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In certain scenarios, an individual may hold a company’s shares without deriving any benefits from them. In this case, the beneficiary is not considered a UBO because they do not have (1) the right to vote, (2) the right to receive dividends, and (3) the right to enjoy benefits from the shares and their value.

So, a UBO is an individual with ultimate control over a business and ownership of at least 25% of their shares. A beneficial owner is any person who owns shares and derives financial benefits from a company.

In broad terms, when a customer initiates the opening of a new account at a bank, the bank is required to identify and verify the identity of each individual owning 25% or more of the company, as well as one individual who has control over it.

Companies that don’t cut ties with sanctioned or fraudulent partners face fines and serious consequences. The same principles apply if a company doesn’t comply with UBO regulations — it can face fines and other penalties, like losing its license.

Regulators presented stricter ultimate beneficial ownership rules after the Panama Papers scandal, making it mandatory for businesses to disclose information about their UBOs.

The Financial Action Task Force, or the FATF, is a major regulatory body. Its main goal is to reduce crimes that threaten the global financial system. To achieve this, FATF has established 40 Recommendations that guide countries in working together to combat illegal activities. In particular, FATF’s 10th Recommendation emphasizes the importance of identifying the beneficial owners and taking “reasonable steps” to verify their identity. Countries are also advised to keep accurate and up-to-date records of beneficial ownership information.