If you are planning for the possibility of buy another business or recruit an executive, establish an alliance, or engage a third-party vendor, it is essential to do a thorough risk analysis to determine the risks that your company is exposed to. It allows you to make a well-informed decision on whether the potential benefits outweigh the risks. The majority of companies conduct Executive Due Diligence in the areas of financial and legal before making an M&A deal. Still, only those who are smart will ensure that there are any bones in the closet of the businesses and people that they buy through due diligence.
It is a fact that up to 20 percent of executive managers recruited or purchased during M&A transactions face serious problems within their past, while 35% of all businesses worldwide suffer from corruption concerns. This poses a risk to your company and can create reputational damage, huge regulatory fines, and even loss of business or customers if the harm is grave.
An operating legally US business may accidentally purchase a business thinking that they will get good results from the legal due diligence carried out and not be aware of unreported or hidden issues since they didn’t conduct an investigation due diligence of the individuals they acquired. The most frequent ways that corrupt corporations earn profits are by using bribes to secure large contracts, fraud and drug or alcohol trading, sales of weapons, as well as human trafficking. People and businesses that are affected keep this portion of their revenue and relationships concealed behind what appears an authentic commercial. The criminals may employ diverse money laundering strategies to make money earned through illegal activity appear as if they came from legitimate sources.
It’s well-known that 90percent of the third-party firms (manufacturers suppliers, manufacturers, agents, vendors, and suppliers) involved in supply chain management worldwide are liable for Foreign Corrupt Practices Act (FCPA) infractions that could cost an average of more than $100 million in fines imposed by the regulatory authorities.
What can you do to determine what the chances are that a person is a candidate to be an executive candidate or an organization you’d like to purchase has taken part in a financial crime scheme? It is best to perform a risk analysis that involves performing enhanced or thorough due diligence. Due diligence methods offered by Infortal are more extensive than standard searches for public records. Infortal conducts deep-dive into open sources of intelligence, as well as details from various nations and states and countries, as well as search in databases and watchlist screening that is commonly used. Having this information more in-depth can help you to determine the risk and determine if it is advisable to proceed, as well as the amount of risk your business might be facing.
Let’s look further at what is money laundering and how risk assessments can protect you from its repercussions, and then how you can aid you.
What is The Definition of Money Laundering?
According to Investopedia Money laundering refers to the process that is illegal to make huge amounts of cash produced by illegal activities like drug trafficking, or funding for terrorists, which appear to come from an official source. Money from illegal activity is regarded as unclean, so the procedure “launders” it to ensure that it appears clean.
Even though it is true that the definition of the term “money laundering” will give you a concept about what exactly it is it isn’t always easy for business to spot problems before the acquisition or partnership is signed. This is because illegal actions are usually concealed. The concept of it is simple as the proceeds of criminal activities is disguised as legitimate money earned legally. In reality, the operations of money laundering are usually a bit more intricate. It is possible to run money by various shell companies and companies or receive sponsorship from other government entities as well as state-owned companies.
The advent of online banking as well as third-party transfer solutions like PayPal have made it easier to get money out of the country and has also aided in the increase in cryptocurrency. Additionally, it is now easier to transfer money from one country and to other currencies. This has made getting cash from nations where bribery, as well as other criminal acts, are a common occurrence quite simple. Companies, individuals, and entire nations have been reprimanded and are not able to conduct business in America. The U.S. now has even different ways to filter the money flow between businesses and countries.
The majority of money laundering activities operate in three different ways. The first is that the cash derived through criminal activity, referred to as “dirty money” is secluded and cautiously transferred to a legitimate company. In the second, money is transferred between various businesses and private individuals by money transactions and carefully recorded manipulation. It is a “laundering” procedure where the dirty cash is made to appear as clean, just like laundry is cleaned when washed. The money is then put into a legal account in which the crooks can spend the money however they like without fear of being found.
The process may involve companies, however, on other occasions, it involves purchasing and selling real estate gambling, moving funds through bank accounts, and much more. The basic money laundering process might only employ only one option however sophisticated money laundering typically includes multiple layers. Criminals “bad actors” might invest their cash in real estate and then make a deal to sell their properties and transform the proceeds into a currency to use it at casinos, or buy various other items, and then trade them in exchange for money. This kind of layering can make it difficult to trace where the source of the illicit cash.
What Risk Assessment Protects Against Money Laundering
If we talk about the methods to stop money laundering generally, we’re talking about risk assessment as well as due diligence. Some businesses don’t have the patience to conduct due diligence on the background of their company or top executives. They conduct a basic background check of executive or check a business against one of the list of global watch lists instead of taking a thorough study of their history as well as their business operations. It only provides a tiny amount of what the company is doing or what the CEO was associated with.
Most of the time, these short and inexpensive searches for global watchlists only show what’s occurred that’s been on the radar of a nation or financial institution’s surveillance radar before and could not accurately reflect what’s taking place at present. There could be a myriad of warning signs that go unnoticed when using this limited strategy. Also, they don’t consider different names that the CEO or the company used. take note of any business alliances they’ve signed, or investigate where their financing originates from.
Here are some methods that the risk assessment can help identify problems with money laundering or reveal the corruption that is hidden.
