We talk to a specialist in the field of compliance about the challenges that institutions – not just private banks and wealth managers – face in the kind of source-of-wealth checks and verification that regulators increasingly insist upon.

Wealth managers, private banks and other financial institutions can hit trouble if compliance is treated as a box-ticking exercise and, as regulatory burdens mount, it is easy to see how this can happen. Certain jurisdictions have tightened the requirements for proving sources of wealth – such as Singapore, for example –producing long onboarding times. (See a story here about some of the challenges, and this recent commentary by another business in the space, smartKYC. 

WealthBriefing recently interviewed Piers de Wilde (pictured below), partner at StoneTurn, to discuss the sort of compliance issues financial institutions face. De Wilde has more than 18 years of experience in business intelligence, investigations and litigation support. Specifically, he concentrates on pre-transactional due diligence, litigation support, specialist investigations and strategic intelligence. He has led asset traces and litigation support, major fraud and corruption investigations, including UK Bribery Act and Foreign Corrupt Practices Act (FCPA) matters, cross-border due diligence and compliance projects, and supported cyber and forensic technology investigations. His core focus area is on matters in EMEA, although recent case work has included projects in India, North and South America, and Southeast Asia.
 

Piers de Wilde 

WealthBriefing. Tell us about StoneTurn – what does it do and where does it operate? 
De Wilde: StoneTurn is a global professional services firm. Many of our professionals are partners and alumni of international public accounting and consulting firms, industry, and government agencies. We work with clients on matters across investigations, compliance, business and litigation advisory, economics, and technology and cybersecurity.  We have 13 offices in five continents, including London, New York, Austin, Boston, Cape Town, Chicago, Houston, Johannesburg, Los Angeles, San Francisco, Singapore, Sao Paulo and Washington, DC.

WB: Does the process of helping banks and other financial institutions, law firms etc in onboarding wealthy clients fall under the area of work that StoneTurn is asked to help with? 
De Wilde: It certainly does. We advise private wealth management firms on onboarding high-risk clients by undertaking deep-dive due diligence. This is to help the client better understand their prospect’s sources and provenance of their wealth, a potential sanctions nexus, connections with politicians and broader reputational risks.

We support not only financial institutions but also law firms and corporates in similar onboarding scenarios. The work we do is always tailored and can vary from a full-scale inquiry to targeted scrutiny of client-specific concerns, with the latter often being the case in periodic client reviews.

WB: Under compliance rules in places such as Singapore, the UK among others, a big topic is establishing a person's "source of wealth" – ie, is the way they arrived at their wealth fully documented, validated, and can be cross-checked by reference to third parties and official sources. Is this an area StoneTurn looks at on behalf of clients? If yes, can you explain what establishing a source of wealth involves? 
De Wilde: Our overarching goal in such assignments is to deconstruct a prospect’s wealth accumulation trajectory. This involves establishing their career history, past and current business interests and – crucially – key wealth creation events, such as asset acquisitions and sales. Apart from this factual background, we concentrate on the prospect’s reputation, modus operandi and political connectivity – and especially how they leveraged such connections to build their wealth.

Because clients typically come to us for assistance with more complex, higher-risk subjects, our diligence work most often entails two components. First, we conduct a thorough review of open-source materials. This goes far beyond putting their name in a search engine since we have access to a plethora of specialist corporate, court, media and other databases globally. Second, we undertake discreet interviews with sources on the ground. This step is especially crucial for higher-risk subjects since public information about them may often be limited, biased or conflicting. 

Two key risk areas we often look at are understanding whether a prospect is ‘fronting’ for someone else – e.g. a sanctioned or politically exposed person – or is seeking to conceal illicitly gained wealth from corruption or other crime. A grey area we often come across is wealth that has legal origins in one jurisdiction but not in another, such as proceeds from the legal cannabis industry. We have worked with counsel to make appropriate disclosures (e.g. SARS) in these instances.

WB: In establishing sources of wealth, some cases might involve non-listed companies, where information might not be as compendious as it is for a listed firm. How big a challenge is this? 
De Wilde: Publicly available information about private companies is indeed often limited, but there is no magic solution to this. First, you need to have the right level of expertise of navigating the public domain. Information that may seem unavailable at first glance can often be found by those who know where to look. For example, even if a private company does not disclose its ownership, these details could sometimes be gleaned from the disclosures filed by its subsidiaries, affiliates and shareholders.

Second, source enquiries can be of immense value. Corporate literature of both listed and private companies helps to establish key facts about the business. However, it often remains silent about the risk areas giving a headache to compliance officers, such as reputation, political connectivity and sanctions links.

WB: Another difficulty in establishing the source of wealth is when a person has transacted in countries where corporate governance standards are different from those in, say, a developed country. What sort of information can be drawn upon here? 
De Wilde: Public data availability is not always a product of corporate governance standards. There are jurisdictions with relatively nascent corporate environments but where local companies are legally required to disclose a lot of potentially useful information. Conversely, few details are publicly available about private companies in many mature environments. You may be surprised to hear how much more information is readily available online about a private company in Georgia than say in Canada.

But again, this is something that we have to deal with daily. It is critical to have local expertise in these instances. Knowing where to find information and having a strong source network on the ground can help to overcome many of these challenges.

WB: How can your services assist a bank/other in keeping the onboarding process as short as possible, given the risks of making mistakes? 
De Wilde: The duration of client onboarding is understandably significant for any bank, but it is more important to keep this process proportionate to risk. Even if a bank has well-designed and adequately implemented KYC and CDD policies and procedures, it needs to have a functioning escalation process and be prepared to adequately resource deeper enquiries on higher-risk prospects. Apart from assisting clients with such deep-dive diligence, we advise on the design, implementation and testing of internal controls, including those relating to customer screening. 

WB: From your experience, how important is modern technology in helping managers to deal with these challenges, and what are the continued limitations?
De Wilde: New tools, including those powered by AI, are certainly helping with screening large batches of subjects being onboarded, and translation software can rapidly speed up the process of reviewing documents and finding corroborative material. Human review is still vital though, to address false positives, and make judgement calls on borderline cases.

When it comes to building internal controls, technology can be of immense value. But the risk lies, yet again, in the lack of human review. Any such tech-driven output around policies and procedures is often generic and needs to be calibrated in accordance with a bank’s risk appetite and profile. For example, some private banks would deliberately stick to developed markets and turn down prospects with a nexus to risky jurisdictions early on in the process. Conversely, others may be proactively expanding to emerging markets, which means that they should be prepared to deal with a larger population of higher-risk prospects/clients. The design of related internal controls needs to reflect this difference.

WB: Are there other points you would like to make?
De Wilde: Disinformation is a growing risk to the diligence process. Adverse parties using AI to produce “slop” and then disseminating it on the internet is a growing challenge to both individuals’ own reputations and third parties seeking to establish their bona fides.

The reputational (and legal) risk resulting from debanking individuals is also a growing concern and, as noted, having a robust process in place, backed by clear policies is vital.