Before partnering with a new organisation, merchant or client, it’s crucial for companies to clearly identify who they are dealing with. Most businesses are led by stakeholders who are committed to ethical conduct and contributing positively to their industries. However, this is not always the case – and it can be difficult to tell the difference between honest operators and those with less scrupulous intentions. This is especially true when complex organisational structures mask the identities of those who make the decisions and pocket the profits.
Following the principle that appearances can be deceiving, transparency around Ultimate Beneficial Owners (UBO) is essential in our fast-moving, global business landscape. Without this clarity, legitimate institutions are vulnerable to fraud and could unwittingly facilitate tax evasion, corruption, money laundering and other financial crimes.
How is beneficial ownership defined?
Beneficial owners are the individuals who ultimately own or control a legal entity or arrangement, such as a company, trust or foundation. This could involve:
● Holding a controlling ownership interest (e.g., 25% or more).
● Controlling a significant percentage of voting rights.
● Having the power to appoint or remove members of an entity’s board of directors.
● Influencing or vetoing decisions through shareholder agreements, family links or other connections.
Given that beneficial ownership comes in many shapes and forms, and each country sets its own criteria for identifying beneficial owners, identifying UBOs can be complex, to say the least. However, it’s a crucial part of any company’s business, merchant or client screening programme.
Lessons from high-profile scandals
The importance of UBO transparency became widely recognised following several major financial scandals. The Panama Papers in 2016 exposed how the Panamanian law firm Mossack Fonseca helped clients set up offshore entities to hide wealth and avoid taxes. The leak of 11.5 million documents revealed the hidden financial dealings of politicians, business leaders and celebrities, leading to global outrage and regulatory reforms[1].
Similarly, the Paradise Papers in 2017, originating from the Bermudian offshore law firm Appleby, shed light on the use of offshore tax havens by powerful figures and more than 100 multinational corporations to avoid tax obligations. These revelations emphasised the need for greater transparency and accountability in corporate ownership structures[2].
Nirav Modi’s suspected involvement in the $1.77 billion Punjab National Bank fraud in 2018 is another example of the risks posed by hidden UBOs. According to the Financial Times, Modi and his uncle, Mehul Choksi, allegedly used fraudulent guarantees issued by bank employees to obtain overseas cash advances. These transactions were concealed by complex corporate networks, making it difficult to detect the fraud [3].
Finally, the 1MDB case, which unfolded between 2009 and 2020, has been described as one of the world’s greatest financial scandals. The Malaysian state-owned investment fund, 1MDB, was created to promote economic development through global partnerships and foreign direct investment. However, more than $4.5 billion in funds and bond proceeds were misappropriated through embezzlement and money laundering, involving complex ownership structures to conceal the identities of those involved [4].
These scandals have highlighted how easily corrupt practices can be concealed – and how legitimate businesses can, often unwittingly, be drawn into illegal activities.
The evolution of UBO disclosure requirements
In 2003, the Financial Action Task Force (FATF) was the first international body to set international standards on beneficial ownership. The FATF has strengthened these standards over the years to provide more clarity and detailed guidance.
Since then, the concept of UBO has become a critical component of corporate governance and regulatory compliance, with increasing emphasis on transparency and accountability in business operations worldwide. This push for transparency has been reinforced by various international agreements and national regulations.
Key developments around the world:
- In the European Union:
Since 1990, the EU has implemented a series of Anti-Money Laundering Directives (AMLD) to prevent the exploitation of the financial system, requiring entities to conduct customer due diligence, which includes identifying and verifying client identities, monitoring transactions and reporting suspicious activities. Over the years, these laws have been continuously updated to address emerging risks. The legislative framework now encompasses areas such as virtual assets and crowdfunding. In 2024, The European Parliament enacted new regulations that grant immediate, unfiltered direct and free access to beneficial ownership information in national registries, interconnected at the EU level, to individuals with a legitimate interest, such as journalists, media professionals, civil society organisations, competent authorities and supervisory bodies [5]. - In the United States:
Enacted in 2021, the Corporate Transparency Act mandates that many US businesses report information about their UBOs to the Financial Crimes Enforcement Network (FinCEN). Existing companies must file by January 2025, while new companies registered in 2024 must file within 90 days of their effective registration date. Reporting is not annual; updates are required only if there are changes [6]. - In the United Kingdom:
The new Economic Crime and Corporate Transparency Act (ECCTA), which will likely
be rolled out during 2024, aims to enhance the transparency of ownership and governance of UK corporate entities and to ensure the accuracy of the information in the official register of companies. Companies House, which maintains this register, will gain expanded powers, including verifying the identities of company directors, conducting more rigorous checks on register entries and collaborating more closely with criminal investigation agencies. Under the new reforms, both new and existing company directors, as well as Persons with Significant Control (PSCs), will be required to verify their identities with Companies House. This identity verification can be conducted either directly through Companies House or via an Authorised Corporate Service Provider (ACSP) [7]. - In Singapore:
