What is a HNWI?

There is no strict definition for a ‘High Net Worth Individual’ (HNWI) but it is commonly accepted worldwide that to become a HNW member a person will possess over one million dollars in liquid financial assets. With levels of wealth increasing over the decades, a person can also now be categorised as an ultra-HNWI: a person with available assets in excess of 30 million dollars.

Many organizations, countries, regulators and industries have their own definition of what is classed as a HNWI for investing and compliance purposes.

Associated Acronyms of HNWI

HNWI : High Net Worth Individual, a person with over one million dollars’ worth of liquid financial assets.

VHNWI: Very High Net Worth Individual, often used to describe someone with a net worth of at least US $5 million.

UHNWI: Ultra High Net Worth Individual, a person with a net worth in excess of US $30 million.

SoW: Source of Wealth.

SoF: Source of Funds.

EDD: Enhanced Due Diligence. Due to their SoW and SoF, HNWI individuals are often flagged for further enhanced due diligence checks. Read more on EDD here.

PEP: Politically Exposed Person. A HNWI and PEP are not mutually exclusive and a PEP can also be a HNWI. Read more on PEPS here.

Why is Enhanced Due Diligence important for HNWI?

For many banks and financial institutions, managing the wealth of HNWIs can pose significant risks. In the current global financial market, money laundering, corruption and terrorist financing activities occur on a daily basis. The HNWI may be involved in criminal business activities, or they could be placed in a difficult position as a result of their connections and relationships. Politically Exposed Persons (PEPs), those associated with royalty or government ministers, could be pressured into assisting with fraudulent or corrupt activities.

With the ability to utilise offshore bank accounts, avoid tax payments, and transfer monies globally on an anonymous level, the risks to the world's financial organisations are huge.

What are the risks associated with HNWI?

HNWI by their very definition have a large amount of assets and wealth which flags them as a potential money laundering and corruption risk. This isn’t to suggest that a HNWI accrued their wealth through illegal or immoral means, but their wealth and assets elevates their risk profile when performing KYC on boarding, frequently necessitating enhanced due diligence.

HNWI's often use complex financial instruments and mechanisms to invest, control and move their assets such as offshore banking, trusts, beneficiaries and similar across multiple global jurisdictions. When performing Due Diligence on HNWIs it is essential you have the right skills, experience and data to get the full picture of who you are dealing with.

Not only do HNWIs have complex financial dealings they also may have more than one passport or complex citizenship and nationality arrangements which can further complicate EDD investigations.

Smoke & Mirrors

We have worked on numerous cases where the individual we are performing EDD checks on declares themselves to be a very wealthy HNWI, yet our global investigations have not been able to confirm or backup their claims of wealth. This obviously has implications to our client who may be considering entering a financial arrangement with them, based on their wealth.

Furthermore we are seeing increasing examples of wealthy individuals and companies using third parties to try and cleanse internet search engine results of negative information and using PR agencies to plant positive stories across media outlets. A step forward from using PR agencies is when the HNWI owns media channels themselves, such as newspapers and TV stations leading to further questions about transparency.

Too Much Information?

One of the key issues with prominent HNWIs is the abundance of information available on them. It takes experience and skill to drill down to identify what is relevant with regard to enhanced due diligence and KYC requirements. HNWIs can have a complex SoW and multiple SoF across global jurisdictions. It is essential that the abundance of data, online media and company records does not detract from key due diligence requirements and only reputable sources are trusted.

Allen Stanford : "Yeah, It's Fun Being a Billionaire"

Perhaps the archetypal example of a HNWI and their risks is Robert Allen Stanford. Up until his 110 year prison sentence in 2012, for what the SEC described as "a massive Ponzi scheme", Stanford presented himself as a successful billionaire businessman running an outwardly successful real estate company and Stanford International Bank amongst a large range of other business interests. To further bolster his standing he was knighted by Prince Edward, Earl of Wessex, as a Knight Commander of the Order of the Nation (KCN) of Antigua and Barbuda.

At the peak of his wealth in 2008 (just prior to his arrest) Stanford was interviewed by CNBC, in which he gloated about the amazing returns on his financial schemes and how "it’s fun being a billionaire".

Less than a year later, Stanford’s financial empire started to collapse, when the US charged him for a "massive" fraud.

Stanford’s Ponzi fuelled business empire crashed leaving 18,000 customers with practically nothing. It is alleged that even the SEC failed to spot the warning signs and ignored complaints for over ten years

Up until his arrest in 2009, no criminal charges had ever been bought against Stanford. His companies were regulated by the US Government and other relevant authorities in the jurisdictions in which they operated. At first glance one would think he was legitimate.

However if you were to have performed Enhanced Due Diligence on Stanford before the collapse of his $7 billion Ponzi scheme, it would have revealed that:

• Stanford's banking relationships, since the late 1980’s, had dubious reputations. At times banks he was closely involved with were closed before their licenses were formally revoked by the authorities.

• In 1998 an affidavit was filed by the IRS that linked Stanford International Bank to the money laundering activities of the late Amado Carrillo Fuentes (Mexico’s largest drug cartel at the time).

• Somewhat ironical to the above and in a dire conflict of interest (and Stanford's later convictions), in 1997 Stanford was asked by the then Antiqua prime minister to undertake the task of tightening anti-money laundering regulation in Antigua as a response to international pressure. Stanford created a board with himself as president to implement the changes and over 18 months new laws to control money laundering were implemented. Five offshore “banks” were closed and twenty more were reviewed. However, the US authorities viewed Stanford’s financing and participation of the board and his ownership of banks on the island as a conflict of interest. Moreover the new laws were viewed as having substantial loopholes, making it more difficult to obtain bank records. This led to the issuance of a FinCEN advisory notice.

Allen Stanford exemplifies how at face value HNWIs can look clean, yet an Enhanced Due Diligence check can reveal hidden red flags and warning signs, illustrating why EDD is so important.

How Proximal Consulting Can Help

With the amount of worldwide HNWIs in existence, a figure which will always continue to rise, the banking and financial sectors require specialist assistance in understanding the identity of their high net worth clients and the source of their wealth, enabling them to make informed decisions and fulfil AML obligations.

Proximal Consulting has been assisting the financial industry since 1999, providing enhanced due diligence reports which will confirm whether a customer or partner (prospective or existing) is providing complete and accurate information. Our detailed research will also aim to uncover any existence of criminal activity such as money laundering, corruption, terrorist financing or fraud.

Through a combination of extensive and proven investigative tools, together with reliable associates providing in-country intelligence, we can determine the legitimacy of an individual or legal entity in numerous and various countries. Whilst in some countries the investigations into private individuals can be severely restricted, over the years we have gained considerable expertise in successfully conducting investigations in these, more guarded areas.

You can read more on our dedicated HNWI services here