IDENTIFICATION AND VERIFICATION OF LEGAL PERSONS
Paragraph 5 of the Codes provides for specific requirements where the applicant for business is a legal person which includes any body corporate or unincorporated which is capable of establishing a permanent customer relationship with a licenceholder or otherwise own property. This includes entities such as foundations, anstalts, partnerships, associations or any similar bodies.
The Commission is aware that some licenceholders may consider an application from a legal person formed and administered by regulated Corporate Service Providers ("CSPs") as direct corporate business where the CSP is providing directors, a secretary (or their equivalents) and other management services. Nevertheless, despite the corporate entity concerned being a separate legal person in its own right, licenceholders must "lift the corporate veil" and know the identity of the underlying customer, i.e. the beneficial owner / founder / dedicator / beneficiaries etc.
For corporations and partnerships the principal requirement is to look behind the institution to identify those who have control over the business and the company's / foundation's / partnership's assets, including those who have ultimate control and ultimate principal ownership. For corporations, particular attention must be paid to principal shareholders, founders, dedicators, signatories, or others who inject a significant proportion of the capital or financial support, or otherwise exercise control. Paragraph 5 of the Codes does not provide a concession for companies / foundations where services are provided by CSPs. Licenceholders must still obtain CDD information and documentation for the directors and signatories of companies and the persons with sufficient interest in foundations (or equivalent in non-Isle of Man established foundations) where services are provided by CSPs.
Where the owner is another legal person or trust, the objective is to undertake reasonable measures to look behind that legal person or trust and to verify the identity of the principals. What constitutes control for this purpose will depend on the nature of the institution, and may rest in those who are mandated to manage funds, accounts or investments without requiring further authorisation, and who would be in a position to override internal procedures and control mechanisms.
Where the business relationship with the applicant entity does not proceed, all relevant documentation should be retained for at least 5 years as required by the Codes. Where a suspicion of money laundering or terrorist financing has arisen a report must be made to the FCU.
Licenceholders must also verify that any person purporting to act on behalf of a
corporate customer is authorised to do so.
Licenceholders must conduct periodic checks to ensure the corporate information held is correct and up to date, such as conducting company searches, or seeking copies of resolutions appointing directors or noting the resignation of directors. The frequency of such checks for particular business relationships will be determined from the risk assessment required by the Codes.
4.7.1 Identification information required for Legal Persons
(a) Name of entity.
(b) Any trading names.
(c) Date and country of incorporation/registration/establishment.
(d) Official identification number.
(e) Whether listed and where.
(f) Registered office address and in respect of foundations the business address.
(g) Principal place of business/operations (if different from registered office).
(h) Mailing address (if different from registered office).
(i) Name of regulator (if applicable).
(j) Identification information on the underlying principals i.e. persons exercising control over the management of the legal person and any person(s) having power to direct the activities of the legal person. This will include directors and account signatories or persons in equivalent roles such as, in respect of foundations, council members, enforcer(s), person(s) appointed under the foundation rules (or equivalent in non-Isle of Man established foundations).
(k) Identification information of any person(s) purporting to act on behalf of the legal person or by whom binding obligations may be imposed on the legal person, in line with the guidance for individuals. This will include persons holding powers of attorney.
(l) Obtain identification information on the beneficial owners i.e. any
individual who ultimately owns or controls the customer, or on whose behalf a
transaction or activity is being conducted. For legal persons not listed on a
recognised stock exchange, this includes (but is not restricted to) any natural person
who ultimately owns or controls (whether directly or indirectly) 25% or more of
the shares or voting rights in the legal person.
For all legal persons (including
those listed on a recognised stock exchange) this includes any natural person (whether as an individual, group
of individuals or through another corporate entity or trust) who otherwise exercises
control over the management of the legal person. This includes persons with less than
25% of the shares or voting rights but who nevertheless hold a controlling
For a stock exchange to be considered as "recognised" the entities listed on it
must be subject to appropriate disclosure requirements. For entities listed
within Europe, this means regulated markets within the meaning of the Directive
on Markets in Financial Instruments 2004/39/EC. For entities listed outside
Europe, this means regulated markets subject to disclosure requirements
consistent with the aforementioned Directive.
For example, in the context of the London Stock Exchange, this would include
the Main Market but would not include the Alternative Investment Market.
(m) In respect of foundations, which are legal persons but which resemble trusts in many ways, licenceholders must also obtain identification information on the registered agent, founder(s), dedicator(s), assignee(s), all known beneficiaries and potential beneficiaries presenting a higher risk (or equivalent in non-Isle of Man established foundations). It is also necessary to obtain identification information on any other person(s) with a sufficient interest, including a person who in the view of the High Court, can reasonably claim to speak on behalf of an object or purpose of the foundation and a person who the High Court determines to be a person with a sufficient interest under section 51(3) of the Foundations Act 2011 (or equivalent in non-Isle of Man established foundations).
Provided there is no suspicion of money laundering or terrorist financing, where there are numerous directors / council members and/or signatories, licenceholders may determine those individuals to be identified using a risk based approach. Licenceholders should identify the signatories and, where different, directors of the applicant as follows:
(a) For standard risk business, at least two of the signatories and, where different, two directors.
(b) For business deemed to be of higher risk, all the directors and signatories.
For a CSP this concession applies in respect of a company which is its
applicant for business but not in respect of a client company / foundation to which it provides
regulated activities. CSPs must ensure that where any person is to act as a
director, secretary or signatory of a client company or is a person with a sufficient interest in respect of a foundation, they are identified (unless
such services are to be provided by the CSP licenceholder).
