Eight key things about Ultimate Beneficial Ownership (UBO)
KYC, KYB, UBO, CDD, AML, CTF – the world of compliance is awash with acronyms galore. UBO, or Ultimate Beneficial Ownership, is a relatively new term, so in this article we elaborate on eight important things to know about UBO. The definition of a UBO varies between jurisdictions, but there is a general consensus.
In simple terms, the Ultimate Beneficial Owner is the person(s) with the power to control an entity.
The UBO is defined by the Financial Action Task Force (FATF) as “the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.”
A critical element of the FATF definition is that it focuses on the natural person. The general threshold is for an individual to hold at least 10-25% ownership stake in a company (depending on the jurisdiction) or have significant influence over a business to be considered the UBO.
UBO verification is now an essential component of client onboarding and anti-financial crime processes Similar to Know Your Customer (KYC) and Know Your Business (KYB) requirements, UBO verification is now recognised as an essential component of customer due diligence. In fact, UBO verification has been cemented under the scope of Anti-Money Laundering and Countering Terrorism Financing (AML/CTF) regulations in most jurisdictions.
According to the International Monetary Fund (IMF), money laundering and terrorism financing costs the global economy around 1,000 billion euros per year, which equates to between 2.5 and 5% of the world’s GDP. Identifying the UBO of a company therefore gives banks and other corporate services increased awareness and equips them with valuable information to avoid forming a business relationship with unsuitable companies.
Finding the UBO can get very complex. Finding the UBO and breaking down opaque company structures can become a very complex procedure, which presents a significant challenge for responsible businesses.
This is particularly the case when companies are specifically designed to conceal the UBO by taking advantage of cross-border movements for company registrations and offshore accounts. These global movements are compounded by varying jurisdictional regulations and differing languages that make it difficult to accurately understand the true meaning of legislation or UBO results. If you’re interested in learning more, AsiaVerify cofounder Jenny Li discusses this topic and opaque organisational structures in her video session for #RISK DIGITAL.
Many stakeholders benefit from knowing who the UBO is.
The primary beneficiaries are the direct stakeholders of a business – partners, employees, customers, investors, suppliers, and shareholders. By knowing who the UBO is, all stakeholders have increased transparency and insight into how the business is being run. They can then make more informed decisions about their ongoing involvement with the business.
Governments also gain from compliance with UBO rules, as shell company-related money laundering costs the US around $70 billion per year. Verifying the UBOs of businesses will enable governments to find and recoup these lost funds and use the funds for the benefit of their citizens and society more effectively.
And finally, a major beneficiary of identifying UBOs is all of society. Uncovering UBOs helps to mitigate the proliferation of criminal enterprises and prevents them from hiding their finances behind shady mechanisms. When we operate in a world that is governed well and where decisions and ownership are transparent, it makes it easier to take recourse if and when needed – and encourages increased trust in the financial system.
Whilst complexity of the process can vary, there are four main steps when identifying the UBO of a company.
Step 1:
Acquire the company’s credentials – this involves acquiring up-to-date information, such as the company’s registration number, name, address, status, and names of top management employees for verification of legitimacy and accuracy.
Step 2:
Research the company’s ownership chain – this step involves identifying the natural or legal persons who have a percentage in shares or interests and assess whether their ownership is direct or indirect.
Step 3:
Identify and verify the UBO/s – this is where the process can become more complex; once the ownership chain is identified, it is important to confirm the total percentage of shares, management control, and ownership stake of each individual and determine whether any fall under the definition of UBO.
Step 4:
Perform a thorough AML/KYC check – once the UBO/s is or are identified, they must be subject to a thorough and appropriate AML or KYC check to confirm that they are suitable to do business with.
Technology can facilitate a more accurate and easier way to identify the UBO.
Recent advancements and proliferation of regulation technology (RegTech) is helping businesses to identify the UBO in a quicker and more accurate way. RegTech companies such as AsiaVerify are developing effective technological solutions that connect directly with government registries to provide businesses with accurate information about UBOs. This innovative technology saves businesses ample time and money, along with avoiding potentially lengthy legal and financial issues had this information not been uncovered. Equipping businesses with UBO information helps them to mitigate risk and make more informed business decisions about who they engage with.
UBO verification helps businesses to accurately assign risk and allocate resources
By conducting thorough UBO verification, businesses can more efficiently allocate their resources, understand the risks and context of a customer, and avoid engaging with unsuitable companies.
If the UBO falls under a low-risk category, businesses can commit less resources during the due diligence process, whilst ensuring minimum verification and checks are adhered to.
However, if the UBO is in the medium- to high-risk range where they show some signs of potentially being related to terrorism or money laundering, resources can be allocated for additional investigation. This may include conducting additional screening to collect information about the company (e.g. political exposure, adverse media and past litigation), analysing the UBO’s source of funds to identify any major discrepancies, gathering additional information about the purpose and intended nature of the business relationship, and registering annual updates about changes in substantial ownership. AsiaVerify can help businesses accurately and efficiently identify UBOs.
AsiaVerify offers best-of-class UBO solutions for businesses in the Asia-Pacific region.
We have developed unique algorithms that enable us to break down complex company structures designed to conceal the UBO. Our services utilise only the most authoritative data sources in the region, and we have unparalleled access to these data sources for the most up-to-date information.
AsiaVerify has a nuanced understanding of the markets we operate in, and we understand those language discrepancies can cause issues for searches. We have therefore introduced automated translation and auto-fill for our services in order to avoid such issues and to offer our clients the most accurate results on the market.
If you’re looking for the market leading solution for UBO, KYB, and KYC services, contact AsiaVerify to chat with a multilingual regulatory expert or visit our website to learn more.
