What is an Ultimate Beneficial Owner (UBO)?
Any individual benefitting from, or who receives a positive impact from a company, is deemed an Ultimate Beneficial Owner. 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.
Who is an Ultimate Beneficial Owner?
An Ultimate Beneficial Owner is the person, or entity, that is the ultimate beneficiary when an institution initiates a transaction. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.
An Ultimate Beneficial Owner of a legal entity or person could be:
- Anyone that has direct/indirect control
- Power of Attorney
- Guardian for minors
Why is screening for Beneficial Ownership 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, 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 beneficial owner is extremely important in detailed risk assessment practices before a company enters into a new relationship/transaction with another. Screening 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 these checks thoroughly, allows businesses to not only comply with regulation, but also reduce the exposure to hefty fines and protect against reputational damage.
The process for on-boarding 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 continue to monitor UBOs for ongoing CDD.
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.
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 can a company verify an Ultimate Beneficial Owner?
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 new 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.
Automated solutions for 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 and by identifying UBOs.
UBO solution from NorthRow
Serious and organised crime undermines the legitimacy and authority of the state and its 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. Talk to NorthRow to learn how we can support your business with UBO screening.