Busting Ghost Companies and their Invisible Owners

Although Vietnam has been taking measures to align its anti-money laundering (“AML”) policies with global standards, not least by introducing an updated AML Law in March 2023, the country is a predominantly cash-based economy and still faces high levels of corruption. 

One of the most common methods criminals use to misappropriate or launder money is through opaque corporate structures, also known as “ghost companies”. These structures hide the true identity of the individual controlling them, appearing to be active only on paper, and may have a straw man serving as the registered owner. They provide a layer of anonymity through which criminals find it easier to conduct nefarious activities.

The exposure of legitimate companies and banks to ghost companies may lead to heightened risk of sanctions exposure, misuse for fraud and embezzlement purposes, structuring as part of a money laundering scheme, and bribery and corruption. Ghost companies are also commonly used by wealthy individuals or politicians to transfer funds quietly. 

The International Consortium of Investigative Journalists, which has so far worked to uncover the identities behind 810,000 offshore companies, published the Cyprus Confidential leaks in November 2023, providing insight on how opaque offshore structures were used to surreptitiously finance football clubs and even books favourable to the Russian president. One Russian oligarch used a ghost company linked to his associate to circumvent impending sanctions – any company which aided such a transaction would have been ensnared in legal complications. 

Companies would be well-placed by implementing more stringent controls to mitigate the risks, with measures including:

• Know-Your-Customer measures to confirm the counterparty’s credibility and nature of its business through independent verification with trustworthy sources.
• Robust due diligence on any entity or individual counterparty to ensure they know who they are dealing with; complicated ownership chains should be unwrapped so that the ultimate beneficial owner and related parties are identified; open source intelligence should be analysed to fully understand the background of the counterparty.
• A risk-based compliance programme with screening and ongoing monitoring to ensure they are always abreast of updates in sanctions regimes and other watchlists, as well as updates in the corporate details of the counterparty.

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