4.7.2 Verifying the identity of the legal person
Where a company is listed on a recognised stock exchange or is a wholly
owned subsidiary of such a company, paragraph 6(6)(d) of the Codes provides
the concession that it may be treated as an Acceptable Applicant. This means
that verification of identity requirements do not have to be undertaken on the
company itself or on certain associated persons.
However, licenceholders must take reasonable measures to establish whether
there is effective control of the listed company or its wholly owned subsidiary by
an individual, group of individuals or another corporate entity or trust. If this is
the case, then those controllers must be considered as beneficial owners and
reasonable measures taken to verify their identity.
The concession from verifying identity in respect of companies listed on a
recognised stock exchange and their wholly owned subsidiaries does not apply:
(a) whenever there is a suspicion of money laundering or terrorist financing;
(b) where a licenceholder becomes aware of anything which causes them
to doubt the identity or bona fides of the applicant for business or
beneficial owner; or
(c) where the new business relationship poses a higher risk as assessed by
the risk assessment.
In addition, where the concession cannot be applied due to the above
circumstances licenceholders must conduct enhanced customer due diligence
as required under paragraph 8 of the Codes.
For all legal persons that are not listed on a recognised stock exchange (or their
wholly owned subsidiaries) and for legal persons where the concession from
verifying identity does not apply, licenceholders must verify the following:
(b) Official identification number;
(c) Date and country of incorporation;
(d) Registered office address / business address of the legal person; and
(e) Address of the principal place of business where this is different to the registered office / business address.
Acceptable means of verifying identity include:
(a) Obtaining the Certificate of Incorporation or equivalent e.g. a certified copy of the partnership agreement or a Certificate of Establishment for a foundation (where it is impractical or impossible to obtain sight of the original, licenceholders may accept a copy certified in accordance with Section 4.5.1);
(b) Reviewing a copy of the latest report and accounts if available (audited, where possible);
(c) Conducting and recording an enquiry by a business information service, or an undertaking from a reputable and known firm of lawyers or accountants confirming the documents submitted;
(d) Undertaking a company registry search, including confirmation that the institution has not been, or is not in the process of being dissolved, struck off, wound up or terminated;
(e) Utilising independent electronic data sources;
(f) Personal visit to the principal place of business.
Whichever method(s) is/are used, all of the required information must be verified.
Whichever method(s) is/are used, all of the required information must be
4.7.3 Verifying the identity of associated persons
The following underlying principals and beneficial owners must have their identity verified.
Where a legal peson is not listed on a recognised stock exchange or is not a
wholly owned subsidiary of such a listed entity -
(a) any natural person who ultimately owns or controls (whether directly or
indirectly) 25% or more of the shares or voting rights in the legal person.
(b) any person(s) having power to direct the activities of the legal person. This includes directors and account signatories or persons in equivalent roles, such as, in respect of foundations, council members, enforcer(s), person(s) appointed under the foundation rules (or equivalent in non-Isle of Man established foundations). Where there are numerous directors / council members and/or signatories, the guidance on determining who should be identified and their identity verified at 4.7.1 may be followed; and
(c) any person(s) purporting to act on behalf of the legal person or by whom
binding obligations may be imposed on the legal person.
For all legal persons -
(a) any natural person (whether as an individual, group of individuals or through another legal person or legal
arrangement) who exercises effective control of the company or over the
management of the company. This includes persons with less than 25%
of the shares or voting rights but who nevertheless hold a controlling
(b) In respect of foundations, licenceholders must verify the identity of the:
- registered agent;
- beneficiaries at the time they come to benefit from the foundation. This includes where payments are made directly or indirectly to beneficiaries. Licenceholders must establish whether the payment is intended for a beneficiary and if so obtain verification documents. These payments cannot be treated as exempted one-off transactions;
- any potential beneficiaries presenting a higher risk, including those presenting increased money laundering, terrorist financing, reputational or other risk;
- any other person(s) with a sufficient interest, including a person who in the view of the High Court, can reasonably claim to speak on behalf of an object or purpose of the foundation and a person who the High Court determines to be a person with a sufficient interest under section 51(3) of the Foundations Act 2011 (or equivalent in non-Isle of Man established foundations).
In the case of a CSP carrying out regulated activities, the above includes any
person who is to act as a director, secretary or signatory of a client company
or a person with a sufficient interest in a foundation (unless such services are to be provided by the CSP licenceholder.)
In the case of associations, clubs, societies, charities, church bodies, institutes,
mutual and friendly societies, co-operative and provident societies, those with
ultimate control will often include members of the governing body or committee
plus executives. In the case of central and local government departments and agencies, this will include persons exercising control or significant influence
over the department or agency.
Licenceholders must obtain an appropriately certified copy of the board
resolution or power of attorney (or other authority) that provides the individuals
representing the corporate customer with the right to act on the institution's
18.104.22.168 Bearer Shares
Licenceholders must take particular care to record the details of bearer shares received or delivered other than through a recognised clearing or safe custody system, including the source and destination.
To reduce the opportunity for bearer shares to be used to obscure information on beneficial ownership, the Commission expects all licenceholders to immobilise bearer shares and take them into safe custody. A third party who meets the criteria to be a person in paragraph 6(6) of the Codes, and who gives the licenceholder an undertaking that he will not release the bearer shares or allow their transfer of ownership without the prior knowledge of the licenceholder can hold the shares on behalf of the licenceholder.
Should a prospective or existing customer refuse to allow the immobilisation of the bearer shares, the licenceholder must not proceed any further with the business relationship, and must consider making a suspicious transaction report to the FCU.