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  6. What due diligence checks should you conduct on subsidiary companies?

What due diligence checks should you conduct on subsidiary companies?

We act for a company in a commercial property transaction. Our client is a subsidiary of a company that is listed on the London Stock Exchange. What due diligence measures do we need to undertake on our client in the circumstances?

As with any client, you will need to identify and verify the client's identity (see paragraph 4.9.3 of the Legal Sector Affinity Group anti-money laundering guidance).

You will also need to consider the identity of beneficial owners where simplified due diligence does not apply.

If your client is a majority owned and consolidated subsidiary of a company that is listed, and whose securities are admitted to trading on a regulated market, then simplified due diligence will be available. 

For these purposes, 'majority' means more than 50%, and 'consolidated' denotes that the accounts of the client company are treated as part of the group accounts.

Paragraph 4.9.3 of the anti-money laundering guidance states that where you are dealing with such a subsidiary you will require evidence of the parent/subsidiary relationship and should then show that the parent is listed.

Simplified due diligence does not require you to obtain information on beneficial owners.

You will probably acquire information about any other beneficial owners as part of the process for checking that the above requirements for simplified due diligence apply. 

It may be that such information will lead you to conclude that simplified due diligence may not be appropriate. 

For example, if there are other risk factors associated with any non-majority owner you may, on a risk-based approach, consider conducting further checks on that entity.

If you consider that there are other high-risk factors around the subsidiary or the parent, you may decide that simplified due diligence is not appropriate in any event.

For further information about customer due diligence please see anti-money laundering guidance for the legal sector.

Disclaimer: While every effort has been made to ensure the accuracy of the information in this article, it does not constitute legal advice and cannot be relied upon as such. The Law Society does not accept any responsibility for liabilities arising as a result of reliance upon the information given.

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