After KYC comes KYS – Why it is becoming more important for companies to know where their shareholders are located

Admittedly, not many companies have such prominent shareholders as Chelsea FC. Oligarch Roman Abramovich had the foresight to transfer his shares to a trustee before his ownership became an (even bigger) problem for the London football club. Allegedly an affair of the heart for him. That even companies whose shareholder structure is not quite the focus of public interest could suddenly have „an issue“ could be seen last week with the German travel company TUI.

In both cases, the shareholders from Russian oligarch circles were known to the company and the public. And in both cases there were not only financial but also strategic links to investors who are now on sanctions lists in Europe and the USA – which more or less became a burden for both companies.

Now it is in the nature of things that as a publicly listed company you cannot choose your shareholders, or only to a certain extent. Why then, and for which companies, is it important to know who the shareholders are and where they come from?

KYC – It is standard in the financial sector

For banks and insurance companies, goods traders or real estate agents, the know-your-customer principle (KYC for short) should have been standard practice since 2008. The Money Laundering Act (GWG) was rewritten at that time to more effectively prevent the covert smuggling of illegally acquired assets into the legal economic cycle. This does not always and everywhere work as desired by law and society. If shortcomings come to light, this is not only punishable by law. It is also a considerable reputational risk – not only for the companies, but also for the people involved. In the financial sector, the abbreviation KYC is therefore also translated as „Kill your Career“.

Comprehensive risk analysis

Based on the applicable EU regulations and according to the Foreign Trade and Payments Act (Außenwirtschaftsgesetz, AWG), companies are obliged to make an economically and technically reasonable effort to check all business partners against the published European Common Foreign & Security Policy (CFSP) list. This means that not only exporting companies, but also companies that only do business in Germany, must check all business partners, suppliers, customers and also employees against the sanctions list. This regularly includes financial relationships. These lists refer not only to Russia, but also to Iran, North Korea and South Sudan, for example. Even the USA was once on the European Union’s sanctions list. An overview of the currently applicable measures and affected countries can be found on the EU Sanctions Map.

In particular, anyone who maintains business relations with countries on the sanctions list (or with persons who come from the respective countries) would be well advised to obtain a comprehensive picture of their relations with such regions.

In the last three weeks, we have all had to learn painfully that the signs can change quickly. What yesterday was still part of an international growth strategy, was considered a good and reliable partner or, as in the case of TUI a year ago, was celebrated as a rescue, can become a burden tomorrow. In the age of social networks and „naming and shaming“, issues can develop great momentum very quickly. It is better if corporate communication is prepared for such cases and is not caught cold.

Apart from possible reputational risks, it is advantageous to know whether shares in one’s own company could be blocked due to sanctions or, conversely, whether increased sales from regions affected by sanctions are to be expected. Companies should also be prepared for questions from investors as to whether they know who their shareholders are. There is nothing wrong with having more to offer than a shrug of the shoulders. In the case of financial companies, by the way, such questions can also come from BAFIN – the financial supervisory authority can investigate who is invested in a so-called owner control procedure.

The greatest risks lie in ignorance of facts. Knowing who one’s shareholders are is therefore part of risk management.



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