GovWire

All SMEs need to consider financial crime risks when applying for export finance.

This is because when you apply for export finance like credit insurance or export guarantees, your bank must check they are following the laws, regulations and customer due diligence rules on financial crimes such as:

• money laundering

• fraud

• bribery and corruption

• tax evasion

• sanctions

This guide will help show you what you need to consider and might need to show your bank. This is likely to help you access finance easier and quicker and do safer business.

This guide does not constitute advice, and you should get professional or specialist advice to address your circumstances and before doing anything based on its contents.

Customer due diligence

Banks need to demonstrate they have completed customer due diligence to sufficiently reduce their exposure to any financial crime risk. They must consider:

• what countries and regions youre exporting to

• your customers and any beneficial owners they may have

• product, service, transaction or delivery channel risks

Banks need to make these checks:

• when establishing a relationship with you for the first time

• throughout their relationship with you - banks can de-bank you for financial crime reasons

Banks may not be able to work with you if theyre not satisfied with the information you provide them.

For example, if the product youre exporting is at a high risk for financial crime, its unlikely the bank would work with you until the financial crime risks have been adequately considered.

Your bank may make a risk assessment based on the information you give them about this. This will help them decide if they can do business with you. Accurate information provided by you from the start may help you to access banking products and services better.

Customers and ownership

Banks need to understand your business, and any beneficial owners you may have. They may also need to understand what the purpose and nature of your business relationship with the bank will be.

Your identity

Your bank may ask you for documents proving the identity of:

• your business, including:

• company name

• company number of registration

• registered office address

• principal place of business

• the directors of your business, for example passports and photocard driving licenses

These documents should be from a reliable independent source, for example official government documents.

Beneficial owners

A beneficial owner is someone who ultimately owns or controls your business. This means they either own or control more than 25% of body corporates or partnerships or otherwise own or control your business.

Your bank may need documents proving the identity of any beneficial owners. These should be from a reliable independent source, for example official government documents.

Politically exposed persons

Your bank may want to know if your business is associated with any politically exposed persons (PEPs). These are people with prominent public roles, along with their family members or known close associates. It does not include middle or junior-ranking officials.

The Money Laundering Regulations have a full definition of PEPs.

PEPs and their families or close associates can be riskier for banks to work with. This is because they may be vulnerable to corruption, money laundering or other financial crimes.

Being associated with a PEP does not mean that you wont be able to access export finance but does put your business into a higher risk category. Its likely your bank will need to make enhanced financial risk checks. This could include adverse history checks or reviewing media reports to check against financial crime risks.

Ownership and control structure

Your bank may want to know if your ownership and control structure is transparent and makes sense. A complex or unclear ownership structure does not mean financial crime is necessarily occurring, but you may need to show your bank an obvious commercial or legal reason for it. This could include:

• a diagram of the control structure explaining the commercial or legal reason for it

• official documents showing a company name, number of registration and registered office address

• identification documents like passports and photocard driving licences if the beneficial owner is an individual

• evidence that the expected source of funds is from legitimate sources, for example VAT and income tax returns, copies of audited accounts, pay slips, or public deeds

Sources of wealth

Your bank may ask if your source of wealth (or source of wealth of beneficial owner) can be easily explained, for example through occupation, inheritance or investments.

For example, if your business wealth is from inheritance, then a copy of the will may be needed.

Where you are exporting to

If you export to any high-risk countries, its likely this will put your business into a higher risk category. Your bank may need to make enhanced checks, for example requesting additional information on:

• your business and beneficial owner. This means that your bank may carry out enhanced customer due diligence and enhanced ongoing monitoring on your business. The level of enhanced customer due diligence and enhanced ongoing monitoring undertaken is likely to be proportionate to the level of risk attributed to your business. This will differ between institutions, depending on other risk factors present as indicated in this guide.

• the intended nature of the business relationship in the high-risk country

• your source of funds and wealth and your beneficial owners

• the reasons for the transactions

These high-risk countries are:

• Algeria

• Angola

• Bulgaria

• Burkina Faso

• Cameroon

• Cte dIvoire

• Croatia

• Democratic Peoples Republic of Korea

• Democratic Republic of the Congo

• Haiti

• Iran

• Kenya

• Lebanon

• Mali

• Monaco

• Mozambique

• Myanmar

• Namibia

• Nigeria

• Philippines

• South Africa

• South Sudan

• Syria

• Tanzania

• Venezuela

• Vietnam

• Yemen

Of these jurisdictions, the following are also subject to financial sanctions measures at the time of drafting this guidance:

• Democratic Peoples Republic of Korea

• Democratic Republic of the Congo

• Haiti

• Iran

• Mali

• Myanmar

• South Sudan

• Syria

• Venezuela

• Yemen

Read more about money laundering and high-risk countries.

Product, service, transaction or delivery channels

You should consider your product, service or transactions:

• level of transparency or opaqueness

• complexity

Transparency or opaqueness

Your bank may want to know if your products or services allow anonymity or opaqueness of customer, ownership or beneficiary structures that could be used for illegal purposes. This could be through:

• pooled accounts

• bearer shares

• fiduciary deposits

• offshore and other trusts

• legal entities like foundations structured to take advantage of anonymity

• dealings with shell companies or companies with nominee shareholders

A transaction involves two parties who are making o

View the original news story