So the question that people often ask is, what is a company UBO? This describes and pertains to any individual benefitting from, or who receives a positive impact from, a company and is deemed an Ultimate Beneficial Owner (UBO). This is even if they are not formally named as the owner of the business.
A UBO is defined as the beneficiary of at least 25% of a company’s capital gains, company shares or voting rights, giving them significant control and a related interest in the business. Such control would include the right to remove most of the directors on the Board.
What is a company UBO (Ultimate Beneficial Owner)?
Let’s dive in deeper. An Ultimate Beneficial Owner is a person or entity that is the ultimate beneficiary when an institution initiates a transaction. It also includes those legal persons who exercise ultimate effective control over a legal person or arrangement.
An Ultimate Beneficial Owner of a legal entity or a natural person that could be:
- Anyone who has direct/indirect control
- Shareholders
- Power of Attorney
- Guardian for minors
Why is company UBO monitoring so important?
Serious crime is on the increase, as confirmed by CreditSafe; revealing that 37% of the businesses surveyed had been a victim of fraud within the previous 12 months. These crimes included money laundering, terrorist financing, and transacting with Politically Exposed Persons (PEPs) and sanctioned individuals. Obviously, not all individuals that have a controlling interest are criminals. However, they may be an individual that has a sanction against them or is using the organisation to launder money.
Identifying the ultimate beneficial owner is extremely important in detailed risk assessment practices before a company enters into a new relationship/transaction with another. Screening for and monitoring the Ultimate Beneficial Owners of an entity allows businesses to identify the bad actors and prevent them from having a negative impact on their business. Carrying out UBO monitoring checks thoroughly allows businesses to not only comply with regulations but also reduce the exposure to hefty fines and protect against reputational damage.
The process for onboarding customers has certainly become more stringent with the 4th and 5th AML directives, together with the Financial Action Task Force (FATF) recommendations for better Customer Due Diligence (CDD). But businesses should not stop at KYC or KYB on-boarding; they must ensure continuous UBO monitoring for ongoing CDD.
What are the specific regulations or compliance standard that companies need to adhere to when determining ultimate beneficial ownership?
Compliance with regulations such as the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (or MLR 2017) is crucial for UK regulated firms.
Under these regulations, firms must implement a risk-based approach to UBO identification, tailoring their procedures to the specific characteristic of their business and clients. Compliance teams need to familiarise themselves with the specific obligations outlined in MLR 2017 and any updates or amendments to ensure full compliance.
🔗 Take a look at our complete guide to anti-money laundering regulations in the UK
How does the process of identifying and verifying UBOs vary across different industries or jurisdictions?
The process of identifying and verifying UBOs can vary depending on the industry and jurisdiction. Factors such as the nature of the business, risk exposure, and regulatory requirements directing influence the approach that must be taken by AML compliance teams.
For example, financial institutions may employ more rigorous due diligence procedures compared to non-financial entities, given the higher risk of money laundering and terrorist financing within the banking sector. Similarly, the approach to UBO identification may differ between sectors such as real estate and professional services, each presenting unique challenges and considerations.
It is important that compliance professionals stay updated on sector-specific guidance and best practices to ensure effective UBO identification and verification.
Complex company structures and shell companies
Bad actors are adept at building a web of complex company structures, often involving shell companies to hide their ownership and ill-gotten gains. A shell corporation is an entity without significant assets or active business operations. Whilst they are not all illegal, they are often used to disguise business ownership from law enforcement agencies and regulators.
As organised crime increases, so does the number of companies behind these complex structures to hide the Ultimate Beneficial Ownerships.
Can the concept of ultimate beneficial ownership be applied to non-corporate entities, such as trusts and partnerships?
Yes, the concept of UBOs extends beyond traditional corporate entities to include trusts, partnerships, and other legal structures. It is importance to understand the nuances of UBO identificiation and verirication for these entities. Different legal frameworks and structures may require tailored approaches to ascertain beneficial ownership.
