Spoofing Ultimate Beneficial Ownership

Our industry has long specialised in discretion and the use of elaborate corporate structures to obscure beneficial ownership or financial position. Indeed, some might argue it is the very reason Infospectrum exists.

 

Over our 25 years in business, we have seen a gradual increase in transparency, with companies recognising the commercial benefits of providing an accurate picture to counterparties, either directly or through a recognised counterparty risk assessment specialist such as Infospectrum.

 

However, for a small corner of the commodity trading and shipping sectors, the sanctions environments put in place over the last decade have prompted something of a weaponisation of UBO data, using it, like the more high-profile spoofing of AIS data, to provide an illusion of corporate/counterparty reassurance during a period when corporate structures and ownership are under the spotlight more than ever (as seen by OFAC’s recent Quint-Seal “Know Your Cargo” Compliance Note).

 

You could rightly argue that in the current environment, particularly following Russia’s invasion of Ukraine, companies are more ready than ever to hand over UBO detail; they are certainly asked to provide it on a more regular basis. However, our research has found the quality and reliability of this data is often lacking, with non-transparent parties willingly issuing declarations of UBO, but turning attention away from the actual entities (companies or people) having significant influence or control.

 

While a shareholder document or annual return provides crucial documentary evidence, it can often provide misleading reassurance in a trading environment where “just enough” and moral hazard is rife and efforts to dig deeper are avoided due to time, relationship or financial concerns.

 

This is not an abstract problem. During our research over this period, we have seen:

• Companies using different sets of UBO information for trading partners and financiers.
• Dark fleets represented by a series of unique, and unknown, directors and shareholders allocated per SPV.
• Trading teams running large-scale trading books with no obvious access to capital, or backed by individuals with no obvious source of wealth or experience in the sector.
• New companies buying on abnormal terms from suppliers perceived to be controlled by sanctioned individuals
• Nominated vessel buyers receiving gold delivered from sanctioned Russian banks.

All these entities presented “clean” UBO/sanctions positions.

 

If your business can be significantly impacted by being found to deal with a sanctioned or toxic counterparty, the benefits of having a defence file showing you have conducted meaningful, and impartial, due diligence on your counterparty, rather than relying on documents provided by your counterparty, are clear. As a number of high-profile incidents have shown over the past decade, a lack of counterparty due diligence and knowledge of true UBO can lead anything from awkward headlines, to a company-ending event.

 

Beyond the compliance and regulatory risk, establishing beneficial ownership and control is integral to assessing commercial risk. Infospectrum’s insights into a principal’s track record, ability and willingness to commit resources during downturns, and risks of contagion from the principal’s other business interests, are just some of the examples that have enabled our clients to routinely use our UBO insights to optimise their risk-adjusted returns across business cycles. Establishing UBO is of course the precursor to leveraging those value-added insights.

 

Infospectrum’s Multiple Factor Verification (MFV) process maximises data inputs contextualised with human intelligence to provide discreet, stress-tested information to our clients. Our MFV draws on information from our proprietary databank of 30,000+ companies that reflects our institutional expertise, together with our team’s long experience of corporate structures in our sector, our ability to access data from low-disclosure jurisdictions, and our long-standing trust-based relationships with key players in the sectors in which we operate. This process can highlight obvious misrepresentation, concealment, use of nominees and other “red flags” that can assessed to better structure, or exit, the trade being considered. Our insightful approach aims to provide meaning on, and skilful interpretation of, disclosure and transparency based on our unbiased, fair and honest understanding of our thoroughly researched findings.

 

Infospectrum’s compliance and due diligence tools are designed to fit seamlessly into existing KYC, onboarding and counterparty assessment processes, with our global Analyst team adding a deep pool of experience for our clients to discuss specific issues. To pierce the corporate veil of manipulative disclosures that provide a false sense of security, and to protect against compliance risks while maximising commercial opportunities, make Infospectrum your first port of call.

 

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