Understanding client structures for AML compliance: legitimate structures, necessary complexity and risk indicators

Use of domicile companies, justification of complex structures, reading organisational charts, tax risks for clients and risks for banks: develop your AML expertise with a structuring specialist.

AML RISK AND STRUCTURES

Why have structures become a central AML risk factor?

• Why is understanding client structures now essential for effective AML compliance?
• Why do authorities increasingly sanction the absence of proper reasoning rather than the absence of documentation?

What are the practical objectives of analyzing a client’s structure from an AML perspective?

• Understanding the real purpose of the structure:
  • legitimate tax planning,
  • attempts to avoid CRS / FATCA reporting,
  • asset protection strategies,
  • obscuring ownership in order to launder funds or conceal the beneficial owner.
• Clarifying why domicile companies are used:
  • their actual role within the structure,
  • whether their use is economically justified or purely formal.
• Understanding the rationale behind the use of complex structures: genuine utility versus artificial complexity.
• Assessing the risks generated by the structure:
  • for the client (reclassification risks, denial of treaty benefits, accusations of being a “conduit”, absence of a genuine beneficial owner),
  • for the bank (FATCA / CRS fraud, inaccurate client declarations, potential assistance in tax evasion or tax fraud).

COMPLEX STRUCTURES

Why do tax advisers, wealth planners and structuring specialists structure assets?

• What does “structuring” mean in practice?
• Why are assets often held through companies rather than directly?
• Why is real estate almost always held through corporate vehicles?
• Why are assets segregated across multiple entities?
• Why are companies sometimes incorporated in offshore jurisdictions even without a direct tax advantage?

How should a structure be analysed to distinguish normal complexity from real risk? Why can complex structures be legitimate?

• In which situations are complex structures useful or even necessary?
• Horizontal versus vertical complex structures: what are the legitimate objectives?
• Why does private equity almost always use complex structures (SPVs, holding companies, intermediate entities)?
• Why are some structures complex without any criminal intent?
  • historical over-structuring,
  • commercially driven over-structuring.

Which complexity indicators should trigger AML attention?

• Use of multiple domicile companies,
• Nominee shareholders,
• Non-transparent jurisdictions,
• Companies created for very short-term investments.

UNDERSTANDING THE PURPOSE OF THE STRUCTURE AND IDENTIFYING RISKS

Understanding the real purpose of a structure requires going beyond the organisational chart

• Why does an organisational chart alone provide only limited answers?
• Why are illegitimate structures almost never obviously illegal?
• Why do illegitimate and legitimate structures often rely on the same tools?
• Why does the risk lie in how those tools are used and combined?

Which elements actually reveal risk?

• Why is identifying the UBO never sufficient on its own?
• What can be revealed by:
  • the distribution of shareholdings,
  • the deliberate separation between legal ownership and economic control,
  • share classes, preferential rights and share premiums
• Why is the business activity description often the most revealing document… and yet the least analysed?

What are the concrete risks for the bank? How can structural analysis become a protection tool for the bank?

• Why can some AML files appear compliant yet remain highly risky? (Brockman case)
• Why has structuring become a major AML risk angle?
• What are the risks for a bank of assisting a client involved in tax evasion or tax fraud?
• Why does the bank’s responsibility never disappear simply because documentation appears “complete”?
• When does a client risk become an institutional risk?
• Why are AML, tax and reputational risks inseparable?