Offshore entities are often structured with corporate mechanisms that obscure information about beneficial ownership and financial transactions. As a result, performing Know Your Customer (KYC) or Know Your Business (KYB) on offshore companies involves additional layers of complexity when compared with conventional KYC.
At KYC-Chain, we provide a global turn-key compliance solution: an all-in-one workflow tool to help verify your customers’ identities, streamline KYC onboarding processes and manage the entire customer lifecycle.
In this article, we offer a comprehensive guide to addressing common KYC challenges and considerations associated with offshore companies.
Lack of Transparency and Secrecy Jurisdictions
Offshore companies are often registered in jurisdictions known for strict privacy laws, posing a serious challenge in identifying true owners and beneficiaries. Typically UBO data can be best obtained by requesting a certificate of incumbency from the offshore company owners. This document should be notarized and apostilled to ensure authenticity, and the notary verified.
With limited reporting requirements, the corporate registries of offshore jurisdictions will often provide minimal company information that fall far below true beneficial ownership transparency.
Countries like Cyprus, the Cayman Islands, Panama and Bermuda are all popular choices for offshore companies, in large part due to such confidentiality provisions.
Layered Ownership Structures
Making it difficult to identify the true ultimate beneficial owners (UBOs), offshore entities may use complex, layered ownership structures involving trusts, holding companies and shell corporations.
As ownership is often spread across multiple jurisdictions, the verification of KYC / KYB data concerning offshore companies ultimately becomes a more complex process.
Inconsistent Regulatory Standards
Standardizing checks across offshore entities can become complex due to different jurisdictions having varying levels of KYC / KYB and Anti-Money Laundering (AML) requirements.
In practice, some regions ultimately lack stringent KYC requirements — or are slow to adopt international standards — leading to key gaps in information or unverifiable company data.
Risk of Politically Exposed Persons (PEPs) and Sanctioned Individuals
Offshore structures can be used by PEPs or individuals under sanctions in order to hide assets, evade taxes, or launder money. This makes them higher risk from an AML compliance perspective.
Identifying individuals who might be using offshore companies for illicit purposes is therefore a critical component of an effective risk assessment and KYC process.
False or Misleading Documentation
It is not uncommon for offshore entities to provide incomplete, altered or even forged documents in order to obscure their genuine business activities and operations.
The process of verifying the authenticity of these documents — often filed under limited liability companies (LLCs) or international business companies (IBCs) — ultimately adds a further layer of complexity.
Let’s continue our analysis by taking a look at all the essential data needed in order to perform effective KYC on offshore companies:
▣ Beneficial Ownership Details: Identifying a company’s UBOs is crucial for carrying out effective risk assessments, KYC and AML. Information about individuals who own or control 25% or more of the company is often required, though disclosure thresholds may vary according to jurisdiction and the risk profiles of a business. UBO data usually includes their names, identification documents and addresses.
▣ Corporate Structure and Organizational Chart: It is essential to collect detailed documentation on a company’s ownership structure, including parent companies, subsidiaries and affiliates. In practice, this involves an organizational chart with information on each layer of ownership, helping to clarify complex structures.
▣ Source of Funds and Wealth: Information on the source of funds used in an offshore company’s accounts is necessary in order to assess the legitimacy of the funds. This often requires financial records, disclosure of investment portfolios and other documentation that verify the origins of wealth.
▣ Jurisdictional Registrations and Licenses: Many offshore entities hold licenses or are registered across multiple jurisdictions. Access to registration documents, business licenses and certifications from these jurisdictions can help to assess the company’s legal standing and financial compliance. For instance, requesting a Certificate of UK Tax Residence from HM Revenue & Customs in the UK can help to establish that a UK company with an offshore tax haven is not evading taxes by claiming non-tax residency in both jurisdictions.
▣ Transaction Histories and Business Purpose: Transactional information helps identify the company’s business purpose and the nature of its dealings. Offshore companies used solely for tax sheltering, for example, will exhibit different patterns from those used to conduct legitimate business.
Although often costly when carried out manually, the following conventional KYC solutions have traditionally helped to mitigate the risks of dealing with offshore entities, ensuring transparency and compliance with global AML and anti-corruption standards.
Enhanced Due Diligence (EDD) Services
Enhanced due diligence (EDD) involves a more comprehensive and deeper approach than standard KYC or corporate due diligence.
