The Offshore Buyer and the Cash Tranches
A notary in Kandy is asked to attest the transfer of a tea estate worth about USD 2.5 million. The buyer is a company incorporated in the British Virgin Islands. Its sole shareholder is a former minister of another country, a foreign politically exposed person. The seller is a local family. Payment is to be made as USD 500,000 in cash in three tranches from accounts of two unrelated third parties, with the balance by offshore transfer. The buyer's local consultant provides only a copy of the certificate of incorporation and no beneficial-ownership documents. He refuses to complete the notary's customer-due-diligence form and offers an extra fee for speed. Completion is wanted before 5 p.m. The notary's clerk has prepared the deed and says 'everyone does this'.
1. What customer due diligence and enhanced due diligence must the notary complete before acting?
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The notary must identify the buyer company, its directors, and the beneficial owner; a copy of the certificate of incorporation alone is insufficient. He must verify the identity of the person instructing him and the source of the purchase funds. Because the sole shareholder is a foreign PEP, enhanced due diligence is required: source of wealth, source of funds, purpose of the transaction, and senior-management approval. The cash tranches and payments from unrelated third parties are high-risk red flags. He should obtain the sale agreement, title documents, bank statements, and a clear explanation of the third-party payments. He must not rely on the local consultant's assurances or accept a refusal to complete CDD. If the buyer cannot explain the funds, he should not proceed.
2. Should the notary proceed, and what reporting obligations arise?
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He should not attest until CDD and EDD are satisfactory. The combination of an offshore company, a PEP beneficial owner, cash, third-party payments, urgency, and a refusal to provide beneficial-ownership information is suspicious. As a notary subject to the Financial Transactions Reporting Act and FIU obligations, he must make a suspicious transaction report to the Financial Intelligence Unit promptly and must not tip off the buyer. He may continue to gather information but must not complete the transaction if he cannot manage the risk. If he has already received funds, he should seek legal advice and follow the reporting institution's procedures. The fact that 'everyone does this' is not a defence; wilful blindness can attract criminal and disciplinary liability.
3. What records should the notary keep, and how does confidentiality affect reporting?
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He should keep records of the identification documents, beneficial-ownership information, risk assessment, source-of-funds enquiries, the suspicious transaction report, and all correspondence for the period prescribed by the FTRA and FIU rules. The file should show what was asked, what was refused, and why he declined or proceeded. He should also record the deed and register entries as required by the Notaries Ordinance. Confidentiality does not prevent a good-faith suspicious transaction report; the FTRA provides protection for reports made in good faith. He should not disclose the report to the client or the consultant. A complete contemporaneous file is the notary's best protection if the transaction is later investigated.