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Financial sanctions: the pressure is on - part 4

Customer due diligence is a key component of the puzzle

  • The use of proxies to execute deals is widespread amongst Russian oligarchs which is set to intensify due to the recent financial sanctions.

  • Increasingly stringent reviews of Source of Wealth and Funds will be required and might trigger a regulated firm to raise a Suspicious Activity Report (SAR).

  • Changes to risk assessment criteria, in some firms, will increase the number of higher risk clients and thus trigger enhanced due diligence on a larger scale.

  • In this fourth edition of a series of articles, the Lysis Group will highlight the importance of customer due diligence (CDD), as a key component of the KYC process.


The practical implications


Due to the recent scrutiny on Russia as a whole and on key individuals, there is bound to be severe practical implications for the CDD process in regulated firms which is set to increase both the workload and pressure to mitigate increased risk. This is because sanction lists and other watchlists are frequently updated, and this must be considered during the due diligence process.


There are many red flags to look out for, but domicile and customer activities linked to these sanctioned countries will feature more prominently in the short-term. It is therefore vital to correctly identify customers’ domicile and to verify if they are engaged in extensive operations within sanctioned countries or if they are citizens of scrutinised countries. Limits on Russian entities and individuals’ bank account balances, and engagement in certain financial and trading activities make this essential.


Firms will also need to identify any accounts which customers hold that have a nexus to sanctioned entities and individuals, including third-party accounts which appear to be held by entirely unrelated individuals and companies. This is important because many Russian oligarchs own a lot of properties across the globe, including the UK , particularly in London, often via overseas companies and with the true ownership frequently very opaque.


The recently scrapped ‘golden visas’ which offered UK residency to wealthy foreign investors, since 2008, played a significant role in the large portion of properties owned by Russian oligarchs. Considering the heightened risks associated with this, due to the recent sanctions, firms will have to perform enhanced due diligence processes and frequent periodic reviews on customers that potentially pose a higher risk.


Lysis Group has the expertise and infrastructure to assist


It is important to note that customer due diligence does not stop once customer on-boarding is completed. CDD measures should include ongoing monitoring to keep track of higher-risk customers, suspicious transactions, changing customer profiles, etc.


At Lysis, we deploy teams of KYC managers and analysts within a rigorous QA framework to ensure efficient, high quality case execution in your business environment. Alternatively, these services can be outsourced to our secure operations centre which functions within quality-controlled and workflow-based frameworks.


“Our unique end-to-end service offerings provide coverage across the full spectrum of client on-boarding, periodic reviews, and KYC remediation. This means that Lysis definitely has the capabilities, expertise and infrastructure needed for clients to fully comply with regulatory requirements” states Nick Kinloch, global head of Lysis Operations.


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