During the panel discussion and the event, Roi highlighted how, as part of due diligence investigations, Sqope Intelligence leverages sophisticated tools while also recognizing that they are not infallible and should be balanced with human analysis and oversight. Indeed, Roi discussed how clear objectives should be defined when integrating AI into KYC while also continuing to remain vigilant about regulatory compliance, data protection, and confidentiality and ensuring that robust IT security measures are implemented.

In addition to Sqope Intelligence sponsoring the conference, Nadia participated in an panel that was focused on ESG, during which she discussed the importance of ESG reputational due diligence, especially for supply chains. She and the other panel members also answered a number of audience questions, including how such reputational due diligence can support M&A.

During this two-day event, Roi participated in a panel on ESG and whether this is being added to the compliance officer’s agenda or absorbing it. During this panel, he highlighted the importance of ESG reputational due diligence, noting fines for greenwashing and major scandals involving “sustainable” industries, with these issues growing in importance for clients as part of the 360 degree investigation into individuals or companies.

Sqope Intelligence also hosted two workshops during the event, with Miriam and Khaled discussing the impact of current events in the Middle East on the financial sector.

Beneficial Ownership

The first, unsurprisingly, is the global effort to improve AML/CFT regulations with a focus on establishing or improving beneficial ownership (BO) registries. In late 2022, the EU Court of Justice (CJEU) revoked the law that mandated public access to such BO registries due to data privacy concerns, resulting in a number of EU countries completely removing all public access and others restricting it to nationals with a defined “legitimate interest”.

While there are currently no noteworthy efforts to reverse the ruling, it was met with considerable protest from compliance professionals and anti-corruption activists. We anticipate that this pressure will continue and only intensify with each future corruption scandal involving financial opacity, eventually increasing the chances that countries will open access to their BO registries regardless of the ruling. That said, any progress occur will likely take years given existing and not insignificant opposition among those who prefer less access to more and general slow moving bureaucracy and legislation.

On a positive note, however, the EU countries that reduced access are not the majority and many do still maintain public BO registries , which is telling about the ‘ attitude across the bloc. Meanwhile, despite the UK’s “Brexit”,, the country has maintained its position vis-a-vis such information and worked to improve its BO data. Indeed, it has long maintained such a public register via Companies House, but this database faced regular criticism for poor verification of included information. As a result, the UK’s Economic Crime and Corporate Transparency Bill, proposed in September 2022 and in the final amendment stage now, aims to address this criticism by requiring identify verification for all new and existing registered company directors and those  with significant control. The bill also includes other provisions, including reforms to prevent the well-known abuse of limited partnerships, while increasing penalties for failure to prevent economic crime.

Following discussions in December of last year with the UK’s Overseas Territories and Crown Dependencies, many of these jurisdictions confirmed that they will also implement a public BO registry, although Jersey, Guernsey, the Isle of Man, and the BVI cited the CJEU’s 2022 ruling and has decided against public access.

Across the pond, the US has historically lagged behind its European counterparts in terms of regulations related to AML, CFT, and BO registration information, but that is slowly changing. As of the beginning of 2024 companies will now be required to submit BO information (BOI) to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). Despite implementation only this year, , this is the direct result of the Corporate Transparency Act (CTA) passed in 2021 and although this registry will not be public, it is still a welcomed step towards more transparency for a country that has remained far below EU standards, with several US states known as secrecy havens.

Overall, BO information will face some of the same hurdles it has this year as it has in the past. Pressure from transparency activists, compliance professionals, and the public has clearly brought the world forward in terms of collecting and providing this data to those deemed as needing it and, in many cases, to the public. At the same time and as mentioned above, there is no less powerful pressure from businesses and BOs themselves to ensure more or continued privacy of ownership information. These pressures will continue to shape regulations going forward as they will likely inch towards an acceptable medium.

CFT in the Spotlight

Another important development in late 2023 was the growing emphasis on CFT, about which we published another blog post in November. This was a direct result of the Hamas attack against Israel on October 7, leading the terror group to become the focus of further regulatory efforts to limit Hamas from accessing funds, with FinCEN ordering banks to prioritize this, FATF also emphasizing its importance, and the UK and US implementing coordinated sanctions against over a dozen leaders and financiers of the group. Indeed, UK Foreign Secretary David Cameron stated that “sanctions on Hamas and Palestinian Islamic Jihad will continue to cut off their access to funding and isolate them further”.

Similarly, France, Germany, and Italy proposed a plan to the EU to counter the flow of funds to Hamas, while the EU itself added high profile Hamas leaders to its terror list.

Much like in traditional armed conflicts, including between Russia and Ukraine, international political pressure from the warring parties has led to blocs of countries making concerted efforts to choke off their adversaries’ finances. In the context of the Israel-Hamas conflict, however, levying sanctions against Hamas is, on the one hand, eased by the fact that they are not a major player in the global economy and are already designated as a terror group by most Western countries, and, on the other hand, hampered by these same Western countries and their allies, such as Qatar, providing both direct and indirect financial support to Hamas.

That said, as it is a stated priority for a number of international actors to cut off the group’s funding , we anticipate that more individuals and organizations will be added to sanctions lists as understanding of their financing and ties expands. In addition, as there are countless humanitarian organizations operating within the Palestinian Territories or driving external efforts to support those living there, we expect greater attention directed there , with FATF already publishing a “best practices” guide on countering terrorist financing abuse by non-profit organizations.

As the conflict has an unfortunately high probability to expand past the current sphere, we further expect that sanctions will remain one of the most preferred methods to target the Houthis and Hezbollah, both of which have involved themselves to different degrees in the current Israeli-Gaza war, with the Houthis also targeting international shipping companies.

ESG Faces Hurdles

Our final observation from 2023 relate to the challenges faced by ESG. This is especially true in the US where the topic became heavily politicized but throughout the world its utility and efficacy was called into question. The main reasons   are due to several high profile green-washing scandals, as well as general criticism as to the absence of clarity surrounding regulations.

While public trust may be waning, we are confident that ESG as a guiding framework for reviewing companies will grow stronger and is simply a new approach that is finding equilibrium. In the meantime, we believe that 2024 will bring greater clarity for professionals vis-à-vis  approaching ESG and stricter enforcement to reduce the ease of  green-washing.

In this context, the US Securities and Exchange Commission (SEC) updated its 20-year-old “Name Rule” in September, which mandates that more funds meet the requirement that 80% of their portfolio matches the type of investment advertised by its name, specifically naming “Environmental, Social, or Governance factors” as an example. This was specifically done to address greenwashing risks. Back in Europe, the EU Parliament and Council reached a provisional agreement on a set of new rules similarly aimed at reducing this risks, with the UK Financial Conduct Authority (FCA) following suit in late 2023 with a new “anti-greenwashing rule”.

Efforts to better regulate ESG and restore public trust will be an ongoing process that will take years, but considering the investment and effort made towards establishing ESG as a framework, as well as the continued public interest in its success, it’snot going away or slowing down anytime soon.

Final Thoughts

We at Sqope Intelligence reflect positively on these developments overall. There are clearly plenty of improvements to be made in the AML and ESG space and there have been numerous set-backs, but the global awareness and understanding that nefarious actors need to be cut off from our financial system and further efforts are necessary to reduce corruption is trending upwards.

We are proud to be part of this trend and look forward to continuing to support our clients across the globe in achieving their compliance objectives.