Chapter 9 Exercises

Beneficial Ownership and Corporate Transparency

Exercise 9.1: BO Identification — Basic Cases

Difficulty: Introductory

For each of the following company structures, identify (a) all natural persons who qualify as beneficial owners under the 25% CDD Rule ownership threshold, (b) any individual who qualifies as a beneficial owner under the control prong, and (c) the effective ownership percentage for each 25%+ beneficial owner.

Case 1: - Alpha Ltd is owned 100% by Beta Holdings Ltd - Beta Holdings Ltd is owned 60% by James Whitmore and 40% by Sarah Okonkwo - Alpha Ltd's Managing Director is Thomas Eriksson (no ownership stake)

Case 2: - Gamma Corp is owned 45% by Delta Trust, 35% by Elena Rodriguez directly, and 20% by Zeta Partners Ltd - Delta Trust's sole beneficiary is Marcus Chen - Zeta Partners Ltd is a partnership with two partners: Priya Sharma (60%) and David Kim (40%)

Case 3: - Epsilon Ltd is owned 30% by Founder 1, 30% by Founder 2, 25% by Venture Capital Fund I LP, and 15% by an employee stock option pool (no individual employee exceeds 2%) - Venture Capital Fund I LP has 10 limited partners, none with more than 12% of the fund - Epsilon's CEO and sole director is Founder 1

Exercise 9.2: Ownership Graph Calculation

Difficulty: Introductory-Intermediate

The customer is Pinnacle International Holdings Ltd (UK). Its ownership structure is:

Natural Person A ─────45%─────┐
Natural Person B ─────30%─────┤
Corporation X ────────25%─────┤
                              ▼
                    PINNACLE INTERNATIONAL HOLDINGS LTD

Corporation X (Delaware, US) is owned: - 60% by Natural Person C - 40% by Investment Trust Y

Investment Trust Y is a discretionary trust. The trustees are Natural Person D and a corporate trustee. The potential beneficiaries are "the descendants of Natural Person E (deceased)" — a class that includes Natural Persons F, G, and H in approximately equal potential shares, with no fixed entitlements.

a) Calculate the effective ownership percentages for each identified natural person in Pinnacle International Holdings Ltd.

b) Which natural persons qualify as beneficial owners under the 25% threshold?

c) Who qualifies under the control prong (assume Natural Person A is also the CEO)?

d) How should the beneficial ownership of Investment Trust Y's interest be handled in the KYC file?

e) What documentation would you request from Pinnacle to complete the KYC file?

Exercise 9.3: Registry Assessment

Difficulty: Intermediate

A client provides you with the following corporate structure:

Top-level entity seeking financial services: Horizon Capital Partners Ltd (registered in the British Virgin Islands)

Corporate chain: - Horizon Capital Partners Ltd (BVI) — 100% owned by - Summit Global Investments SA (Luxembourg) — 70% owned by natural person A; 30% owned by - Meridian Holdings Corp (Nevada, US) — 100% owned by natural person B

a) Identify the jurisdiction of each entity in the chain and assess the likely quality and public accessibility of the beneficial ownership registry data available for each.

b) For each jurisdiction, describe what you would practically do to verify the ownership information claimed by the customer (what registry, what data is available, at what cost).

c) Which entity in the chain is likely to present the greatest verification challenge? Explain why.

d) Design a verification approach that addresses the limitations you have identified in (a)-(c), specifying what compensating controls you would apply where registry verification is unavailable.

Coding Exercise 9.4: Ownership Graph Builder

Difficulty: Coding — Intermediate

Using the OwnershipGraph, Entity, OwnershipLink, and BeneficialOwner classes from Section 9.4, implement the following:

  1. Build an OwnershipGraph for the corporate structure described in Exercise 9.2 (Pinnacle International Holdings Ltd and all intermediate entities, treating Investment Trust Y's ownership as uncertain)

  2. Call resolve_beneficial_owners(subject_entity_id, threshold_pct=25.0) and print the results

  3. Extend the OwnershipGraph class with a method to_adjacency_dict() that returns a dictionary representation of the graph suitable for visualization (keys: entity IDs; values: list of (owner_id, ownership_pct) tuples)

  4. Add a method find_sanctions_exposure(sanctioned_person_ids: list[str], threshold_pct: float = 50.0) that identifies any entity in the graph where a sanctioned person's effective ownership exceeds threshold_pct — implementing the logic underlying the OFAC 50% Rule

Test your implementation and explain the output.

Exercise 9.5: Trust Due Diligence Design

Difficulty: Intermediate

A new corporate client is a UK private company that is 100% owned by a discretionary family trust established in Jersey (Channel Islands). The trust was established by the late Sir Reginald Ashworth (deceased 2019). The trustees are two individuals: Lady Caroline Ashworth (spouse) and a corporate trustee (Ashworth Family Office Ltd, UK). The class of potential beneficiaries is "the children and grandchildren of Sir Reginald and Lady Caroline Ashworth."

From public records, you know that Sir Reginald and Lady Caroline had three children, two of whom have children.

a) Identify all parties who should be verified as beneficial owners or controlling persons under the applicable regulatory framework (UK MLRs 2017).

b) What documentation would you request from the trustees to complete verification?

c) The trust deed has not been disclosed to you — the trustees assert it is "confidential." What is the regulatory and practical appropriate response?

d) How would you classify this client's risk rating (using a simple Low/Medium/High framework) and what enhanced due diligence steps would that rating trigger?

e) Lady Caroline is also a director of the UK private company. How does this affect the KYC analysis?

Applied Exercise 9.6: CTA Compliance Assessment

Difficulty: Applied

The Corporate Transparency Act (CTA) and FinCEN's BOI Final Rule require most US companies to report beneficial ownership information to FinCEN. A mid-size financial institution has been asked to prepare a briefing for its legal entity clients on the CTA's implications.

a) Which of the following entities are "reporting companies" under the CTA and must file BOI reports? Justify each answer: - A Delaware LLC with 4 members (all natural persons) - A publicly-listed corporation (NYSE-listed) - A New York-registered investment adviser with $300 million AUM and 25 employees - A sole proprietorship operating under a DBA (doing business as) name - A Wyoming-registered holding company with no employees and $0 revenue

b) For a reporting company, what information must be reported for each beneficial owner?

c) What are the filing deadlines for: (i) companies formed before January 1, 2024; (ii) companies formed on or after January 1, 2024?

d) How can a financial institution use FinCEN's BOI database as part of its own KYC/CDD program? What access protocols apply?

e) A client that is a reporting company tells you they have not yet filed their BOI report, now 6 months overdue. What are the civil penalty consequences, and what advice would you give the client?