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Entity (KYC)

A group of n actors working together as partnerships, consortiums, joint ventures, funds or other legal entities are non natural actors (nn actor).

This RDDQ is in relation to an actor nn being onboarded and maybe used for continual monitoring. Onboard and off boarding decisions are a risk management process.

Market risk (2)
Are you a corporate type on this list?
2.4 Certain legal entity types with higher governance requirements are deemed low risk.
Low risk nn actors...
Governance risk (3)
Can you provide full due diligence on persons with significant control?
3.18 Controllers should be transparent as to who they are
Are you a corporate type on this list?
3.20 Certain legal entity types with higher governance requirements are deemed low risk.
Medium Risk
Have you ever issued bearer shares?
3.21 Bearer shares with full anonymity are banned in certain jurisdications.
Have you ever traded or conducted business in these places?
3.33 Certain jurisdictions are on agency lists, like FATF, where certain activities are not deemed to be at expected standards such as KYC and AML procedures.
"Jurisdictions under Increased Monitoring" fatf-gafi.org, Feb 2021. https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/increased-monitoring-february-2021.html
High Risk Countries (FATF list)
Have you been introduced?
3.120 Introducers may have policies and procedures to ensure they too filter out actual or potential high risk actors
Identity risk (13)
Is the legal entity's incorporation details on a registrar's website?
13.15 Third party government agency registrar platforms can help verify proof of existence
Suitability risk (15)
Has there been any adverse media on the entity in the last 5 years?
15.122 Reviewing social media or other media may reveal behaviours that could change their risk rating
Can you provide a certificate of good standing?
15.123 References from trusted third parties can help in the risk management process
Can you provide a list of directors / partners (past and present in last 10 years)?
15.124 RDDQ on the people who operate the entity will be required
Can you provide a register of shareholders and stakeholders (e.g customers > 15% of annual revenue)?
15.125 Establishing key stakeholders is important. Each stakeholder may need to be RDD'd
Reputation risk (16)
Can the website be proven as not a fake?
16.130 Checking blacklisted url databases along with google verification api checks are useful to detect fake websites
"Artists against 419" db.aa419.org, Ongoing. https://db.aa419.org/
Accounting risk (17)
Will digital assets be traded on these venues?
17.25 Certain trading venues are deemed lower risk than others.
CEX (per CoinMarketCap ratings)
Experience risk (18)
Do you reside in any of these "crypto" friendly jurisdications?
18.35 Residents in DeFi friendly jurisdictions will usually be easier to onboard
Friendly countries....
Legal risk (19)
Have you ever traded or conducted business in these places?
19.19 Certain jurisidictions are on government agency sanctions lists
Prohibited Countries (US and EU list)
Do you appear on this global sanctions list?
19.30 Certain actors are on government agency sanctions lists
Money Laundering risk (20)
Can you provide a notarized incorporation (and change of name and other substance documents) certificate?
20.16 Professional third party confirmation of identity
Will fiat funds be wired from a regulated financial institution?
20.22 To ensure any wired monies comes through a regulated entity like a bank
Have you been reprimanded by a regulator or court for money laundering abuse?
20.27 To ensure there have been no past misdemeanors that may impact any transaction
Are there satisfactory answers to potential risks from reviewing the financial statements?
20.139 Reviewing management accounts or statutory filings will help mitigate against sham entities and beneficial control issues
Accounting considerations
Tax Evasion risk (21)
Can you provide evidence of where principal taxation is paid?
21.17 To verify funds come from a legitimate source such as earned income, provabe capital gains and inheritance
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No financial advice

These global standards, best practice guidance and risk due diligence questions are an attempt to make DeFi a level playing field. They are not intended to provide any investment advice. Claims made in this website do not constitute investment advice and should not be taken as such. In the meantime, it would be very useful if the jurisdictional regulators would start working together and treating these new financial related projects as a different form of instrument. The Howey Test (1946) was designed in an era of deeds of title and paper bearer certificates. DeFi can be humanless and profit is not always the motive for using protocols. TradFi Derivatives for example are based on underlyings of real assets like the fair value of incorporated companies whose value is derived from fiat currencies which are themselves derivatives on an underlying like gold or a printing machine. Fiat is seen to be a real asset which it clearly is not. The new DeFi world matches actors with agendas. Most of the time the agenda is to do things better and faster. Defi enables everyone including the bankless and unserved members of the community to transact without having to understand how to use Excel or have an MBA from an elite university or be able to able to decipher the millions of pages of legal text opinions as to whether a bitcoin is a currency, a security, a commodity, a derivative, an underlying, a valueless number, type of gambling or something that will just go away. While we wait for a consensus by the old guard, the new guard will create their own computer based standards. Our aim is to turn these standards into bots or smart contracts that do all of this behind the scenes. Image a world where the community agree on how to transact and just do it without a parental overseer who is always a bit behind the curve...

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