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Is it money laundering or just good business? Part 3: Family ties and alibis

15 December, 2022
Join us as we delve deep into how compliance teams should approach the heady world of High Net Worth Individuals (HNWI) and anti-money laundering (AML).

Part 3: Family ties and alibis

 There’s a reason families that get rich stay rich. Since the inception of taxation itself, tax avoidance, (and related tax havens) has been the go-to practise that helps rich people stay rich. 

Wealth is protected through opaque or convoluted ownership structures, housed in favourable (tax-efficient) locations and dispersed amongst assets. Although this is all legal, it’s also a favoured approach for money launderers. They too are looking to protect their money. By understanding how HNWIs protect their wealth, you will also learn the tricks money launderers use.

Multigenerational money

It’s only natural that once an HNWI makes enough money that they’ll want to spread it amongst their immediate family and future generations. This is both a nice thing to do, but also highly tax efficient. 

This process is so efficient, and so highly adopted, that the concept of the family office has sprung up to support it. Their job is to set up the most tax-efficient structures in the most tax-friendly countries, for every single family member. Spouses, children, siblings, grandchildren… not to mention when divorces happen, new family members join or Grandma gets the pip and writes someone out of the will.

If the family is still actively building wealth, every business venture can be created under a new structure and ultimate beneficial owners will be spread across entities and geographies. 

Family offices create and manage this dizzying array of structures; shielding wealth, protecting against liability and minimising tax. 

As a compliance officer, this is what you’re up against. A specialist team with deep experience in tax haven legislation, complex structure creation and ultimate beneficial owners protection. 

As a compliance officer, this is what you’re up against. A specialist team with deep experience in tax haven legislation, complex structure creation and ultimate beneficial owners protection. 

Cross border transactions

In a similar vein, wealthy families favour cross-border transactions. A really common example is through property. Back in the 2000s, before legislation was introduced to close loopholes, a lot of Asian investment was pouring into the New Zealand market. The wealthy investor’s family office would set up a company or companies registered with New Zealand ownership, this would be owned by an Australian company, but actually, the Australian company went back to a Hong Kong or Singapore company that ultimately went back to a Chinese family. The same thing is seen with wealthy Middle Eastern and South African investors.


As a compliance officer, you need not only the expertise to understand the multi-jurisdictional laws, but also the language skills.

As a compliance officer, you need not only the expertise to understand the multi-jurisdictional laws, but also the language skills.

As with the multigenerational spread of wealth, cross-border transactions protect wealth and limit liability, but as they’re so hard to trace they’re also used to protect assets against legal challenges (e.g. divorces) or moral dilemmas (a trust fund for a mistress).

This is why the Panama Papers were so sensational, suddenly the assets of public figures were public.

As compliance officers, we’re up against very motivated people and highly skilled experts who don’t want their wealth to be traceable.  

We find that most regulated firms just don’t have the expertise, experience or language skills to go up against these family offices and HNWIs.

 


About First AML

First AML streamlines the entire anti-money laundering onboarding and compliance process. Backed by real expertise, its cloud-based KYC Passport allows complex entities to share their verification across multiple companies and geographies, at their discretion.

Making an otherwise complex and manual onboarding process simple for clients and cost effective and compliant for businesses, First AML delivers efficiency and time savings, protecting reputations, and enabling companies to be on the right side of history in the face of global threats.

Keen to find out more? Book a demo today! No time for a long demo? No problem. See what First AML can do for your business in 2 minutes – watch the short demo here.