The Layered LP: Nominee Directors and the 25% Threshold
Meridian Payments Ltd, a US money services business, is onboarding Kestrel Capital Holdings LP, a Cayman Islands exempted limited partnership formed 14 months ago. The general partner is Kestrel GP Ltd (BVI), whose sole director is a nominee provided by a licensed trust and corporate services provider (TCSP); no individual director is named. The limited partnership interests are: Arden Group SA (Panama) 40%; Northwind Trust (Jersey discretionary trust) 35%, whose trustee is a Jersey TCSP and whose beneficiaries are described as 'the settlor's descendants'; and Elena Voss, a German national resident in Dubai, 25%. Declared activity is a diversified equity portfolio; expected annual inflow is $60 million; source of funds is stated as 'investments'. The TCSP's CDD pack verifies each holder by registry extract, names its own nominee as the 'senior managing official', and identifies no individual ultimate beneficial owner. The trust deed gives the settlor power to remove the trustee and veto distributions. Meridian's policy applies a 25% ownership threshold and a control prong, and requires EDD for offshore structures.
1. Who must Meridian treat as beneficial owners, and can the TCSP nominee be recorded as the senior managing official? Explain the ownership and control analysis.
Read the worked answer
Conclusion: Meridian must identify natural persons behind each 25%+ interest and behind control; it cannot record the TCSP nominee as the senior managing official (SMO) merely because the TCSP appointed it.
Ownership analysis
- Voss holds 25%, which meets the '25% or more' threshold; she is a beneficial owner. Her Dubai residence does not remove her, but it affects risk and source-of-wealth work.
- Arden holds 40%; the registry extract proves only the corporate holder. Meridian must look through Arden to natural persons owning or controlling 25%+ of Arden. If Arden is genuinely widely held with no 25% owner, document that; the extract alone is not enough.
- Northwind Trust holds 35%. For a trust, examine the settlor, trustee, protector (if any), beneficiaries or class, and any person with ultimate effective control. The settlor's power to remove the trustee and veto distributions is control, so the settlor is a beneficial owner even though distributions are discretionary.
Control/SMO: A nominee director is a service-provider appointee with no demonstrated authority. An SMO must be a real individual with significant managerial control; using a nominee defeats the control prong. Identify the GP's actual decision-maker (settlor or investment manager). If no individual can be identified after genuine efforts, document why and use the SMO fallback, but that is not the case here.
2. Design the EDD package for this relationship and identify the single biggest gap in the current file.
Read the worked answer
EDD package: Obtain a current ownership chart and constitutional documents; for Arden, audited financials and a look-through ownership certificate; for the trust, the full trust deed, letter of wishes, register extract, settlor identity, protector details and the class of beneficiaries; the TCSP's own AML program, ownership and supervisory status; source of wealth and source of funds for Voss and the settlor; adverse media and PEP screening on all natural persons; and independent verification rather than sole reliance on the TCSP.
Biggest gap: The file treats registry extracts as ownership verification and the nominee as the SMO. That suppresses the two things that matter most here: who actually controls the GP/trust and where the $60 million comes from. The trust's settlor-control feature is not captured, and no natural-person source of wealth exists. Meridian should not onboard until those are resolved; if it does, the file must record a reasoned risk acceptance at the appropriate level.
3. Arden refuses to disclose its shareholders, citing Panama privacy. What are Meridian's options, and what should the BSA officer document?
Read the worked answer
Options: Meridian cannot accept 'Panama privacy' as a reason to stop at the corporate name. It can request a notarized ownership declaration, a certificate from Arden's registered agent, local counsel's confirmation, or evidence that Arden is a regulated financial institution or listed company (neither is indicated). If Arden still refuses, Meridian should decline the relationship or, if already onboarded, restrict and consider exit.
Suspicion/SAR: Refusal alone is not automatically a SAR, but combined with the offshore layering, the trust control features and the $60 million expected flow, it is a red flag. The BSA officer should document the request, the refusal, the alternative evidence sought, and the decision. If the bank concludes the customer is trying to conceal ownership, file a SAR; do not tell the customer. Do not rely on the TCSP as a substitute for the bank's own decision-reliance is permitted only under conditions and never transfers responsibility.