Unmasking Kleptocrats: Why Ownership and Control Are Key to Mitigating AML and Sanctions Risk
- Steve Marshall
- Jun 27
- 3 min read
As published in Finextra.
By Steve Marshall, Director - Advisory Services, FinScan, an Innovative Systems solution
Tackling sanctions evasion can often be likened to patching a leaky boat. As one hole is patched, another opens. This is particularly the case when dealing with kleptocrats. Kleptocracy is when government officials and other powerful individuals exploit and steal a country’s wealth and resources from its citizens. Kleptocrats may be subject to sanctions, but thanks to their power and influence, they also have the resources to hide their assets. Not only does this present a significant challenge to financial institutions (FIs) in detecting kleptocrats, but it also threatens the very ideas of fairness and the rule of law that many of us take for granted.
Defining kleptocrats
Kleptocrats are typically defined as corrupt government officials, their families, and close allies. The definition also extends to other influential persons, such as “oligarchs”. These ultra-wealthy individuals have access to and influence over those in power. They may also provide significant support in the form of strategic advice, business deals, industrial influence, or economic leverage.
Corruption concerns
All the indications point to an increasing kleptocracy threat. When Transparency International released its 2024 Corruption Perception Index, 47 of the 180 countries surveyed received their lowest score since the organization launched the index in 2012, highlighting the growth in corruption. Although corruption is a broader concept that can take many forms, such as bribery and nepotism, it provides fertile conditions for kleptocracy, as kleptocrats rely on corruption to siphon off public wealth.
Acts of concealment
Kleptocrats may become the subject of international sanctions, but they aren’t just sitting back waiting for this to happen and for their assets to be frozen. Instead, they’re actively building complex networks to hide assets and distance themselves from direct ownership. On paper, it might look like they’ve handed their wealth off to someone else, but in reality, they still control it.
These highly sophisticated schemes are often facilitated by networks of lawyers, accountants, consultants, and financial advisors, who may or may not be aware of their role in the scheme. Funds are laundered through multiple layers of corporate structures, offshore shell companies, trusts, and real estate, rendering it more difficult for FIs and regulators to conduct effective due diligence and establish beneficial ownership.
The result? A constant game of financial hide-and-seek, with money and assets moving fluidly to and/or through companies or other entities owned and controlled by the kleptocrat, in a bid to hide where the wealth came from and who ultimately controls it.
However, focusing solely on the movement of funds and assets, whether legally or illegally owned by a kleptocrat, misses a crucial aspect of the picture: control.
Truly understanding control
Anti-money laundering (AML) rules typically emphasize both ownership and control when identifying beneficial owners. That same emphasis on control needs to be incorporated into how FIs manage sanctions risk and controls.
Control doesn’t always show up in official ownership records. It can take many forms, such as influence over key decisions, operational control, or even informal channels like personal relationships and under-the-table deals. This type of “shadow ownership” makes it significantly more challenging to assess risk and remain compliant. FIs therefore need to go beyond ticking boxes for know-your-customer (KYC) checks and dig deeper to understand who is benefiting behind the scenes.
Technology, training, and threat intelligence
To advance their efforts in tackling the kleptocrat threat, FIs need to invest in three key areas: technology, training, and threat intelligence. From a technology perspective, screening tools are essential, but FIs should also utilize data enrichment to help identify risk indicators of sanctions evasion.
Data enrichment in the form of network relationships, looking at both familial and other connections, can help identify potential increased risk for sanctions evasion when those parties are processing transactions in their own name for the benefit of another. However, without sufficient due diligence, the transactions may be found to benefit a sanctioned party.
Alongside this, training programs must cover real-world scenarios, red flag indicators, and emerging threat typologies. Lastly, threat intelligence, whether shared through public-private partnerships, should be a strategic imperative, not a secondary concern.
Tackling the kleptocratic threat
In the fight against kleptocracy, focusing on legal ownership alone is no longer enough. The real power often lies in determining control, which may be hidden, layered, and intentionally obscured. To tackle this complex cohort, FIs must look beyond surface-level ownership and incorporate key risk factors to determine influence and control in their AML and KYC processes. This means equipping teams with the right data enrichment tools, conducting advanced training, and investing in shared threat intelligence to detect the unseen hands holding the wealth.
