Importance of Discovering Ultimate Beneficial Owner

Global regulators have been attempting to devise strategies to counter the proliferation of money laundering. Governments found a due diligence gap—a lack of beneficial ownership transparency—after the Panama Papers were exposed. This made it possible for transgressors to send money abroad.

Regulators began to retaliate in 2016 by enacting regulations regarding Ultimate Beneficial Owners (UBOs) and the data that companies are required to submit about them.

What is an Ultimate Beneficial Owner?

An individual with ultimate control over a business is known as a UBO. Depending on the jurisdiction, voting rights and a significant ownership stake (10–25%) in a business qualify someone as a UBO.

Establishing and keeping track of the UBOs of their company-clients is mandatory for AML-obliged organisations, which include those that deal in securities, currency exchange, commodities, FX, binary options brokers, hedge funds, casinos, futures commission merchants, blockchains, digital lenders, etc.

This is important to understand, as in order to stop financial crimes like money laundering from being carried out through shell companies, businesses who adhere to Anti-Money Laundering (AML) legislation are required to identify UBOs.

Regional variations exist in the regulations pertaining to UBO identification and verification. For instance, the Fourth Anti-Money Laundering Directive (AMLD4) of the EU defines a UBO as someone who owns more than 25% of the shares, but in the US, a UBO is someone who owns more than 50% of the shares.

It is possible for someone to own company stock and not gain anything from it in certain circumstances. In these situations, the beneficiary isn’t considered a UBO as they don’t receive perks like the voting rights in a company and possession of dividend rights

If someone holds shares on behalf of another party, they may be a non-beneficiary owner and not a UBO (parents owning their children’s shares, for example).

How to Identify a UBO?

A company’s legality and the correctness of its records must be confirmed, hence specific data must be gathered. Depending on the jurisdiction and the norms of fraud regulation, different information may be needed. In general, the following data ought to be gathered: Name, address, entity type, list of senior management, and registration number

The information submitted must be supported by trustworthy records, data, or both.

Identification of natural individuals holding a percentage of shares or interests in a company, as well as the nature of their control (direct or indirect), can be aided by documents or register information. Until controlling natural individuals (the UBOs) are identified, the entire ownership structure should be examined if shares are held by intermediary legal entities.

Businesses should find out how many shares, ownership stake, or potential indirect control each individual has overall and determine which of them fits the description of UBO. Everyone who is considered a UBO must undergo the complete Know Your Customer (KYC) process.

Companies must use a KYC solution to validate UBOs when they have been identified. This involves putting in place an appropriate Customer Due Diligence (CDD) protocol, which entails gathering, confirming, and keeping an eye on customer-provided data.

If an established UBO turns out to be a high-risk client, enhanced due diligence (EDD) monitoring ought to be carried out.

Anti-Money Laundering (AML) screening is another requirement for businesses. It verifies if the consumers of the company are not listed on any sanction lists (OFAC, UN, HMT, EU, DFT, etc.), PEP lists, adverse media, or other lists.

Customers should continue to be monitored even after the onboarding phase in case they find themselves on a sanctions list in the future.

Continuous CDD tests are necessary since a customer’s profile may alter over time. A UBO may, for instance, thereafter face sanctions, engage in high-risk transactions, or modify their personal data.

GloRep offers a full comprehensive solution, to assist you in gathering your clients’ documentation in order to track whom the ultimate beneficial owner actually is. This is all offered in a user-friendly suite so that you have everything in one place

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