This often involves the use of specialized investigative services, including accessing detailed databases and on-the-ground research in order to obtain verified information across multiple jurisdictions.
Beneficial Ownership Discovery Tools
Advanced corporate data analysis tools use algorithms and machine learning to analyze corporate structures and identify beneficial owners across complex, layered structures.
While these tools can be expensive, they are ultimately invaluable in parsing large volumes of cross-border data.
Blockchain Analysis and Monitoring
In cases where offshore entities are involved in cryptocurrency transactions, AML software can be deployed in order to trace the flow of funds.
Essentially, these technologies can help with identifying patterns that are indicative of money laundering or illicit activity.
Forensic Auditing and Investigations
For higher-risk clients — or when red flags have been identified — firms may employ forensic auditing services in order to conduct a deep dive into an offshore company’s financial activities.
This process requires specialized expertise and can be highly costly due to the level of detail and analysis that are ultimately required.
Artificial Intelligence (AI) and Machine Learning Models
AI-powered models can assess large data sets that enable compliance firms to detect anomalies in transactions — or ownership structures — that might indicate fraud, laundering, or concealment.
While they require a significant upfront investment, AI-powered tools can sometimes offer long-term cost-effectiveness for high-volume KYC operations.
Legal and Compliance Advisory Services
Complex KYC for offshore companies often requires the expertise of legal and compliance advisors familiar with international law and cross-border regulations.
These services are essential for ensuring compliance with anti-bribery, tax evasion and other laws that apply to a wide range of offshore activities.
Popular offshore destinations vary significantly in terms of compliance frameworks, tax policies, privacy laws and legal requirements. These nuances significantly impact KYC procedures — as well as the appeal and functionality of each jurisdiction — depending on the objectives of individuals or businesses seeking offshore incorporation.
As part of compliance with international AML and CTF standards, companies registered in the British Virgin Islands (BVI) are subject to a series of KYC reporting requirements:
Beneficial Ownership Disclosure
BOSS (Beneficial Ownership Secure Search) System: BVI companies must provide details of their beneficial owners to a secure, non-public database called the BOSS System.
Information required:
Access: This information is accessible only to designated BVI authorities, not the general public.
KYC Obligations for Registered Agents
All BVI companies must engage a licensed Registered Agent (RA). The RA is responsible for performing due diligence on the company and its beneficial owners.
Information to verify:
Documents typically required:
Ongoing monitoring: RAs must ensure records are up-to-date and conduct ongoing monitoring to detect suspicious activities.
Reporting Obligations
Suspicious Activity Reports (SARs): If the RA identifies unusual or suspicious transactions, they are obligated to report them to the BVI Financial Investigation Agency (FIA)
Annual filings: Some BVI entities must submit annual returns to their RAs, detailing compliance with AML regulations.
Record Keeping
Retention period: The KYC records of regulated entities such as financial institutions must be kept for at least five years after the termination of a business relationship or the completion of a transaction.
Confidentiality: Records are kept confidential, except as required for legal or regulatory purposes.
Economic Substance Requirements
Under the BVI Economic Substance (Companies and Limited Partnerships) Act, certain companies must demonstrate economic substance in the BVI, including reporting specific information:
Companies registered in the Cayman Islands are required to comply with KYC and AML regulations under local laws, including the Anti-Money Laundering Regulations (2020 Revision) and the Beneficial Ownership (Companies) Law. These requirements are designed to ensure transparency and adherence to international standards.
Beneficial Ownership Requirements
The Cayman Islands requires companies to disclose details of their beneficial owners in a centralized registry, accessible only by competent authorities.
Cayman Islands definition of a beneficial owner:
○ An individual who owns or controls more than 25% of the shares or voting rights.
○ An individual who exercises significant control over the company.
Required UBO information
■ Full name
■ Date of birth
■ Nationality
■ Address
■ Nature of control or ownership
Exemptions:
Certain entities, such as companies listed on recognized stock exchanges or regulated under specific laws, may be exempt from the beneficial ownership reporting requirement.
Obligations of Service Providers
Cayman companies must engage a licensed Corporate Service Provider (CSP) who will conduct KYC and due diligence on behalf of the company.
