Onboarding a Cayman Fund With a PEP and Layered Ownership

Key issues:

• Ownership and control: the fund is a Cayman vehicle with a BVI general partner and a UK investment manager. The firm must look through the fund to its underlying investors and understand the trust. A Jersey trust holding 22% requires identification of the trustee, settlor, protector and beneficiaries.
• PEP: a former deputy finance minister is a PEP. PEP status does not automatically end when office ends; the firm should apply a risk-based look-back and consider family and close associates. Senior management approval is required for a PEP relationship.
• Geography: a Russian national resident in Cyprus is not automatically a sanctions target, but Russia is a higher-risk jurisdiction and Cyprus has historically been used in cross-border structures. Sanctions and adverse media screening are essential.
• Source of funds: 'investor subscriptions' is too generic. The firm needs evidence of the source of wealth of the underlying investors and the source of funds for the subscription.
• Documentation: certified documents dated 14 months ago may breach the firm's refresh policy, and an expired passport is not acceptable ID.
• Risk rating: the automatic high-risk rating for all Cayman funds is a blunt rule, but on these facts high risk is appropriate. The firm should not downgrade the relationship just because the manager is UK-regulated.

Conclusion: enhanced due diligence is required before onboarding.

Enhanced due diligence should include:

1. Structure chart and constitutional documents: fund offering document, trust deed, GP and management agreements, and register of investors.
2. UBO identification: identify all natural persons with 25% or more beneficial ownership or control, and the trustee and beneficiaries of the trust. If no natural person reaches 25%, identify the senior managing official.
3. PEP and sanctions screening: screen all directors, UBOs, trustee, protector and the fund itself against PEP, sanctions and adverse media lists, including on a continuing basis.
4. Source of wealth and source of funds: obtain evidence for the fund and for the PEP and the 15% Russian holder. Bank statements, sale contracts, audited accounts or a detailed written explanation with supporting documents.
5. Senior management approval: the MLRO or senior compliance officer must approve the PEP relationship in writing.
6. Documentation refresh: obtain current certified passport and proof of address for all directors and UBOs, certified within the firm's policy period.
7. Purpose and expected activity: understand why the fund is opening the account, expected volumes, source of assets and investment strategy.
8. Ongoing monitoring: set a higher monitoring tier, periodic review and trigger-based reviews.

The firm should also consider whether the relationship manager's 30 June deadline is creating pressure to shortcut EDD. It should not.

Not on the current file. The firm can onboard only when the EDD conditions are met and approved. The 30 June date is a commercial deadline, not a regulatory one; missing it is less costly than an AML breach.

A conditional approval might be possible if the only outstanding items were administrative, such as refreshing an expired passport, and the firm had a documented condition with a short deadline and no account activity until cleared. But here there are substantive issues: a PEP without source of wealth evidence, a 15% holder in a higher-risk jurisdiction, a trust structure and stale documents. Those are not administrative.

The MLRO should decide. If the source of wealth of the PEP cannot be satisfactorily explained, the firm should decline. If it can be explained and senior management approves, the firm may onboard with enhanced monitoring. The rationale should be documented, including the risk rating, the EDD performed and the approval. The relationship manager should be told that the deadline cannot override the AML framework.