The Paradise Papers and Due Diligence

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The issue of independence

A key report in the recently revealed Paradise Papers points to the case of Alisher Usmanov, an oligarch who has close links to the Russian government. 

Leaked emails and memos from a law firm that used to manage his private trust company Bordeaux Ltd suggest that he bought a trust company, Bridgewaters, which was then responsible for performing due diligence checks on his private trust company. 

If true, this poses a serious conflict of interest question. The former trustees, Appleby, rightly showed concern for the possible independence issue and whether due diligence checks performed as part of this process are to be trusted.

Due Diligence and You

One simple question our trainers usually ask AML trainees is on the practical issue of due diligence checks and how much is enough: it may be convenient, in the normal course of business, to rely on another firm’s green-lighting of a client, but it is also important to remember that ultimate responsibility for due diligence lies with you!

Put this way, we might understand a little bit better why the law takes such care to ensure that a beneficiary of a trust is also not the one responsible for what are meant to be independent checks on the money.

A Matter of Culture

Another key lesson from the Paradise Papers is on the influence that company culture can have on whether compliance policies and procedures are being implemented appropriately. 

Leaked documents reveal that the Bermuda Monetary Authority’s key concerns with a known law firm lay with a lack of regularised due diligence processes and the management board’s attitude to risk management. The latter is a key ingredient in the fight against money laundering and terrorist financing, as without strong willingness and implementation of clear processes, adherence to the risk-based approach required by regulators is difficult.

As we know, criminals keep getting better and better at using the financial system to either launder their criminal proceeds or to fund criminal and terrorist activity. Responsible financial services providers will safeguard themselves, their company and their society by implementing simple measures to prevent being used as accessories to crime. 


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