As an active member of the FATF and a founding member of the Asia / Pacific Group on Money Laundering, Singapore works closely with other policymakers to develop international standards. Since 2017, companies, foreign companies and LLPs (unless exempted) have been required to maintain beneficial ownership information in a register of controllers, which must be made available to public agencies upon request. As of mid-2020, entities must not only maintain their own register of controllers, but also lodge this information with the Accounting and Regulatory Authority’s central register, which is accessible to law enforcement agencies [8]. - In Hong Kong:
The Companies Ordinance and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) require Hong Kong-incorporated companies, except those listed on the stock exchange, to keep current records of their beneficial owners. This information must be stored at the company’s registered office or a designated location in Hong Kong and be accessible to law enforcement and regulatory authorities for inspection. While foreign companies are not directly subject to the UBO registration requirement, they are encouraged to observe similar transparency measures, especially if they have significant operations or assets in Hong Kong. The public currently has limited access to the UBO Register [9]. - In Mainland China:
Order No. 3 [2024] issued by the People’s Bank of China and the State Administration for Market Regulation, which comes into effect from November 2024, mandates that certain entities – namely companies, partnerships, branches of foreign companies and other specified entities – report beneficial ownership information through the relevant registration system. This requirement does not apply to self-employed businesses [10]. - In Australia:
The Australian Transaction Reports and Analysis Centre (AUSTRAC) mandates that businesses providing “designated services” – activities identified as susceptible to money laundering and terrorism financing – must identify the beneficial owners of their customers and evaluate the associated risks. AUSTRAC defines a beneficial owner as an individual who directly or indirectly owns 25% or more of an entity or has control over its financial and operational decisions. Businesses are required to identify and verify the identities of these beneficial owners and maintain records of the procedures used to carry out these verifications [11].
Open access to UBO information: Progress and challenges
Increasingly, these and other policy reforms are supporting international cooperation in relation to beneficial ownership transparency (BOT). More and more countries are gathering and disclosing information about their beneficial owners in central registers, and then making these accessible to various stakeholders.
Open Ownership, an organisation that has worked with almost 40 countries to advance implementation of beneficial ownership reforms, explains why beneficial ownership transparency is so important:
Making more of this information available to those who can use it effectively helps solve issues around corporate accountability and illicit financial flows. BOT is gaining momentum globally, with over 130 countries committed to implement reforms. The Financial Action Task Force (FATF), the G7, the G20, the International Monetary Fund (IMF), the UN, and the World Bank also support BOT. As do varied actors that both disclose and use beneficial ownership information[12].
However, in some countries, accessing information on the true owners remains challenging. Sometimes, privacy concerns are a contributing factor – raising questions about whether beneficial owner transparency can indeed be achieved without endangering the privacy and safety of the individuals involved.
The rapid increase in data protection laws globally over the past decade highlights the emphasis on ensuring that data is securely held, fairly processed and transparently managed, while allowing individuals to exercise their rights over their personal data.
There’s a need at every level to find the right balance between transparency and privacy, ensuring that while beneficial ownership information is available to those who need it,
individuals are not put in harm’s way. For more insights on this ongoing debate, read our discussion on whether corporate transparency and privacy are mutually exclusive.
What does the future hold?
In the coming years, the state of beneficial owner transparency will continue to evolve, driven by global policy shifts, regulatory reforms and technological advancements.
It will be interesting to see how technologies such as AI and blockchain will impact transparency and efficiency in identifying, verifying and monitoring UBOs. AI can be leveraged to analyse vast amounts of data and identify patterns, improving the accuracy and speed of UBO identification and compliance monitoring. Blockchain technology, on the other hand, with its irreversible and transparent ledger, offers the potential to create secure and tamper-proof records of ownership, making it easier to trace and verify UBO information across jurisdictions.
If global cooperation on this matter continues to increase, we may see the emergence of more standardised regulations and frameworks, and more open access to data, making it simpler for countries and companies to share UBO information. These developments would not only streamline compliance processes but also significantly reduce the opportunities for money laundering, tax evasion and other illicit financial activities.
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[1] https://www.investopedia.com/terms/p/panama-papers.asp
[2] https://www.investopedia.com/terms/p/paradise-papers.asp
[3] https://www.ft.com/content/fb6a6954-16f4-11e8-9376-4a6390addb44
[4] https://www.justice.gov/opa/pr/justice-department-repatriates-14b-misappropriated-1mdb-funds-malaysia
[5] https://www.europarl.europa.eu/news/en/press-room/20240419IPR20586/new-eu-rules-to-combat-money-laundering-adopted
[6] https://www.fincen.gov/news/news-releases/us-beneficial-ownership-information-registry-now-accepting-reports
[7] https://www.fasken.com/en/knowledge/2023/11/the-economic-crime-and-corporate-transparency-act
[8] https://www.acra.gov.sg/compliance/register-of-registrable-controllers
[9] https://knowyourcustomer.com/the-ultimate-guide-to-ubo-ultimate-beneficial-ownership/ubo-registers/
[10] http://www.pbc.gov.cn/en/3688110/3688172/5188125/5353295/2024061109570938674.pdf
[11] https://www.austrac.gov.au/business/core-guidance/customer-identification-and-verification/beneficial-owners
[12] https://www.openownership.org/en/about/what-is-beneficial-ownership-transparency/
