A parent company is a legal entity that owns or controls one or more other companies, known as subsidiaries. This control is typically established by owning a majority of the subsidiary’s voting shares or having significant influence over its operations and strategic decisions. Amongst Know Your Customer (KYC) and Anti-Money Laundering (AML) processes, identifying the parent company is important for understanding the full ownership and control structure of a business.

A parent company may directly influence the activities, financial decisions and compliance posture of its subsidiaries. This is especially relevant when assessing the risk profile of an organization, as a subsidiary may pose additional compliance risks depending on the parent company’s jurisdiction / location, reputation or involvement in high-risk jurisdictions or industries (e.g. dual use). During Due Diligence (DD), information about the parent company can reveal potential red flags, such as sanctions exposure, adverse media or links to politically exposed persons (PEPs).