In the second part of a series, Temaswiss, the Singapore-based training, advisory and data sciences think tank examines issues that arise with corporate structures and how they are used to hold private wealth.

The use of the corporate veil to hide wealth is a universal trend. The criminal mind is highly focused on new techniques, but the same cannot be said about the authorities. Suvendu Ganguli, chief operating officer of Temaswiss, Asia’s new domain expertise training, advisory and data sciences think-tank organisation, answers our questions. To see the first of these articles, click here.)

Is there a noticeable trend towards high net worth individuals using corporate accounts to launder bribe money and other illicit money and what has prompted it?
In all the jurisdictions I know of, AML regulations do not apply to company secretary or “corpsec” firms and law-enforcement intelligence on such service providers is severely lacking. Today's Asian criminals are fighting shy of using the classic offshore locations of yesteryear such as Vanuatu and Aruba and are instead going to company formation and administration providers, setting up small firms, splitting monies up into relatively small amounts and spreading the risk among multitudes of corporate entities. They are walking into the financial system through the front door and operating under the regulators' noses.

Do you have a case study?
I once encountered a corpsec principal and company director who was the front-man for, and the stated beneficial owner, of some 80 companies in Hong Kong and Singapore. It was highly unlikely that he really had a valid economic interest in such a large number of corporations - his earnings, for one thing, hardly justified his position on 80 boards - and he is now, hopefully, languishing in jail. He was unmasked when a very well-trained relationship manager alerted me. He had put himself forward as the beneficial owner of eight different accounts with which he had no relationship and an investigative case was already going on under his name.

Is the line between private wealth vehicles and commercially active companies blurred, to the advantage of money-launderers?
Yes it is. On the one hand, there are operating companies (i.e. companies that produce identifiable good and services for more purposes than just the consumption of their beneficial owners) and on the other there are personal holding companies. The latter corporate entities are commonly located in Panama and the Cayman Islands. These are sometimes known in the US as personal investment companies or PICs. They own assets and marketable securities on behalf of HNW individuals. As legal owner of assets (any type of investment) they receive the income that these assets produce.

At many retail banks it is very unclear where PIC accounts should be booked. If, during the customer take-on process, the bank finds that a personal investment company has been opened for the holding of personal wealth, one would think that it would open an account for it in the private banking department. If the company only holds $250,000 or less, however, no private banking department would be interested.

By default, then, the bank categorises it as an SME in its business banking department. This is good for the HNW money-launderer; in my view, no money-launderer in his right mind would want to receive private banking services and find himself in the glaring headlamps of know-your-customer or KYC procedures.

How does “mis-classification” work for money-launderers?
Typically, a retail or premium banking account would hold up to $250,000. Then there is an 'iffy' band between that figure and $1 million which would attract the attention of a relationship manager in places like Vietnam and Thailand but not in the richer economic centres. No bank in Hong Kong would offer the customer a dedicated relationship for less than $1 million. Once a launderer has an RM, he has to deal with intrusive questions about whether he wants to invest in structured products or property.

An HNW individual may of course have other, more innocent reasons for wanting to shy away from questions. Thus does private banking often go on by other means.

The mis-classification problem, which stems from the quantitative thresholds set for private banking departments or areas of banks, or indeed set by stand-alone private banks for themselves, is a massive one in all regions of the world except the UK, the US and Western and Central Europe. The practice is common in Russia and China and is a huge problem in the Middle East. No bank turns this business away.

In the third instalment we look at how wealthy politically exposed persons can use escrow accounts to pay bribes without the knowledge of their banks.