Required KYC information:
Economic Substance Requirements
Under the International Tax Co-operation (Economic Substance) Act, companies conducting relevant activities must file annual reports demonstrating compliance with economic substance requirements — a way of defining whether a company’s stated economic activity has a real economic purpose other than the reduction of tax. Relevant activities include banking, insurance, fund management, financing, leasing, headquarters business, distribution and service center business, shipping, intellectual property business, and holding company business.
Reporting Suspicious Activities
Service providers and company officers are required to monitor transactions and relationships for suspicious activities, as well as to report any suspicious transactions to the Cayman Islands’ Financial Reporting Authority (FRA).
Record-Keeping
Retention Period: KYC records must be kept for at least five years after the relationship ends or a transaction is completed.
Confidentiality: KYC records are maintained confidentially, with access limited to regulatory or law enforcement agencies.
Companies registered in Cyprus are subject to robust KYC requirements under local legislation, including the Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2007-2021 and compliance with EU Directives. These regulations are overseen by the Cyprus Securities and Exchange Commission (CySEC) and other relevant authorities tasked with preventing money laundering and ensuring transparency.
Beneficial Ownership Register
Under the EU’s 4th and 5th EU Anti-Money Laundering Directives, Cyprus companies are required to maintain and disclose information about their beneficial owners.
Cyprus definition of a beneficial owner:
○ Any individual owning or controlling more than 25% of the shares, voting rights, or ownership in a company.
○ If no such person exists, senior management officials must be identified.
Required UBO information:
■ Full name
■ Date of birth
■ Nationality
■ Residential address
■ Nature and extent of ownership/control
Filing: This information must be submitted to the Cyprus Beneficial Ownership Register, maintained by the Registrar of Companies.
KYC Obligations for Service Providers
In order to comply with KYC requirements, businesses must engage a regulated Service Provider (e.g., lawyers, accountants, or corporate service providers).
Information required:
Reporting Obligations
Suspicious Activity Reports (SARs): If suspicious activities or transactions are identified, they must be reported to the Financial Intelligence Unit of Cyprus (MOKAS).
AML Compliance: Companies must ensure that KYC information is updated regularly and submitted as part of their compliance obligations.
Record-Keeping
KYC records must be retained for five years after the end of the business relationship or the completion of a transaction. In addition, records must be confidential and accessible only to relevant authorities or upon request during audits.
Economic Substance Requirements
Under EU tax guidelines, companies carrying out relevant activities must demonstrate economic substance in Cyprus. Relevant activities include banking, insurance, shipping, intellectual property holding, or businesses deriving income from royalties.
Compliance Reporting: Companies are required to submit financial and operational information annually in order to prove substantive business presence.
Companies registered in Luxembourg are required to comply with KYC and AML regulations under the Law of 12 November 2004 on the Fight Against Money Laundering and Terrorist Financing (AML Law), as well as the EU’s 4th, 5th, and 6th Anti-Money Laundering Directives. These rules ensure transparency and adherence to international standards for financial and corporate activity.
Beneficial Ownership Requirements
Luxembourg requires companies to disclose beneficial ownership information in the Register of Beneficial Owners (RBE).
Luxembourg definition of a beneficial owner:
○ Any individual owning or controlling more than 25% of the shares, voting rights, or ownership of the company.
○ Individuals who otherwise exercise significant influence over the company.
Required UBO information:
■ Full name
■ Date and place of birth
■ Nationality
■ Residential address
■ Nature and extent of ownership/control
Public access: Certain information (e.g., names and ownership percentages) in the RBE is publicly accessible, although requests for limited confidentiality can be made under specific circumstances.
KYC Obligations for Service Providers
Luxembourg mandates that companies work with regulated entities (e.g., banks, fiduciaries, or legal professionals) to fulfill KYC requirements.
Required KYC information:
Verification: Service providers must verify the authenticity of the submitted documents and ensure the ongoing monitoring of client activity.
Reporting Obligations
Suspicious Transaction Reporting (STRs): Companies and their service providers must report any suspicious activities to the Cellule de Renseignement Financier (CRF), Luxembourg’s Financial Intelligence Unit.
Annual Compliance Filings: Companies may be required to confirm and update beneficial ownership and KYC details as part of their regular filings.
Record-Keeping
Retention Period: KYC records must be retained for five years after the end of the business relationship or the conclusion of a transaction.
Confidentiality: Records are confidential but can be accessed by Luxembourg regulators or law enforcement authorities as required.
