning it to the launderer.
It has become important for Financial Institution and Non-Banking Financial Institution to identify and verify the identity of beneficial owner of a business when establishing a business relationship with that business. As per the Financial Intelligence Act, 2019 (FIA, 2019), “A beneficial owner means a natural person, who directly or indirectly through any contract, arrangement, understanding, relationship or otherwise –
In relation to an incorporated body, ultimately owns or has a controlling ownership or exercises ultimate effective control through positions held in the incorporated body or is the ultimate beneficiary of a share or other securities in the body corporate;
In relation to a trust or other legal arrangement, is the settlor, trustee or ultimate beneficiary of the trust or legal arrangement or has the power, alone or jointly with another person or with the consent of another person, to –
Dispose of, advance, lend, invest, pay or apply trust property or property of the legal arrangement,
Vary or terminate the trust or legal arrangement,
Add or remove a person as a beneficiary or to or from a class of beneficiaries,
Appoint or remove a trustee or give another person control over the trust or legal arrangement, or
Direct, withhold consent or to overrule the exercise of a power referred to in subparagraphs (i) – (iv)
Is the ultimate beneficiary of proceeds of a life insurance policy or other related investment service when an insured event covered by the policy occurs; or
A transaction is conducted on his or her behalf.”
In order for the Financial Institution and Non-Banking Financial Institution to identify and verify the identity of a
On the registered business documents, it will state the owners or shareholders or trustees or members of the club/society of the business hence the Financial Institution and Non-Banking Financial Institution must request the identification documents for those individuals (Copy of Omang for Botswana Citizens and Passport for non-citizens) and capture their full names, nationality, identity card number (Omang number)/passport number and date of birth of such person as per the Financial Intelligence Regulations, 2019, Regulations 5 (1) (a) – (d).
In instances where a business is owned by another business, the Financial Institution and Non-Banking Financial Institution must then request the business documents of that business which owns some of the shares in that business to identify those individuals who own that business and request their identification.
Note that a business will not be identified as a beneficial owner due to the fact that a business is owned by an individual(s) hence those individual(s) must be identified as beneficial owner(s).
By identifying and verifying the identify of a beneficial owner, the Financial Institution and Non-Banking Financial Institution will be putting measures in place to prevent or fight against tax evasion or money lauderers hence protecting their financial systems from abuse and reputational risk that undermine its core functions.
The World Bank explains that, “bank’s financial systems must be transparent, inclusive and function with integrity to ensure economic development and promote good governance”. If they do not fight against or prevent their products, services and systems from financial crime abuse, they might find themselves impacted as facilitator of financial crime. In most Jurisdictions tax evasion is illegal and considered a criminal offence. It is also considered a predicate offence for money laundering.
The basic rationale behind this is that those who profit from illegal or sanctioned activities will do their utmost best to hide their true income, given that they would not want to explain how they have arrived at that income hence the importance of the Financial Institution and Non-Banking Financial Institution know their customers and the man behind the business.
*Lesego Kgalemang is a financial crime risk analyst at FNBB