Digital identity is crucial for targeted sanctions
Sanctions are a diplomatic action that governments and businesses can take to defend against threats of war. Digital identity is crucial to successfully apply targeted individual sanctions. KYB (know your business) is necessary to apply pressure to individuals using corporations to shield their holdings in order to circumvent sanctions.
Many jurisdictions require verified identity when you open a bank account or incorporate a business, but not all. Swiss bank accounts are famous for not disclosing the identity of who the bank account is for — or even if there is a bank account at all. Corporations can provide a similar kind of privacy if they are opened in certain jurisdictions that do not require verified identity. These corporations can be used to launder money received from bribes and other illegal activities like tax evasion.
Most of the time, the main criminal concerns for collecting KYB include money laundering for illegal drug trafficking and terrorist financing, but there are other reasons to know the human identity associated with a corporation or the Ultimate Beneficial Owner (UBO).
For example, in 2009, the IRS paid a Swiss bank whistleblower $104 million, a 26 percent share, for the identification of American tax evaders leading to the collection of $400 million in evaded U.S. taxes.
Why did the whistleblower sell out his previous clients? He could make millions from the bounty! And Steven Soderberg’s film, The Laundromat shows the drama and suffering created by these corporate entities, thanks in part to the release of 11.5 million records from accounting firm Mossack Fonseca by a whistleblower. The leak blew the cover off the identity of 140 rich and powerful men and women using illegal tax havens. As of April 2021, governments have recouped $1.36 billion in back taxes and penalties. Not to mention uncovered evidence of criminal activity like bribery and arms dealing. Last week, I wrote about how KYB can help corporations protect themselves from impersonation and other digital identity attacks. A global KYB can be used to identify UBOs in these situations for the benefit of humanity.
The goal of KYC and KYB is to verify the identity of the person associated with a financial account, whether it is an individual or business. One way to get around this, is to create a company whose UBO is another company, or series of companies referencing UBOs all the way down, making it hard to trace the human at the end of the chain. Another way to avoid attaching human identity is to have an accountant or banker open an account on behalf of an unnamed company or individual. And yet another way is to go to a broker of “shelf corporations” that may have been incorporated years prior but were sitting on a shelf to be used when needed. And yet another way to get around this is to put the assets into the name of a trusted individual. (I recently came across a list of female-owned businesses that clearly were just owned by the wife of the CEO!)
But what does this have with sanctions? It’s about identity, verified identity.
On February 25th, the U.S. Treasury announced specific sanctions on Russian President Vladimir Putin, Foreign Affairs Minister Sergei Lavrov and other members of Russia’s Security Council. This is a diplomatic strategy to directly impact those directly responsible for the Ukraine attack, not just in their home country of Russia, but in their diversified network. But how can these people be effectively sanctioned if they are worth almost nothing on paper?
The company that broke the Mossack Fonseca investigation, the International Consortium of Investigative Journalists, has investigated Russian oligarchs as well. These leaks attempt to identify the assets oligarchs have parked their money into specifically to evade future sanctions.
But no country, and no individual can escape their interdependence on global society and economy. Diplomatic sanctions are possible thanks to KYC, KYB and diligent investigation. KYB isn’t just good for business, it’s good for peace.
About the author
Heather Vescent is a digital identity industry thought leader and futurist with more than a decade of experience delivering strategic intelligence consulting to governments, corporations and entrepreneurs. Vescent’s research has been covered in the New York Times, CNN, American Banker, CNBC, Fox and the Atlantic. She is co-author of the The Secrets of Spies, The Cyber Attack Survival Manual and The Comprehensive Guide to Self Sovereign Identity.
AML | biometrics | digital identity | financial services | identity verification | KYB | KYC | regulation | Russia