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Do we need to ID overseas subsidiaries?

We have a new uk limited company client. What due diligence should we do for overseas subsidiaries?

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Our potential new client is UK registered with UK resident directors but has subsidiaries in various countries with weaker AML regimes than our own (none of them blacklisted). Our work will be solely with the UK entity. To what extent  should our aml due diligence relating to the subs extend beyond noting the geographical connections, checking sanctions lists, and scrutinising UK transactions for unusual activity?

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By paul.benny
05th Jul 2019 14:12

Does your supervisory body issue any guidance? Or have helpline?

Relying on that gives you a defence if you are found wanting.

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Replying to paul.benny:
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By Merrygirl
05th Jul 2019 15:06

Yes. The helpline suggested that unless we are acting on behalf of the subsidiaries a note on file is enough, as long as we are clear on source of funds. Their caveat was to remember the "risk based approach", which is often mentioned but never actually described in practical terms. My risk assessment was what made me ask in the first place.
Thought I would see what others in the trenches are actually doing.
Thanks

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By paul.benny
05th Jul 2019 15:35

Great (although it would have helped if you'd included that in the op).

The thing about any risk-based approach (not just here) is to document your thought processes and how you arrived at your conclusion. It's as important to include the negatives (eg there are no funds transfers between the UK and the subsids) to show that you have considered them.

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Replying to paul.benny:
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By Merrygirl
05th Jul 2019 16:17

Will do a detailed file note. Thanks for your help.

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By paul.benny
05th Jul 2019 16:23

You're welcome.

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Mike Cooper HJS
By mike_uk_1983
09th Jul 2019 10:13

You may want to consider if you are preparing consolidated accounts and maybe auditing the group as a whole then this will increase the risk.

Also who controls and runs the subsidiary.

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Replying to mike_uk_1983:
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By Merrygirl
09th Jul 2019 13:15

Thanks. We will not be auditing, and the UK entities fall below the threshold for consolidation. Otherwise we would be compelled to dig deeper.

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Mike Cooper HJS
By mike_uk_1983
10th Jul 2019 13:34

When considering group size and need to consolidate/audit you need to include the whole group not just the UK entities.

If that is what you have done apologies but you have only mentioned UK entities in your comment.

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Replying to mike_uk_1983:
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By Merrygirl
12th Jul 2019 10:26

Yes we have looked at the group as a whole and they fall below the threshold on 2 of the 3 counts. I have taken the advice given above and made a detailed note on file about our thought process and obviously will continue to monitor closely for any activity involving the subsidiaries. Thanks all for constructive advice.

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