Economic Substance Requirements
Under the Law of 18 December 2015 on Common Reporting Standards and related tax initiatives, companies engaged in specific activities must demonstrate economic substance in Luxembourg. Relevant activities include holding companies, fund management and intellectual property (IP) businesses.
Reporting Requirements: Submission of annual reports proving that substantive business activities are carried out in Luxembourg.
Companies registered in Panama are required to comply with KYC and AML regulations under the Law No. 23 of 2015 (AML Law) and related legislation, aligning with international standards set by the Financial Action Task Force (FATF). These requirements aim to ensure transparency, prevent illicit financial activities and meet global compliance standards.
Beneficial Ownership Requirements
Panama requires companies to disclose information about their beneficial owners to registered agents.
Panama definition of a beneficial owner:
○ An individual who ultimately owns or controls a legal entity, either directly or indirectly.
○ Threshold: Ownership of 10% or more of shares or voting rights in a company.
Required UBO information:
■ Full name
■ Date of birth
■ Nationality
■ Residential address
■ Identification number (passport or national ID)
■ Nature and extent of ownership/control
Record Maintenance: The information must be kept by the company’s registered agent, who is required to maintain confidentiality unless requested by competent authorities.
Obligations for Registered Agents
Panama mandates that all companies engage a registered agent (typically a lawyer or law firm) responsible for fulfilling KYC requirements. The agent is tasked with verifying the identities of beneficial owners, directors and shareholders, as well as to ensure compliance with ongoing AML obligations.
KYC Documentation Requirements
For individuals:
For corporate entities:
Economic Substance and Reporting
Under the Economic Substance Regulations (introduced in 2020), certain Panamanian companies must demonstrate sufficient economic presence in the country. Relevant activities include banking, insurance, fund management, shipping and holding companies.
Key requirements: Submission of annual financial reports and tax returns in order to demonstrate compliance with economic substance rules.
Reporting Suspicious Transactions
Companies and their registered agents must report any suspicious transactions to the Financial Analysis Unit of Panama (UAF). The monitoring of ongoing transactions is mandatory in order to detect unusual or potentially illicit activity.
Record-Keeping
Retention Period: KYC records must be retained for five years after the end of the relationship or transaction.
Confidentiality: KYC records are confidential but may be accessed by Panamanian authorities upon request.
Companies registered in Singapore are required to comply with stringent KYC and AML regulations under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) and the Monetary Authority of Singapore (MAS) Notices and Guidelines. While promoting transparency, these regulations aim to prevent money laundering, terrorism financing and other illicit activities.
Beneficial Ownership Requirements
Singapore companies must identify and disclose their beneficial owners under the Accounting and Corporate Regulatory Authority (ACRA) Beneficial Ownership Register Requirements.
Singapore definition of beneficial owner:
○ An individual owning or controlling more than 25% of a company’s shares or voting rights.
○ An individual who exercises significant control over the company.
Required UBO information:
■ Full name
■ Date of birth
■ Nationality
■ Residential address
■ Identification number (passport or national ID)
■ Nature and extent of ownership/control
Register of Registrable Controllers: Singapore companies are required to maintain a Register of Registrable Controllers (RORC). This information is not publicly accessible but must be submitted to ACRA upon request.
Obligations for Corporate Service Providers (CSPs)
CSPs (e.g., company secretaries, legal firms, or accounting firms) are required to perform KYC checks when incorporating or administering companies. They are regulated under MAS and ACRA.
Required KYC information:
Verification and Ongoing Monitoring: CSPs must verify the submitted documents and monitor transactions for suspicious activities.
Reporting Suspicious Transactions
Suspicious Transaction Reports: Companies and CSPs are obligated to report suspicious transactions or activities to the Suspicious Transaction Reporting Office (STRO).
Threshold Reporting: Large cash transactions exceeding SGD 20,000 must also be reported.
Record-Keeping
Retention Period: KYC records must be retained for five years after the end of the business relationship or the completion of a transaction.
Confidentiality: KYC records are kept confidential but must be made available to regulatory authorities upon request.
Economic Substance and Compliance
Singapore has implemented economic substance requirements for companies engaged in certain activities, including tax residency considerations. Relevant activities include banking, insurance, shipping, fund management and intellectual property holding companies.
Compliance Reporting: Companies must provide information on economic activity, including financial statements and operational details, to prove substantive business presence.
