Behind every company are people who have a decisive influence on it. Those people are called ultimate beneficial owners.
Attention to such persons has increased in recent years for several reasons.
First, the obligation to identify owners is a part of anti-money laundering and anti-corruption legislation. Regulators are placing particularly strict requirements on financial and banking institutions to verify their customers and their transactions.
Secondly, information about individuals in control is required from a risk management standpoint. By knowing who is running the business, you can make decisions about cooperation.
In this article, we will analyse what UBOs are and why information about them is so crucial.
Why Is Beneficial Ownership So Important?
Several sources come in handy to clarify UBO meaning.
The Financial Action Task Force (FATF) — the global standard setter and watchdog for the prevention of financial fraud and money laundering — defines BOs as individual/s who have ultimate control or ownership over the customer or a person on whose behalf a transaction is carried out.
More criteria are enshrined in regional legislation. As per EU Anti-Money Laundering Directives, ultimate beneficial owners are those who hold at least 25% of share capital or exercise the same share of voting rights.
Now that we have the definition, let's find out why to check UBOs.
- This is a requirement of the law, which is enshrined in national and international legislation for the prevention of money laundering (AML), terrorism financing and corruption crimes. It is also part of the Know Your Customer (KYC) procedure. Regardless of regional characteristics, in most countries of the world companies must search for information on beneficial owners if they want to do business with a certain customer or counterparty. High fines or even loss of licences await those who violate the requirements.
- To reduce financial risks and prevent loss of funds due to unreliable suppliers, partners and customers. Responsible managers would never buy a "cat in a sack", that is, they would not enter into a business relationship without adequate due diligence. If the companies you work with use dubious business schemes and are looking for ways to get around the law, there's a high chance you've run into scammers.
- To protect your reputation. Investors and clients today require a high level of transparency, a positive reputation, and corporate ethics. The old saying "tell me who your friend is and I'll tell you who you are" is extremely relevant now — because the image of your company will be evaluated through its business connections.
What Do You Need to Know About Beneficial Owners?
Identifying the UBO — the natural person who runs the company — is more challenging than it appears. KYC experts are usually needed to unravel the complexities of organisational structures.
Money laundering relies on hiding the real managers of companies, which makes identifying beneficial owners so difficult. Criminals come up with increasingly complex schemes for their financial crimes and build long chains of shell companies and figureheads. Compliance teams, in turn, are constantly changing their approaches to face new financial risks.
Next, we will analyse how to confirm ownership, and what information you need to find out about BOs. This process involves finding the names and birth dates of the UBOs, and determining if they belong to sanctions lists or fall under the PEP category. Based on this information, your business will be able to decide on cooperation.
It should be noted that finding names and dates of birth requires a laborious investigation. The real owners are often hidden behind pseudonyms or shell companies.
The following steps will help you sort out the complex tangle of organisational structure:
- Collect and verify company data, including the legal names of owners, legal addresses, and other data from public sources. Any inconsistencies and suspicious indicators at this stage are a sure sign that the company requires enhanced due diligence.
- Identify the people who will ultimately benefit from the business and have influence over its decisions. In your investigation, you may find a long chain of related companies that also need verification.
- Form the final list of UBOs, according to the regulations in your jurisdiction. In most cases, being a UBO means holding 25% capital and voting rights in the company. Such individuals require further AML/KYC checks, PEP screening and monitoring.
LIGA UNITED will help you find all the "skeletons in the closet" and reveal even the most complex ownership structures.
Beneficial vs Legal Ownership
A discussion of the topic can be started by considering the following points:
- The legal and beneficial owners of the business, real estate or trust may be different.
- There can be both justified and criminal reasons for that.
- It is critical to check both types of owners within AML/KYC checks.
A legal owner is listed in records and documents as the owner of a company or other property. Furthermore, this person has the authority to sign documents on behalf of the company.
The UBO definition, in turn, refers to those persons who ultimately benefit from the property, even if they are not mentioned in open sources.
There are several legitimate reasons why owners differ:
- Trust ownership of property.
- Trusts and capital for minors, which are managed by parents before the children come of age.
- Cases when real owners cannot dispose of property due to health or other objective reasons.
- The desire of real owners to take additional security measures and ensure their anonymity.
- Optimisation of taxes.