We Examine Aliases DBAs and Shell Companies as well as Subsidiaries
Executives may have employed names when dealing in illegitimate companies, and businesses may employ the term DBA (Doing Business As) as well as a shell company or a subsidiary to transfer illicit funds through different companies. Infortal can dig into every other name, subsidiary, or company the business or executive employed to discover information on the activities they’ve conducted under that particular name. Shell businesses are commonly employed to transfer money between states or the country from country to country. the use of aliases is often employed to hide corruption or conflicts of interest.
Be aware of every other name that someone else is employing to check their background. Are they hiding criminal backgrounds or have they engaged in litigious behaviours? Are they involved in class actions brought by customer or employee organizations? In addition, Have they cheated other customers using a covert method of concealing business or personal data, to protect you from the same harm? Does the business you’re looking to acquire also have a subsidiary company that has been involved in bribery, fraud, or corruption?
We are Particularly Attentive to Offshore Businesses
Due to their location in other nations, offshore businesses tend to be used for concealing funds and laundering. This is because “offshore” is simply a reference to the business being situated in another nation and bound by the laws of that country instead of U.S. law. There are many offshore banks in the Bahamas, Switzerland, and different locations, like. The infamous Swiss account, for instance, was not initially branded with names. It was very simple to steal money from the nation.
Apart from offshore accounts in banks, some criminals also invest their money into overseas companies or in other nations to aid terrorists. As an example, the nation of Nauru was identified as the most lucrative money laundering destination in the 1980s. Russian criminals took advantage of Nauru’s incredibly strict regulations on privacy to funnel funds to terrorist group al-Qaida.
The Location of the Corporate Headquarters?
It’s often difficult to find out where a business’s base of operations is, particularly when there are multiple subsidiaries or shell companies. It is possible to believe that you are dealing in conjunction with a U.S. company only to discover that the business is controlled by a business that’s controlled by a major firm located on the mainland of China. Basic due diligence might not reveal this. That’s the reason you should conduct an in-depth or more thorough due diligence. Be wary of information that you can find from sources like the company’s website or any different online sources. Certain companies do not even have websites, and conducting a basic search on these companies isn’t a good idea, but data is available and could be found.
We Consider Established Relationships
In some cases, money laundering occurs through the concealing of relationships between people or businesses. Money derived illegally from a mobster or cartel may be transferred through a business owned by the cousin of an unrelated name. In certain countries, family members tend to be involved in businesses that share issues of a similar nature and these instances can be analyzed and investigated to find out if a genuine situation is present. Both groups could be extremely cautious about not seeing each other or connected in any way. When this happens, and without checking into the family of a person as well as their relationships the link may be overlooked.
The Free Resources Listed are Only the Beginning
Although resources like Transparency International’s Corruption Perceptions Index (CPI) offer information on money laundering and businesses that have been implicated in corrupt practices in certain countries, this is just a data point that doesn’t count as effective due diligence. You can certainly see certain countries ranked as having a high level of corruption risk However, how do you determine if the company which you’re looking to work with does not conduct business in the country? That’s impossible without performing thorough research. Resources that are free or even cheap paid ones typically don’t offer sufficient details to allow you to make an educated decision. The worldwide watch lists that are used by large financial institutions to Anti Money Laundering and Know Your Customer (AML/KYC) only give a short overview of issues that are known to be a problem which could explain the reason for serious mistakes with due diligence even though those items have been inspected.
The Risks of Working with an Organization that Launders Money
Any company operating illegally that involves corruption, money laundering trafficking, corruption, or something other than that, is always the risk of being in danger. When it comes to money laundering, you’re at risk that anyone you associate with might funnel dirty funds through a legitimate company. It could result in you becoming an accomplice, particularly if you did not do anything or lack of due diligence. The Federal regulators (DoJ as well as SEC) know what due diligence is currently. If you join or buy any business collaboration that requires the co-mingling of funds, or signing agreements that were founded on corruption and bribery as well as other forms of fraud, you could realize that you’ve been smuggling money that you have inadvertently accepted of everything.
If you don’t merge with another company, hiring an executive who is in a finance-related position could lead to the same end result. They may approve a contract with a business they suspect that has fraudulently conducted business or gotten dirty cash and then use your business to transfer that funds into or out of U.S. bank accounts. When this information is brought to light, the entire firm is most likely to be subject to investigation. If you can show that the executive wasn’t only the one to be involved, however, this will ruin your image and could lead to fines and sanctions. In the case of FTX, for instance. the founder of FTX has recently been indicted for money laundering, fraud, and other campaign finance-related offenses.
If your company is in the finance industry, getting caught up in a money-laundering scandal could end your company. If you don’t have a good image, a lot of your clients could leave you. Many cases have occurred that banks as well as other financial firms have had to shut down because of allegations of money laundering. In one instance, a Miami Financial Advisor based in Miami admitted to engaging in a scheme to launder funds related to FCPA and related offenses in the year 2019. An additional illustration can be found in Goldman Sachs, which was found guilty in the course of an investigation into money laundering like the one in this video.
Get in touch with Infortal Today to Learn More about Anti-Money Laundering, Risk Assessment
Infortal employs open sources of intelligence including financial data, court records dark web data, and much more, to investigate the executives or companies that are in the spotlight. We aim to analyze the information we gather so that we can identify any real properties, affiliates aliases, etc.–that might indicate corruption, like money laundering. Without this data, we can’t tell the danger you’re taking. Call us today for more.
