Ultimate Beneficial Owner (UBO)

UBO legislation varies by region, which means that the rules for identifying and verifying ultimate beneficial ownership differ. For example, in the US, a UBO controls over 50%, whereas in the EU, it’s a person holding more than 25% of shares. 

A person holding company shares without receiving benefits, such as voting rights, isn’t a UBO (like a parent holding shares for their child). What’s more, UBO requirements can change over time and UBOs can move frequently, which makes it difficult to identify ownership.

Criminals often hide the true owners of a company under complex management structures. In general, this is legal, as well as establishing shell companies. However, they are often used to conduct criminal activities. For this reason, identifying ultimate beneficial owners helps legitimate businesses address these issues and identify individuals who actually control the company, checking whether they use it for genuine purposes. 

Companies need to follow a few steps to identify UBOs. Typically, the process consists of these stages:

• Verifying the company’s legitimacy. This includes collecting and verifying the company’s key information (name, address, list of top management), as well as other sources of data, such as reliable documents, required for verification. 
• Assessing the company’s ownership chain. This step involves identifying all individuals who own or control the company by cross-checking the collected information with government registries and other legitimate sources. This helps analyze the whole ownership structure and detect the main controlling individuals, including UBOs.
• Reviewing UBO data to determine if they meet the criteria. This step includes listing out all UBOs linked to the company, determining their total percentage of shares and checking if they hold indirect control over the company to determine if they can be considered a UBO.
• Conducting Know Your Customer (KYC) verification. The last obliges businesses to conduct KYC, or identity verification checks on all UBOs. This is part of the customer due diligence (CDD) process, followed by a risk-based approach to AML compliance. Higher-risk individuals are asked to follow enhanced due diligence (EDD) requirements, while low-risk customers follow simplified due diligence (SDD). 

A UBO check is the process of both verifying and screening UBO information against various databases, such as Politically Exposed Persons (PEPs) lists, sanctions lists, watchlists and adverse media sources. Additionally, ongoing monitoring is vital for companies to maintain ongoing due diligence and see if any of the customer profiles change over time. For example, the UBO can later appear on a sanctions list or have suddenly engaged in a high-risk transaction. 

Beyond maintaining compliance, identifying ultimate beneficial owners benefits businesses by helping them:

• Detect money laundering, corruption, bribery, and other financial crimes.
• Build more detailed internal audit reporting and due diligence processes. 
• Be more transparent in front of all clients and investors who care about security.
• Assess potential partners before entering potentially fraudulent new business relationships and protecting the company’s reputation.