International effort to combat UBO
In joining forces, many countries are fighting back. The UK is amongst those countries at the frontline of international efforts to combat financial crime involving fraud. The UK is at the forefront when it comes to tackling money laundering and terrorist financing globally; in 2018, the UK achieved the best rating of any country assessed so far in this round of the FATF evaluations. But we know we must go further and faster in strengthening our national response through the implementation of ownership information registers.
How to find the UBO of a company
Exactly how firms must identify and screen UBOs varies across jurisdiction. However what is consistent is the requirement to verify and monitor UBOs as part of AML compliance and CFT regulation.
As part of your KYB onboarding process, you must gather accurate information on a business, including the registration number, name, address, status and details of directors (and, where required, to carry out ID&V checks on directors).
From here, it is important to determine which individuals have a percentage of shares or controlling interest in the business with whom you wish to transact.
The UK government often uses the term ‘person with significant control’ or PSC in place of beneficial owners. By their definition, a PSC is typically those that hold:
- more than 25% of shares in the company
- more than 25% of voting rights in the company
- the right to appoint or remove the majority of the board of directors
For each beneficial owner identified, certain details must be recorded including their name, date of birth, nationality, country of residence, the date they became a PSC, the level of their shares and voting rights and more. A full breakdown of what is required is available on the Gov.UK.
All UBOs identified must go through appropriate due diligence checks as part of your KYC/AML processes.
Automated solutions for company UBO verification
Our tools are highly configurable and can be used at each stage of your customer’s journey to ensure that you collect and verify all the information that you need to achieve compliance.
Our KYB/KYC and UBO solutions enable you to deliver a seamless client onboarding journey, no matter how complex your requirements, to achieve a great reputation and long-lasting relationships with your customers without exposing your business to lost revenues or non-compliance.
By implementing an effective screening process, you not only avoid hefty fines and reputational damage but also show the regulators your commitment in the fight against financial crime by identifying UBOs.
UBO solution from NorthRow
Serious and organised crime undermines the legitimacy and authority of the state and its financial institutions, threatening the safety of both citizens and communities. According to the National risk assessment of money laundering and terrorist financing 2020 report, the estimated cost to the UK economy is £37bn per year.
The scale of the threat is becoming more complex as criminals adapt to our response and exploit advances in technology to hide themselves in plain sight. So, your business needs a solution that is agile and can deal with the demands of not just today’s bad actors but also those in the future.
NorthRow’s Ultimate Beneficial Owner Identification tool delves into the complex ownership structure of your target organisation and returns a simple table containing the person(s) that you are required to screen. No more unnecessary or complicated corporate webs. Just the information you need to determine the risk and decide whether it is safe to onboard this business client or not.
This can be returned as an add-on to a standard check-in a new tab on the UI or can be returned via our API. In both cases, the UBO service makes performing additional checks on these individuals a streamlined process by simplifying existing workflows and can easily be combined with RemoteVerify.
NorthRow’s RemoteVerify solution allows you to onboard Ultimate Beneficial Owners and company directors anywhere in the world, at any time. Our market-leading self-service solutions enable real-time identity verification using a progressive web app. The app takes the user through the steps of identity, document and address verification together with liveness checks, streamlining your business onboarding process.
Beneficial Ownership Monitoring is fundamental for global economic recovery
The coronavirus pandemic has and will have far-reaching consequences: not just immediate ones, but also many that have yet to emerge and cannot be easily predicted. One issue that is likely to emerge and become more acute over time is opacity in legal company ownership and in beneficial ownership in supply chains. Ultimate beneficial ownership transparency is critical for due diligence, not just for anti-money laundering and terrorism financing (AML–TF) and KYC regulations, but also for a range of other reputational and operational risks that companies can face. To give you a flavour of how governments and public bodies have responded, the UK’s Chancellor of the Exchequer was advised by the Office for Budget Responsibility that, with respect to current government support for businesses: “When the fire is large enough you just spray water and worry about it later”. Such short-termism is likely to cause problems down the line.
