Offshore Compliance in Focus: Expert Insights on CDD and High Risk Countries

This week’s Compliance Collective roundtable provided valuable insights into the complex issues that can arise when dealing with clients connected to offshore jurisdictions. Over 30 professionals joined the discussion to explore challenges around high-risk countries, anti-money laundering regulations, and performing proper due diligence on international financial transactions and structures.

A recurring theme was the importance of thoroughly assessing risk when a potential client has ties to locations known for money laundering, corruption, or weak rule of law. Presenters outlined tools like the Financial Action Task Force blacklists and greylists that can help flag jurisdictions requiring extra caution. However, it was noted these lists don’t capture all risky scenarios, so compliance teams must consider broader context like organized crime risks or sanctions. Due diligence is key to understanding a client’s background, business interests, and source of wealth or funds.

At the heart of compliance, professionals’ daily endeavors lie the perpetual balancing act between risk and reward. The session illuminated how high-risk countries necessitate enhanced due diligence processes, underscoring the importance of identifying and managing potential risks associated with offshore financial activities. The discourse underlined the pivotal role of compliance experts in ensuring that their organizations navigate these treacherous waters prudently, safeguarding against potential legal and financial pitfalls.

Compliance in the Age of Globalisation

Challenges collecting sufficient information were acknowledged, especially from overseas. Participants debated a real-world example of a loan involving a Cayman Islands company, with differing views on what documentation and transparency would be needed to make an informed decision. Ownership structures, tax implications, and unraveling future plans also require careful examination.

While some countries graduate from greylists by improving regulations, it was argued this does not immediately reduce associated risks. Ongoing vigilance is important as complex ownership structures or unfamiliar tax arrangements may still raise concerns. Registers of overseas entities and other public records were highlighted as additional due diligence resources.

Administering an estate involving South African beneficiaries also prompted a discussion around enhanced checks for individuals from high-risk or sanctioned jurisdictions. Options like certified IDs or verifying professional credentials were weighed against potential limitations. Overall the roundtable reinforced how compliance assessments must consider broader geopolitical context in addition to technical screening processes.

The rigorous process of due diligence emerged as a cornerstone theme, with experts advocating for a meticulous approach to understanding clients’ backgrounds, financial structures, and the origins of their wealth. Particularly in high-risk jurisdictions, the depth of due diligence must go beyond surface-level checks, delving into the nitty-gritty of clients’ financial histories and their connections to potentially risky territories.

Fostering a Culture of Compliance

Lastly, the meeting underscored the significance of cultivating a robust culture of compliance within organizations. This culture is foundational in empowering teams to proactively address compliance issues, encourage open dialogues about ethical dilemmas, and foster an environment where compliance is woven into the fabric of daily operations.