Structure Risks in KYC:
Who Is Really Behind Your Client?

Complex ownership structures are one of the most commonly used methods to conceal money laundering, fraud, and sanctions evasion — including through seemingly normal companies.
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You receive a new client. A private limited company, registered in the Netherlands. Professional communication, polished appearance. On paper everything checks out. But the question that really matters is often not asked: who is actually behind this company? And that is precisely where the risk lies.

What is Structure Risk?

Structure risk arises when the ownership structure of a company is so complex that it becomes difficult to determine who the ultimate owner is. Think of a Dutch private limited company owned by a holding company, which is in turn owned by a foreign entity. Each additional layer makes it harder to see the truth.

Imagine a Russian matryoshka doll: you open the outer doll and find a smaller one inside. And inside that, another. And another still. That is precisely how a complex corporate structure works. On the outside you see a neatly registered company. But who ultimately sits in the innermost doll — the person pulling the strings and benefiting from the profits — is exactly what criminals want to hide.

The person who ultimately benefits is called the Ultimate Beneficial Owner (UBO). KYC means, at its core, looking through all the layers until you reach that person. It sounds simple — in practice it rarely is.

Commonly Used Techniques to Conceal Ownership

Research by regulators and law enforcement agencies consistently reveals the same patterns:

Shell Companies

Companies without real activities: no staff, no office, no visible revenue. They exist only on paper. A shell company is not illegal in itself, but if there is no economic justification for its existence, that is a strong red flag. Regulators specifically check whether the entity has substance — actual activity in the country of registration.

Nominee Structures

In a nominee structure a paid third party acts as the formal director or shareholder — while the actual owner remains completely invisible. The nominee signs the documents, is registered at the company registry, but has no real authority. Behind the scenes the actual owner directs via instructions. This completely masks who the real decision-makers are, and therefore also who can be held accountable in the event of fraud or money laundering.

Special Legal Structures

In addition to regular companies, specific legal vehicles are used that by their nature offer little transparency. Each has its own risk profile requiring separate assessment during a UBO investigation:

  • Anglo-Saxon trust — legal ownership of assets lies with a trustee, but the economic beneficiary is a different person. Trusts are not legally required to register in many jurisdictions, making the UBO difficult to identify.
  • Liechtenstein Foundation (Stiftung) — a foundation under Liechtenstein law in which assets are held without a direct owner. Beneficiaries are often not publicly registered and can be changed at any time.
  • STAK (Dutch trust office foundation) — a Dutch construction in which shares are converted into depository receipts. The STAK holds the voting rights; the certificate holder receives the economic value but has no direct control. Legitimate for succession purposes, but also usable to conceal the actual owner.
  • Bearer shares — physical share certificates that are transferable without registration. Whoever physically holds the shares is the owner — without this being recorded anywhere. Now banned or heavily regulated in most EU countries, but still encountered in structures with offshore components.

Free Trade Zones and Offshore Jurisdictions

Certain locations are structurally attractive for concealing ownership — not because of their economic function but because of their regulation. In Free Trade Zones such as those in Dubai (JAFZA, DIFC), Hong Kong or Malta, simplified registration requirements and limited reporting obligations apply. Offshore jurisdictions such as the Cayman Islands, Panama, the British Virgin Islands and — within the US — Delaware and Nevada offer the possibility of registering companies with minimal disclosure of the actual owner.

An entity in such a jurisdiction is not necessarily suspicious, but always requires a heightened level of due diligence and an explicit business justification for the choice of location.

When is it Too Complex?

Structures are not prohibited in themselves. Many companies have legitimate international structures — for tax planning, liability limitation or international expansion. The problem arises when a structure is more complex than the company’s activities justify.

A practical rule of thumb used by regulators and compliance departments: more than 3 to 4 layers in an ownership structure without demonstrable tax or legal logic is considered elevated risk. Each additional layer that serves no explainable purpose increases the burden of proof for the client. They must be able to explain why that layer exists — and if they cannot, the answer itself is already a signal.

Secrecy Jurisdictions: When Information is Deliberately Withheld

A structure becomes even more risky when one of its layers is located in a so-called secrecy jurisdiction — a country or territory that systematically shares no or very limited information with foreign authorities. Examples include the Cayman Islands, Panama, the British Virgin Islands and also certain US states such as Delaware and Nevada, where companies can be registered without recording the name of the actual owner.

The problem with secrecy jurisdictions is not only that you as a business partner cannot identify the UBO — it is also that regulators and enforcement agencies cannot do so either. A structure with one layer in a secrecy jurisdiction makes the entire ownership picture unverifiable. That alone is sufficient reason for an elevated risk profile, regardless of how legitimate the rest of the structure appears.

The Link with Sanctions: Structures as an Evasion Instrument

In 2026 this risk is more acute than ever. Complex ownership structures are actively used to circumvent international sanctions. It is important to distinguish two thresholds, each with a different function:

The 25% threshold is the UBO threshold under AML legislation: every natural person with more than 25% economic interest or voting rights in an entity must be identified and verified as a UBO. This is the standard KYC obligation applicable to all obliged entities.

