When it comes to Ultimate Beneficial Ownership (UBO), the most common UBO meaning refers to the natural person who is ultimately responsible for, owns or controls a ‘customer’. In most cases, this ‘customer’ is an institution, business or legal entity: of which the UBO has 100% direct ownership. They are the Ultimate Beneficial Owner or ultimate interested party on whose behalf a transaction is carried out. It also includes a person who has ultimate effective control over another person or an arrangement.
This UBO definition is according to the Financial Action Task Force (FATF). The regulatory body is responsible for fighting criminal activities such as terrorist financing and money laundering schemes. However, there is no global standard for how the UBO definition is applied across different regions around the world. Another complex factor is that UBOs can be transitive, and they may not stay in one location for an extended period. Because ultimate beneficial ownership regulations are constantly evolving, it is often challenging to uncover the true identity of a UBO.
UBO Legislation in the UAE
Who is the Ultimate Beneficial Owner (UBO) of a Company?
Beneficial ownership of a legal entity refers to the person who is the owner or manager of a company. In short, they have control and responsibility for the actions and transactions that the company makes, and they tend to have significant sway over how the company acts.
In many circumstances, particularly in criminal operations, this individual is not directly known to be the owner or manager – and instead they are shrouded under a web of complex management structures. While these structures are not necessarily defined as illegal by the proper authorities, they are most commonly used by criminals to carry out fraudulent and other covert criminal activities.
Someone who has beneficial ownership of a company is said to have more than 25% of the company’s shares to 25% control over the voting rights, according to the Money Laundering Act (GwG). Alternatively, they may have such controls in place as to have similar influence over how the company is run.
In terms of locating the UBO within this structure of beneficial owners, it helps to visualise a series of ‘levels’. For example, let’s say Business A was acquired by Company B. If Company B has total control over Business A after the acquisition, then it would therefore have 100% beneficial ownership. However, Owner C – aka Bob – has 100% direct control over Company B. Therefore Bob is the Ultimate Beneficial Owner and is responsible for transactions that both Company B and now Business A initiate.
What is UBO Legislation?
Regulators around the world are experiencing a rise in money laundering and terrorist financing activities, which means they need the right legislation to be in place in order to act on and thwart criminal UBOs. One of the biggest challenges, however, is that fraudulent individuals can easily use international accounts to hide their activities. Oftentimes these regulators and investigators will end up following a suspicious trail of criminal transactions that leads to fake addresses and PO boxes, or worse to private homes where the residents are entirely unaware of any criminal link.
The UBO meaning differs from country to country, and in certain jurisdictions they may be defined as a person holding at least 10% to 25% of the voting rights or shares in the underlying legal entity.
How is an Ultimate Beneficial Owner (UBO) Identified?
Many financial institutions, such as financial services firms and banks, have strategies to identify an ultimate beneficial owner. These are generally carried out in a four-step process:
- Acquisition of credentials
- Research into chain of ownership
- Identification of ultimate beneficiary
- KYC and/or AML compliance checks are conducted
The first step involves requesting credential data from the company. It is a legal requirement that organisations must supply the most up-to-date data when requested, which can include names, addresses, registration numbers, information on management and other higher-level employees – all for the purpose of verifying the accuracy and legitimacy of the information supplied.
Next, the institution will uncover anyone – who is both a legal and natural person – who has shares or interest in the organisation. It will also be determined whether they have direct or indirect ownership of the business. After this, the beneficial owner is identified and verified, including data on the percentage of shares they own, their ownership stake and how much management control they possess.
Finally, the identified UBOs must undertake a series of checks, typically anti money laundering (AML) and know your client/customer (KYC) checks. These may be performed on an ongoing basis to ensure consistency of ownership.
Why is a UBO Check so Crucial?
No matter what type of company you are in or the sector in which you operate, it is your obligation to identify the beneficial owners of suppliers, customers and third parties when a business-partner check is being carried out.
It is expected that you will know which partners you are doing business with, as this will help to reduce the risk of them transacting with criminal parties. Depending on the country you are doing business in, you may be obligated to create a UBO declaration – this will establish the identities of any ultimate beneficiary for greater transparency.
By creating such a declaration and carrying out UBO checks, such as anti money laundering (AML), bribery and corruption, and KYC, you can better protect yourself against criminal threats to reduce the risk of fraud, fines, reputational damage or, in the worst-case scenario, possible prison time.
Benefits of Accessing Beneficial Ownership Information
It’s important to take the necessary steps to identify a beneficial owner, in order to ensure the integrity of an organisation. Beneficial owners need to be identified for a range of other purposes, such as to properly carry out a business-partner check. The benefits of uncovering data on beneficial ownership are vast, including:
- You can do your part in helping to combat rising incidences of financial crime, money laundering, corruption and bribery activities. You will also ensure you are complying with the most recent audit-reporting and due diligence laws.
- By identifying potential organisational risks, you can make smarter, more informed decisions prior to entering a new business relationship. This protects you and your company over the long term.
- As financial crime becomes more sophisticated, there are increased requirements for financial institutions to be transparent in their activities and business partnerships. Performing checks on UBOs ensures greater corporate governance, and is a powerful advertisement of your intentions to your investors and clients.
How to Monitor Ultimate Beneficial Owners
Nexis Diligence+ is a screening solution that contains UBO data on millions of companies around the world. There is also additional data on blacklists, politically exposed people (PEP), sanctions lists, watchlists, and more, which means you can use the platform to find any and all ownership information in a single search to identify potential risks.