On June 28, 2017, Bureau van Dijk, a sponsor of my blog, conducted a webinar on the importance of beneficial ownership information to corporate compliance functions. The blog posting by Alistair King is here, and the replay of the important webinar is here.

I have emphasized in a number of postings the importance of beneficial ownership information to compliance functions. It is not enough to screen a company, private or public, as part of any KYC, due diligence or other compliance requirement. The Panama Papers scandal, as well as continuing use of shell companies and ownership arrangement to disguise beneficial owners has raised the stakes on corporate compliance functions.

Basic anti-corruption compliance screening of third parties, vendors and suppliers that fails to identify and verify beneficial owners is deficient and will not withstand regulatory scrutiny. Why?

A third party that intends to pass along bribes to government officials may disguise the ownership of the third party to include a hidden government owner.   In several FCPA enforcement actions, the government has identified foreign government ownership of equity interests in third parties as the means by which illegal payments are made to foreign officials.

Apart from foreign bribery risks, sanctions violations can occur when prohibited persons or entities (Specially Designated Nationals or SDNs) hold alone or in combination among separate SDNs, a total of 50 percent or more in an entity. If a company conducts financial transaction the SDN controlled entity, the company will violate United States sanctions laws and regulations. SDNs will disguise their ownership interests to avoid detection. As a result, companies have to verify beneficial ownership to confirm compliance with United States sanctions laws and regulations.

BvD’s webinar on beneficial ownership was fascinating and illustrated the growing importance of beneficial ownership requirements. Here is a quick review of the polling results.

• Seventy-five (75) percent of the respondents indicated that their company plans to review their beneficial ownership identification procedures before the close of 2017. Interestingly, almost 40 percent stated they plan to conduct such review in the next quarter. Companies have recognized that screening and managing third party risks mandates verification of beneficial ownership information.
• Almost half of the responding audience stated they are currently in the process of implementing process improvements for managing third –party risks.
• Eighty-five (85) percent of the respondents agreed on the importance of monitoring beneficial ownership information for the life of a third party.
• Compliance with laws and regulations was cited by respondents as the most important reason for identifying third party beneficial ownership information, but mitigating reputational risk was cited by 40 percent of the respondents as a separate and important reason for collecting and analyzing beneficial ownership information.

BvD’s webinar reiterates the importance of beneficial ownership information as en essential requirement for companies to weigh the risks of third party relationships. I expect this issue to be at the forefront of compliance officers’ priorities and tasks for 2017 and continuing into 2018. It is an essential requirement for any corporate compliance program seeking to mitigate third party legal and reputational risks.