Onboarding a layered BVI Investor with a Foreign PEP
A UK-authorised transfer agency receives an application from Maris Capital Holdings Ltd, a BVI company, to invest USD 4.2 million in a Luxembourg UCITS. The ownership chain shows 60% held by a Cyprus holding company and 40% by a nominee for an unnamed family. The proposed ultimate beneficial owner is a retired businessman resident in the UAE; the only source-of-wealth evidence is a signed statement referring to a property sale, with no sale contract. The subscription monies have already arrived from a Lebanese bank account in the name of a different company. One director is a former deputy minister in a country rated high risk for corruption by a recognised index. The sales desk has booked the trade for the next dealing day, three business days away, and is pressing operations to activate the account. Certified passport copies are clear, but the proof of address is eleven months old. The fund's AML policy requires enhanced due diligence for foreign PEPs and for complex ownership structures.
1. Identify the red flags and decide whether the account can be opened before the next dealing day. Explain your reasoning and the approvals required.
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The account cannot be activated before the dealing day on the current file. Apply a risk-based approach: the BVI/Cyprus/Lebanon chain, the nominee shareholder, the payer mismatch and the foreign PEP are all red flags, and the source-of-wealth evidence is a bare assertion. The 11-month-old proof of address is not necessarily fatal if the address is verified through another reliable route, but it adds to the doubt. The former deputy minister is a foreign PEP; a person who held a prominent public function remains a PEP for at least 12 months after leaving office, and the risk may justify treating them as a PEP for longer. The fund's policy therefore requires EDD and senior-management approval, not front-office sign-off. Approvals: MLRO or nominated officer plus senior management; the TA's four-eyes control should document the rationale. Operational steps: do not apply the USD 4.2 million to the subscription; keep it in a segregated client-money account; do not simply return it while a SAR assessment is pending, to avoid tipping off. The trade can be held or cancelled, but the sales desk must not be given confidential SAR information. Notify the fund's MLRO or depositary as required. Record the decision in the onboarding file with dates and approvers.
2. Set out the enhanced due diligence you would perform, including source of funds and source of wealth. What would you do with the USD 4.2 million already received?
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EDD should establish the natural persons behind each layer: obtain the Cyprus company's register of members, the BVI company's register and nominee agreement, and identify the nominator and any underlying beneficiaries. For the UAE-based UBO, verify identity and address independently, and obtain corroborated source of wealth: the property sale contract, completion statement, bank receipt and tax filing. If the sale is not evidenced, request audited financial statements, evidence of a business sale or inheritance documentation. Source of funds must explain the Lebanese payment: obtain the payer company's incorporation documents, its relationship to the investor, a board resolution authorising the payment, and bank statements showing the funds' origin. A third-party payment from a different company is normally prohibited; it must be explained and approved at senior level. Screen all parties against sanctions, PEP and adverse-media databases, including the director and the nominee. If the explanations are inconsistent, consider filing a SAR and declining or terminating the relationship. Do not rely on the sales desk's confirmation. Document the EDD and the residual risk rating. If EDD cannot be completed before the dealing day, the subscription should be deferred to a later dealing day rather than activated. The USD 4.2 million remains segregated and is not applied to shares until approval and settlement conditions are met.