A corporate services provider in a European Union (EU) country has a prospect from an African country who deals in oil and gas. The prospect intends to develop an oil terminal in his home country with a $75 million dollar loan secured by a third party, which is a trust formed in a Caribbean island with a holding company based in a European secrecy haven. A young lady is presented as an ultimate beneficial owner who has gained her wealth through a fitness studio in her home country.
What are two red flags that could indicate money laundering or financing terrorism? (Choose two.)
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A. B. C. D.BD
The given scenario presents several red flags that may indicate money laundering or financing terrorism. Two of the most significant red flags are as follows:
B. The guarantor company's ownership structure is overly complex: An overly complex ownership structure of the guarantor company can raise suspicion of money laundering or financing terrorism. The use of multiple layers of legal entities can make it difficult to identify the true beneficial owners behind the transactions. The involvement of a trust from a Caribbean island and a holding company based in a European secrecy haven raises further suspicions about the transparency and legitimacy of the transaction.
D. The ultimate beneficial owner is a young lady who has gained her wealth through a small business: The fact that the ultimate beneficial owner of the transaction is a young lady who has gained her wealth through a fitness studio in her home country can also raise red flags. Such a scenario is not common in the oil and gas industry, and it may be difficult to establish a legitimate business connection between the two industries. Furthermore, it is also possible that the young lady is a front person, and the actual beneficial owner is someone else who is using her identity to conceal their true identity and involvement in the transaction.
Other red flags that could indicate money laundering or financing terrorism in this scenario are as follows:
A. A loan worth $75 million with a third-party guarantor: The loan amount is significant and may not be justified based on the prospect's business size, industry, or creditworthiness. The involvement of a third-party guarantor can also indicate that the prospect may not have sufficient collateral or creditworthiness to secure the loan on their own.
C. The prospect wishes to have a corporate structure with a holding company in an EU country: The use of corporate structures in an EU country can indicate an attempt to exploit the loopholes in the regulatory system to conceal the true ownership of the transaction. The involvement of a European secrecy haven also raises further suspicions about the transparency and legitimacy of the transaction.
In conclusion, the presence of any one or more of the above red flags should prompt the corporate services provider to conduct further due diligence and consider the possibility of money laundering or financing terrorism.