Using businesses as a vehicle to facilitate money laundering remains popular amongst criminals. Businesses are easy to set-up and perpetrators of money laundering can use shell companies, create complex corporate structures and utlilise global corporate networks to hide the proceedings of crime. Those organisations with large business customer portfolios and financial products therefore represent the perfect targets for criminals to exploit.
Balancing due-diligence checks and maintaining a frictionless customer experience is a challenge, where the list of data points that needs to be collected and verified can run into the hundreds for each customer.
Experian recently conducted an exercise to quantify the time expended to manually identify company ownership and control, identifying the Ultimate Business Owner (UBO) in organisations with varying corporate structure complexity. For simple structures, single tiered companies with one shareholder, it took an analyst approximately 10 minutes to determine the UBO. More complex structures took hours and, in some cases, days to complete, with accuracy depleting as corporate structure complexity increased.
Using the four million businesses contained in Companies House, Experian wanted to understand the composition of the UK business universe in terms of corporate structure complexity. The below table illustrates how even single tier organisations can be complex in nature; over 36k single tier companies have more than 10 shareholders.
We identified two extreme examples where one company had over 25k shareholders and a second company had 29 tiers.
Experian apportioned the time expended by the analyst to a simple colour status (purple, pink, blue), indicating complexity, with over 100k customers in our blue category where manually UBO calculation would take well in excess of half a day.
Fortunately, Experian has worked closely with two tier-1 banks to develop an algorithm which traverses the full corporate structure and can accurately identify the UBO, understanding both ownership and control, in just a matter of seconds.
As we know businesses are always changing. Beneficial owners change, new Sanctions are introduced, Directors resign and are appointed. The information available about your business customers and the people who run them never stays still. The teams responsible for keeping up with these changes and performing due diligence checks have limited resources and often struggle to monitor business customers after on-boarding. Furthermore, many businesses have legacy systems or technology which means automating elements of this manual job or gathering enough useful insight to make well informed decisions an impossible task. The result, apart from increased costs to serve and the potential for financial penalties or missed fraudulent activity, is a negative experience for genuine customers who are asked too many questions during onboarding or suffer intrusive periodic reviews.
The Top 7 questions we’re hearing from clients:
- How can I automate periodic reviews and move away from remediation activity to event driven customer investigation?
- How can I verify the trading address and business nature?
- How can I identify cash intensive businesses and those sectors exposed to a high risk of corruption, money laundering and terrorist financing?
- How can I accurately and quickly identify the UBO?
- How can I assess my current portfolio against a change in risk policy?
- How can I improve my cost efficiency?
- How can I get a single view of the risks associated with a business or UBO?
The benefits to tackling these challenges
Leveraging the power of data and technology in your ongoing risk monitoring is central to efficiently demonstrating adherence to internal and external regulatory requirements while protecting your business. Using a range of high-quality data sources can provide you with a robust view of your business customers, what they do, where their trading address is and the people behind them to better understand compliance risk.
Being able to do this in a single point system will make demonstrating that stringent checks have been done easy and will further assist you in meeting your regulatory requirements. The single area for all the checks also allows your business to input your risk appetite across the entire business, improving consistency and reducing errors. A fully auditable process will allow you to accurately and easily respond to internal and external audit requests.
Enhanced decisioning capabilities will support a more automated approach which can improve on-boarding and ongoing monitoring of customers as any changes in circumstance which you need to know about can be flagged. In addition to saving valuable time and resources, an opportunity to dramatically improve the customer experience exists, reducing those instances where you must ask the customer for additional information.
How Experian can help?
At Experian, we’ve developed a web-based portfolio monitoring tools, specifically designed for business who operate in regulated environments. The tools provides the opportunity to continually monitor, control and investigate your entire business portfolio, by enabling you to quickly apply and demonstrate your own risk policy according to your organisations risk appetite.
Find out more about our financial crime solutions here.