Beneficial Owner

According to the Financial Crimes Enforcement Network (FinCEN), a person is a beneficial owner if they align with these requirements:

1. Exercises substantial control over a company, or 
2. Own or control at least 25% of a company’s ownership interests.

A beneficial owner is someone who benefits from a company’s capital gains, shares, or voting rights, giving them significant control and interest in the business. That said, beneficial ownership can be shared among multiple individuals.

According to the Financial Action Task Force (FATF), beneficial ownership information can be hidden using:

• Shell companies with various ownership structures, especially with foreign ownership spread across different countries.
• Complex ownership structures with many layers of shares held by other legal entities.
• Bearer shares and bearer share warrants.
• Legal persons as directors without restrictions.
• Formal nominee shareholders and directors where the nominator’s identity is undisclosed. 
• Informal nominee shareholders and directors, such as close associates and family members.
• Trusts and other legal arrangements that separate legal and beneficial ownership. Intermediaries, including professional intermediaries, in forming legal entities.

To identify beneficial ownership, companies conduct thorough due diligence by reviewing all relevant documents and researching the chain of ownership. Such background checks on another company are important to ensure that you’re entering into a secure and suitable business relationship.

The concealed ownership layer hides the true controllers of assets, who benefit from ownership without direct exposure. For example, criminals can create, manage, control, own, and operate these entities from different countries, making it difficult for authorities in any one jurisdiction to gather all relevant information. 

While not illegal, this approach is often exploited for covert criminal activities and fraud. Consequently, companies implement effective anti-money laundering (AML) strategies to identify individuals using intricate structures to hide their identity and illicit activities.

Certain financial and other organizations, such as banks or insurers, must disclose Ultimate Beneficial Owners (UBOs) when engaging with any party. During Know Your Business (KYB) checks, obliged entities must verify the individuals behind the business, including beneficial owners, as part of their due diligence process. 

Regardless of your company’s type or sector, it’s your responsibility to identify the beneficial owners of suppliers, customers, and third parties to reduce the risk of transactions with criminal entities. This process also helps mitigate the risk of fines, reputational harm, or legal consequences.