Supply chain risks during previous emergencies
We are already seeing that companies with global supply chains are having to quickly switch their downstream suppliers, as factories are shut down and workers are quarantined. This carries a risk that companies with global supply chains will short-cut due diligence processes, thereby potentially reducing quality control and business integrity and potentially endangering consumers. First, to feel the pain will be just-in-time supply chains. These are particularly vulnerable, as they are less resilient to sudden unforeseen changes and resource shortages. Critical business processes for proper supply chain management in the second, third and fourth-tier in the supply chain can be sidestepped as companies add new suppliers to their roster in order to minimise their reliance on impacted jurisdictions.
In the wake of the Fukushima disaster in 2011, analysts observed that opacity still existed in supply chains and was jeopardising resilience. This was primarily due to risk having been badly managed in the crucial secondary tier of suppliers. Rightly, some manufacturers responded to this by prioritising improved supply-chain risk management and business continuity strategies. But without dependable open company information, blind spots remain, adding unnecessary time and cost to supply chain due diligence.
Covid–19 is the first global pandemic of the twenty-first century, but regional outbreaks of disease in the recent past reveal they can have far-reaching economic consequences. The 2002–2003 Severe Acute Respiratory Syndrome (SARS) outbreak was estimated to have caused worldwide economic damage of $54bn, due to a decline in consumer demand, largely stemming from panic associated with the high level of human transmission.
Lessons from the financial crisis
As the world begins to respond and adapt, we must ensure that physical and economic recovery is well-managed, sustainable and beneficial to those who have suffered the most. Indeed, as the anticipated recession that will mirror the recession caused by the financial crisis of 2007–2008, policymakers should consider the cost of past decisions made by governments that encouraged business activity at the cost of corporate transparency.
An understandable response to the economic crisis would be to take steps to remove barriers to entering a market or starting a business. In 2011, in the wake of the financial crisis, the UK government sought to encourage entrepreneurship by enabling any individual to register a company online with Companies House without having to engage a company formation agent.“The easiest place to set up a business in Europe” declared the “Britain is Great” campaign, boasting that one could incorporate in less than a day, for only £18. However, without adequate safeguards, this decision came at the cost of due diligence.
Transparency International identified 766 UK companies that were found to be laundering £80bn. This demonstrates that policy changes to corporate registries in the wake of a crisis have far-reaching consequences when rolled out without openness and transparency being prioritised from the outset. In 2015 the British government responded to these criticisms by requiring UK companies to declare a ‘person of significant control’ (the actual ultimate beneficial ownership) in a register, thereby allowing for public scrutiny of the database.
Beneficial Ownership Monitoring
Monitoring ultimate beneficial ownership information is an immense challenge for regulated companies as the financial crisis and Panama Papers leak showed. There is no simple solution. Many registries around the world simply do not publish beneficial owner information, or else the information is partial and incomplete.
Whilst an obligation for all newly formed entities to self-publish this information on national registers will help in time, currently, there is no process to independently check and verify this information, making it difficult to rely upon for compliance purposes.
Often organisation structures are complex and obscure. As a result, unpacking ownership structures and identifying beneficial owners is a specialist skill requiring experienced and highly trained staff. NorthRow’s Know Your Business solution offers clients instant access to a world of international corporate entities and personal data to help facilitate more efficient client onboarding and monitoring. NorthRow validates businesses in real-time, in over 100 countries. We can access company shareholder information, financial data, and company structure information whilst also performing in-depth anti-money laundering verification and electronic identity verification checks on company directors and ultimate beneficial owners.
The main lesson here is that ownership disclosure and other transparency measures should be implemented from the beginning. Improving oversight and scrutiny is the best defence we have against a poorly-distributed and ineffective economic recovery. Creating open systems for accurate company data and disclosure is critical for any economic recovery: such systems enable companies to shift suppliers fluidly and strengthen their supply chains – a fundamental need in a time of indefinite global crisis.
Last updated: Tuesday 5th March 2024
