The Essential Guide to Understanding Ultimate Beneficial Owner (UBO) Requirements and Risks

By Aiprise
12, Oct 2023
5 min read

Ultimate Beneficial Owner (UBO) Requirements and Risks

Understanding ultimate beneficial owners (UBOs) is essential for businesses to ensure compliance with Anti-Money Laundering regulations. Without knowing who owns and controls a company, businesses risk being party to money laundering or terrorist financing activities. This article will provide an essential guide to understanding UBO requirements and risks in the US, Europe, and internationally. It will outline the steps necessary to identify and verify UBOs, so that organizations can avoid any potentially damaging consequences of failing to meet the relevant regulations.

What is UBO and what are the requirements?

Ultimate Beneficial Owners (UBOs) are individuals who have ultimate control over a company and its operations. As such, understanding who UBOs are and the risks they pose can help financial institutions achieve regulatory compliance while maintaining enhanced security.

Different countries have different requirements for UBO identification, such as the United Kingdom’s UBO Register and the United States’ Beneficial Ownership Rule. In some cases, UBOs can be identified through third-party databases or other public sources. However, in order to ensure compliance with anti-money laundering regulations, financial institutions must conduct due diligence on UBOs to verify their identities.

To do this effectively, organizations must take into account factors such as whether an individual owns more than 25% of a company's shares or voting power; if there is more than one person who meets these criteria; or if there are additional layers of ownership between a company and its ultimate owner that need to be considered. In addition, organizations should also consider how up-to-date their databases are – out-of-date information can severely limit an institution’s ability to accurately identify and verify UBOs quickly and efficiently.

Having accurate knowledge of who owns and controls companies is essential if businesses want to remain compliant with anti-money laundering regulations and protect themselves from potential risks posed by money laundering activities or terrorist financing activities. By implementing a robust solution for verifying UBO identities, businesses can ensure they meet this obligation while avoiding severe legal penalties down the line.

United States UBO requirements

The Corporate Transparency Act, implemented by the United States, is calling for U.S companies to provide FinCEN with the full legal name, birth date, current address and an identifying number from a passport, driver’s license or other state-issued ID of their Ultimate Beneficial Owner (UBO) starting 2024. To remain compliant with anti-money laundering regulations it is essential that businesses have a complete understanding of all UBO requirements.

The Office of Foreign Assets Control (OFAC) at the Department of Treasury is requiring companies to identify and authenticate their UBO through obtaining and preserving documentation such as a valid passport, government-issued ID card, driver's license, bank statement or utility bill. Furthermore businesses must utilize third-party services like KYC/KYB in order to confirm the identity of their UBO in line with US regulations.

When verifying ownership percentages for identification purposes it is important to consider complex ownership structures which exist between multiple shareholders; this can affect how much power each shareholder holds over a company at any given time. For example if two people possess 50% each but one person has voting rights whereas the other does not then only one will be classed as an UBO in this situation. Companies should also be cautious when utilizing databases for determining potential ownerships since accuracy may be questionable within large networks across different countries under varying jurisdictions.

It is crucial that businesses have a reliable system in place to ensure proper identity verification of Ultimate Beneficial Owners prior to onboarding them as customers or vendors/merchants/sellers/clients so they can avoid reputational damage or criminal charges due to noncompliance with AML requirements.

Europe UBO requirements

The European Union has implemented a series of regulations to ensure that the ultimate beneficial owners (UBOs) of companies, trusts, and other legal entities are identified and verified. This is done through 4th Anti-Money Laundering Directive (4AMLD) and its subsequent amendments which call for member states to create publicly available UBO registers.

To meet Europe’s UBO requirements, businesses must register their beneficial owners with the corresponding government registry. Detailed information about each owner's identity - such as name, date of birth, nationality - as well as their shareholding or voting rights in the company must be provided. Additionally, UBOs must be disclosed in any securities offering prospectus that is submitted within the EU.

Having an efficient system set up for discovering and verifying UBOs is essential for compliance with anti-money laundering rules. Financial institutions should consider complex ownership structures when assessing who holds ultimate control over a business entity and may need to access databases containing accurate ownership data.

Moreover, businesses should be aware of 6th AML Directive which holds individuals employed by organizations criminally liable if they fail to properly identify or verify UBOs accurately. As a result, financial services companies must have robust systems in place to stay compliant with this directive by constantly monitoring customer accounts on an ongoing basis and having procedures in place for alerting relevant authorities about any suspicious activity detected during review processes.

In summary, understanding ultimate beneficial owner requirements and risks is critical when meeting international anti-money laundering regulations including those established by the EU. It is important for businesses to have reliable systems in place that can quickly identify and verify UBOs while adhering to all applicable laws and regulations at all times.

International UBO standards

International UBO standards are essential for businesses to remain compliant with anti-money laundering regulations across jurisdictions. The Financial Action Task Force (FATF) Recommendation 24 requires countries to identify, verify, and monitor UBOs of legal entities. Moreover, the Common Reporting Standard (CRS) is an automatic exchange of financial account information between countries that also necessitates companies to identify their beneficial owners for tax compliance purposes as well as other due diligence objectives.

As a result, businesses need to be equipped with systems capable of accurately identifying their customers' beneficial owners in order to properly assess risk and prevent fraud. Additionally, they must consider ownership percentages when making UBO determinations so they can report any changes in ownership structure promptly. Utilizing databases when determining potential ownerships is also advised as this can help them stay up-to-date on customer information and avoid potential mistakes when verifying identities.

By understanding international UBO standards and investing in the right tools such as KYC/KYB solutions, organizations can ensure compliance while minimizing risks associated with money laundering activities. Therefore, it is critical for companies to understand these regulations if they wish to maintain compliance with global laws and protect themselves against money laundering activities.

Verifying UBOs

Verifying UBOs is an essential part of any anti-money laundering program. Businesses must identify and verify all individuals who have ultimate beneficial ownership of a company in order to remain compliant with the laws and regulations set forth by international regulatory bodies such as the Financial Action Task Force (FATF). Fortunately, there are four steps that organizations can take to create an effective UBO program.

The first step is to collect and verify an accurate company record. This includes obtaining documents such as certificates of incorporation, shareholder registers, memorandum of association, and other relevant documents that detail the business's legal structure. It is also important for businesses to keep these records up-to-date in order to ensure compliance with anti-money laundering regulations.

The second step is to determine who has ownership stakes in a company. This requires understanding the various types of ownership structures, including direct shares held by shareholders as well as indirect shares held through trusts or other entities. Companies should also be aware of non-financial interests that may exist within their company structure, such as voting rights or control over decision making processes.

The third step is to calculate the total ownership stake held by each individual or entity associated with a company. This requires understanding complex ownership structures and following up on any changes that occur over time. Companies should also consider factors such as voting rights when determining a person’s true level of control over a business entity.

Finally, businesses must perform AML/KYC procedures such as UBO screening in order to stay compliant with anti-money laundering regulations. This includes verifying identity documents provided by customers or running background checks on parties involved in transactions on behalf of companies or their subsidiaries. Utilizing databases and investing in KYC/KYB solutions are two ways organizations can ensure proper identity verification of UBOs while minimizing their risk exposure associated with money laundering activities.

Talk to AiPrise

Creating an effective UBO program is essential for ensuring compliance with international anti-money laundering regulations and reducing potential risks associated with money laundering activities around the world. To learn more about how AiPrise can help you build an effective UBO program, sign up for our demo today!