The concealment of beneficial ownership can, however, result in money laundering. Therefore, compliance specialists or other employees responsible for reviewing clients should carefully check the ownership structure of companies. They should analyse open sources, media and registers to identify all persons related to the management of the company.
LIGA UNITED provides all relevant sources of data on potential customers and counterparties — open company registers, sanction lists, media mentions, and court cases — so you get the most comprehensive picture possible. Through our unique tool for visualising company connections, we can identify even the furthest reaches of a company's ownership chain.
Low Risk vs High-Risk UBOs
It should be noted that not every UBO poses the same risks, and experts divide them into the following categories:
This category of ultimate beneficial ownership poses the least risk for regulated companies. This means that the customer does not have any "red flags" that would indicate their involvement in money laundering or other fraudulent activities. Persons with minimal risk pass the simplest check, which is limited to ID verification.
Medium and high risk
Risks regarding the client increase if:
- The client has a political background, held high government positions,
- The client is a relative, or has close ties to the PEP person,
- The client is a resident of a sanctioned country or a country sponsoring terrorism.
In some jurisdictions, regulators provide a specific list of high-risk countries. In the UK, for instance, HM Treasury keeps the list and updates it regularly.
Verification of high-risk clients requires enhanced due diligence. Data is collected from a broader range of sources, negative news stories are investigated, and the origins of funds and transactions are established. Most likely, the bank will ask such clients for more information and documents, and they will be closely monitored for changes to their income and property.
Since enhanced customer verification requires analysing and monitoring a large amount of data, companies are increasingly using automated tools.
LIGA UNITED is suitable for those who conduct KYC/AML checks in the UK.
What Is UBO Legislation?
The definition of ultimate beneficial ownership varies from country to country. Thus, certain countries set a 10 per cent threshold for a person to be considered UBO. Most commonly, the 25 per cent threshold applies to those who own a relevant share in a company or trust.
Throughout the European Union, anti-money laundering directives (AMLDs) are the starting point.
In the United Kingdom, the main laws governing ownership checks are:
- The Proceeds of Crime Act (POCA) 2002.
- the Terrorism Acts of 2000 and 2006.
- The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017).
- The Sanctions and Anti-Money Laundering Act 2018 (SAMLA 2018).
It should be noted that most UK legal entities and partnerships must follow the regulatory requirements for UBOs. Under the country's laws, firms must record information about their beneficial owners both in their internal records and on the People with Significant Control (PSC) register at the Companies House. It is one of the first public UBO registries in the world.
With LIGA UNITED, you will get access to global registers, sanction lists, and monitoring tools. It takes just a few clicks to find and verify the company's ownership structure.
How to Monitor Ultimate Beneficial Owners
Several factors need to be considered for effective verification and monitoring of ultimate beneficial ownership, including:
- Optimise the ratio of automatic tools and manual tasks. The check's outcome is the responsibility of the company's employees and management. However, automated tools are indispensable for investigations. They can instantly analyse thousands of documents, sanctions lists and media mentions, which сannot be achieved by human labour.
- Standard setters recommend following a risk-based approach in the course of checks, which means that each client should be treated individually. Depending on the case, the specialists rely on different sets of tools, as well as a variety of sources and information — based on the risk the client represents.
- The search for beneficial owners is often like a real detective investigation. The ability to think outside the box and ask relevant search queries is therefore crucial for compliance professionals, even when many tasks are automated.
LIGA UNITED is a reliable tool for AML / KYC checks, which:
- Aggregates information about the company from open sources (registration data, addresses, type of activity, active/inactive status).
- Shows the history of company changes.
- Provides a list of beneficial owners, top managers, and related organisations. Our unique tool for visualising business connections allows you to find every name and organisation in the ownership structure, regardless of how long the chain might be between the subject of interest and the ultimate owner.
- Allows you to set up automated monitoring for clients and counterparties.
- In addition to sanctions lists and registries, you can check negative media mentions and legal cases against your clients.
Want to see how the product works? Order a FREE demo of LIGA UNITED today.
The ultimate beneficial owner is the natural person who ultimately benefits from the company and property. It is generally a person with a quarter of a company's capital or voting rights.
This measure is enshrined in the legislation of most countries to avoid money laundering and other financial crimes.
Automated solutions for company checks, such as LIGA UNITED, allow you to instantly analyse information from many sources and alert you to any red flags.