The 50% threshold is specifically relevant to sanctions evasion. EU sanctions regulations use as a rule of thumb that a sanctioned entity “controls” another entity when it holds a direct or indirect interest of 50% or more — and that the other entity therefore also falls under the sanctions. Officially there is then no “controlling interest” triggering sanctions screening — while the sanctioned person in practice fully controls via a combination of voting rights, loans, management contracts or nominee arrangements.

For your KYC process this means concretely: you screen for UBOs from 25%, but effective sanctions screening additionally requires looking at aggregated economic influence across multiple entities and indirect control mechanisms — even when no single entity exceeds 50% on its own. This construction is known as beneficial ownership fragmentation and has been explicitly identified by FATF and OFAC as one of the primary evasion techniques following sanctions against Russia and Iran.

Illogical Governance: When Directors Don't Add Up

In the Netherlands, the UK and the US the concept of negligent money laundering applies: if you should have recognised red flags but did not, you can face criminal prosecution. Courts look not only at what you knew, but at what you should have known — and whether you asked questions about the structure behind your client.

Directors without relevant experience

A person without demonstrable background in the sector or type of activities of the company who is formally a director points to a nominee arrangement. The real decision-maker is elsewhere.

Directors based in high-risk countries

A director residing in a country on the EU list of high-risk third countries or in a secrecy jurisdiction significantly increases the risk. It makes oversight and accountability practically impossible.

Professional directors of hundreds of companies

A person or company registered as director or shareholder at dozens or hundreds of other entities by definition has no actual control over each of those companies. This is a classic characteristic of a nominee structure and indicates an absence of real operational involvement.

Recent Case Law.
 Enforcement Worldwide

Structure risks are being actively addressed by regulators and law enforcement agencies:

Region / Date Case / Authority What happened?
Netherlands
2024 		Trust office / DNB Trust office dismantled that managed complex structures for money laundering via nominee directors and offshore holdings. DNB imposed a multi-million fine and revoked the licence.
United Kingdom
2024 		Accountancy network / NCA Network of accountants prosecuted for setting up hundreds of shell companies with nominee structures for sanctioned Russian entities.
United States
2025 		FinCEN / CTA enforcement Fines imposed for incorrect or missing UBO registrations under the Corporate Transparency Act. Hundreds of companies with Delaware structures under scrutiny.
Europe
2025 		AMLA / EU-wide action The new EU Anti-Money Laundering Authority (AMLA) announced in 2025 coordinated checks on structures with more than four layers and offshore components in high-risk jurisdictions.

Recognise the Red Flags

Use this list as a starting point for your internal control process. One hit justifies further investigation:
  • Red flags for structure risks
  • The ownership structure has more than 3 to 4 layers without demonstrable tax or legal logic.
  • There are entities in secrecy jurisdictions (Cayman Islands, Panama, BVI, Delaware, Nevada) without business justification.
  • There are entities in Free Trade Zones or offshore jurisdictions such as Dubai (JAFZA/DIFC), Hong Kong, Malta or the British Virgin Islands.
  • There are bearer shares or a STAK arrangement without clear succession or governance logic.
  • An Anglo-Saxon trust, Liechtenstein Foundation or comparable vehicle features in the structure without explanation of the beneficiaries.
  • The director or shareholder is a nominee: no demonstrable expertise, resident in a high-risk country, or registered at dozens of other companies.
  • The interest of a certain party is deliberately kept just below 50% across multiple entities simultaneously.
  • The client cannot provide a written explanation that logically justifies the structure from a tax, legal or organisational perspective.
  • The business address is a letterbox address shared with dozens of other entities.
  • There is pressure to act quickly without space for questions or documentation.

Download The Structure Risk Checklist!

What Can You Do?

Structure risks are manageable — if you know what to look for. Concrete steps:

  • Map the complete ownership structure down to the level of the natural person. A UBO investigation does not stop at the first legal entity.
  • Conduct a sanctions screening on all entities in the chain — not just the direct contracting party. Pay particular attention to interests just below 50% and nominee arrangements.
  • Assess the logic of each structural layer: does this layer have a demonstrable tax, legal or organisational function?
  • Always ask the client for a written explanation of the structure. If they cannot or will not provide one, that in itself is already a negative signal.
  • Check the directors: find out how many other entities they are registered with, what country they live in, and whether their background matches the company’s activities.
  • Always document your findings in writing in a file. In the event of a dispute or investigation you must be able to demonstrate that you acted diligently.

For businesses subject to AML legislation — such as financial institutions, accountants, tax advisers and notaries — there is an obligation to report unusual transactions in which structure risks play a role to the relevant FIU. This is an active obligation: even if you refuse to enter into the relationship, a report may still be required.

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