Fund Manager's Role to Screen Investors for Money Laundering and Illegal Practices

The Subject

The definition of money laundering and the application of anti-money laundering (AML) legislation can vary from jurisdiction to jurisdiction. Here you can find the Estonian MLTFPA. However, there are general requirements and common principles concerning AML legislation stipulated in the guidelines issued by the Financial Action Task Force (FATF) and these include checks not only on the investing entity but also for establishing who is the “beneficial owner” of the investing entity, to prevent the laundering of money through fund investments.

The Professional Standard

First of all, the Fund Manager is responsible for ensuring compliance with applicable anti-money laundering requirements.

Irrespective of considerations concerning compliance with the law, a Fund Manager should take care only to introduce reputable, long-term partners into the fund.

The Fund Managers should ensure that the fund documents require investors to provide any necessary identification information that they require to meet its policies and relevant regulatory and legal requirements, including providing documentation to the authorities during the life of the fund. Failure or refusal to meet this requirement should provide the Fund Manager with the right to require the investor to withdraw from the fund.

Legal advice should be obtained on this matter as early as possible to ensure that all relevant money laundering checks are undertaken and properly documented. Such checks must in all cases comply with the relevant local rules in the jurisdiction where the fund is domiciled as well as that from which it is administered. In addition, during fundraising (or subscription of investment units), steps should be taken to ensure that capital commitments are not made to facilitate money laundering. Investment should not be accepted where the source of the investment causes concern (e.g. where the investment originates in a FATF black-listed country) or the investment partner’s (or its beneficial owners’) identity either cannot be verified or is reasonably deemed an internationally sanctioned person or institution, or until further, enhanced due diligence is completed and confirms these factors are not an issue.

Subscription documents should include specific information and confirmation from investment partners in the fund regarding the origin of money invested, corroborated by appropriate documentation and supported by suitable warranties where applicable. The fund documents should enable the Fund Manager to require investment partners to update or expand such information, documentation, and warranties as applicable and provide the Fund Manager with the right to manage the situation if their failure to provide such information, documentation, and/or warranties impairs the ability of the Fund Manager and the other investment partners to carry on the business of the fund.

How an LEI can help to Fund Managers?

The Legal Entity Identifier LEI is a globally recognized alphanumeric code designed to improve financial system transparency and risk management. It plays a crucial role in identifying legal entities involved in financial transactions and, indirectly, in revealing beneficial ownership. Here’s how LEIs help with beneficial ownership:

Conclusion

LEIs contribute to financial transparency, helping regulators and organizations gain insights into beneficial ownership structures and detect potential financial misconduct.

Comprehensive due diligence and compliance efforts may involve additional sources of information, such as corporate registers, beneficial ownership registers, and customer-provided documentation. That’s why, at LEIpapa we are building the biggest and the most relevant registry containing all the data necessary for the development of business transactions between financial market participants and other legal entities.

In summary, Registering an LEI code with LEIpapa is essential for legal entities engaged in financial activities. It not only ensures compliance with regulatory requirements but also contributes to global financial transparency, risk management, and efficient financial transactions.

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