Companies registered in Switzerland are required to comply with KYC and AML regulations under the Swiss Anti-Money Laundering Act (AMLA) and other associated legislation. These regulations align with international standards, including recommendations from the FATF, and focus on preventing money laundering, tax evasion and terrorist financing.
Beneficial Ownership Requirements
Swiss companies are obligated to disclose their beneficial owners under AMLA and related regulations.
Switzerland definition of beneficial owner:
○ The individual who ultimately owns or controls a legal entity (typically through direct or indirect ownership of 25% or more of shares or voting rights).
○ If no one meets this threshold, the individual exercising control over the management is deemed the beneficial owner.
Required UBO information:
■ Full name
■ Date and place of birth
■ Nationality
■ Address
■ Identification document details (passport or national ID)
■ Nature and extent of ownership or control
Record maintenance: Swiss companies must maintain an updated internal Register of Beneficial Owners, which is available to regulatory authorities upon request.
Obligations for Financial Intermediaries
Financial intermediaries, such as banks, fiduciaries and notaries, are required to conduct KYC checks and ensure compliance for Swiss companies.
KYC documentation requirements:
Reporting Suspicious Transactions
Under the AMLA, Swiss companies and financial intermediaries must perform the following:
Report Suspicious Transactions: Any suspicious activities must be reported to the Money Laundering Reporting Office Switzerland (MROS).
Enhanced Due Diligence: Conduct additional checks for PEPs and high-risk jurisdictions.
Record-Keeping Requirements
Retention Period: KYC records must be kept for ten years after the end of the business relationship or transaction.
Confidentiality: KYC information is confidential but accessible to regulators, law enforcement, or other authorities when required.
Transparency and Economic Substance
Switzerland does not have a publicly accessible register of beneficial ownership. However, companies are required to maintain transparency internally and meet economic substance requirements for certain types of businesses. Relevant activities include holding companies, financial services and intellectual property management.
Compliance reporting: Companies must provide proof of operational activity and tax filings when requested by Swiss authorities.
At KYC-Chain, we offer a fully customizable on-boarding workflow and instant AML / KYC identity verification for companies and beneficial owners.
Our KYC platform gathers and authenticates KYC information against verified and current sources of data for individual and corporate clients, including shareholders and directors.
In practice, you can gain a strategic advantage with real-time access to company records — through official and authoritative commercial register data — from more than 100+ million companies in 90+ countries and jurisdictions.
Some key benefits of KYC-Chain include:
Enhanced corporate on-boarding
Use our web based application or integrate our API into your system in order to quickly enhance your corporate client on-boarding experience. You can then carry out granular analyses of how your clients are moving through the onboarding process to constantly adopt and improve.
Flexibility and scalability
Customize the onboarding process according to your particular requirements — including AML — and integrate the system your applications through RESTful API, and gain the power to handle hundreds of thousands of checks per day.
UBO KYC and AML checks
Screen your corporate and institutional clients and their UBOs for associated criminal or prohibited activities in real-time with our global sanctions and watchlists, PEPs and adverse media databases.
Commercial registry checks
Access essential business information from official and authoritative commercial register databases, including data such as business registration number, address, incorporation date, activity status, director list, and much more.
Data security and ownership
Maintain complete control of your customers’ data by connecting our web-based application or API to your cloud storage. Our technology strives for compliance with GDPR and other global privacy laws and regulations in all situations.
Performing effective KYC on offshore companies can be a resource-intensive undertaking if carried out manually. It requires sophisticated tools and expert support in order to gather reliable information on beneficial ownership, source of funds and potential risks associated with complex offshore corporate structures.
Each offshore destination brings unique advantages to the businesses that register there — and KYC challenges that align with specific business objectives. These include asset protection, tax efficiency, banking secrecy and regulatory compliance.
The choice of jurisdiction will often depend on a client's need for privacy, tax optimization, legal protections and risk tolerance for regulatory scrutiny.
However, increasing international pressure for more transparency has led many of these jurisdictions to adapt, balancing their appeal with heightened AML and KYC compliance requirements in order to prevent misuse.
Ultimately, the high cost and complexity of these processes reflects the level of scrutiny required to address the risks, achieve compliance and establish long-term customer trust. KYC-Chain’s onboarding solution has been designed to make onboarding offshore clients as efficient and cost-effective as possible — while ensuring compliance with constantly evolving global regulations. Contact us and we’ll be happy to arrange a demo for your business.
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