What is Beneficial Ownership?

Compliance and Client Onboarding: Who Should Deliver It?

In today’s complex economy, maintaining transparency and accountability in business transactions is crucial. One significant aspect of achieving these goals is through the concept of beneficial ownership.

Beneficial ownership is a fundamental principle that allows for the identification of the individuals who ultimately own or control a company or asset. It refers to the individuals who enjoy the majority of economic benefits and privileges of owning an asset or exercising control over a legal entity, even if the assets or entities are registered under the names of others. It unveils the true owners behind corporate structures, trusts, or other legal arrangements; ensuring transparency and accountability.

In some cases, legal ownership and beneficial ownership can be held by different parties. For example, in a trust, the legal ownership of assets is held by the trustee, while the beneficiaries have the beneficial ownership and enjoy the benefits and profits generated by those assets.

Who is an Ultimate Beneficial Owner (UBO)?

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. 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.

An Ultimate Beneficial Owner of a legal entity or a natural person that could be:

  • Anyone that has direct/indirect control 
  • Shareholders
  • Power of Attorney
  • Guardian for minors

The UBO may be different from the legal owners or registered shareholders of an organisation. In some cases, individuals or entities may attempt to obscure the true ownership structure through complex ownership chains or nominee arrangements. UBO regulations aim to uncover these hidden owners and promote transparency in financial transactions. These requirements vary across jurisdictions, but they typically involve disclosing specific details about the UBO, including their name, residential address, nationality, and percentage of ownership/control. These disclosures are often mandated by government agencies, financial institutions, or regulatory bodies to enhance transparency and prevent financial crimes.

Significance of Beneficial Ownership:

Combating Illicit Activities: Beneficial ownership is a vital tool in the fight against money laundering and terrorist financing. Revealing the actual individuals behind organisations makes it more difficult for fraudsters to hide their identities and activities.

Financial Transparency: Full disclosure of beneficial ownership allows governments, financial institutions, and regulatory bodies to gain an understanding of a business’ ownership structure. This information promotes transparency, enabling authorities to monitor transactions, identify potential risks, and enforce regulations effectively.

Strengthening Corporate Governance: Transparent beneficial ownership goes hand-in-hand with good corporate governance practices. Companies with a clear ownership structure are more likely to be accountable to their shareholders and stakeholders, promoting ethical behaviour, responsible decision-making, and long-term sustainability.

What are the benefits of identifying Beneficial Owners?

Investor Confidence: Investors and shareholders seek transparency and clarity about the ownership structure of companies they invest in. Knowing the true owners behind a business enhances investor confidence as it reduces the risks associated with hidden agendas or undisclosed risks.

Improved Risk Assessment: Financial institutions and regulators can better assess the risks associated with clients and transactions by understanding the beneficial ownership structure. This information aids in the identification of potential money laundering activities, reputational risks, or exposure to politically exposed persons (PEPs).

Global Standardisation: The global push for beneficial ownership transparency has led to the development of international standards and initiatives. Organisations such as the Financial Action Task Force (FATF) and the Global Forum on Transparency and Exchange of Information for Tax Purposes have established guidelines and best practices, promoting a standardised approach to beneficial ownership disclosure worldwide.

Cross-Border Cooperation: Sharing beneficial ownership information across jurisdictions fosters international cooperation in combating financial crimes. By collaborating and exchanging information, countries can prevent the misuse of legal structures for illicit purposes and strengthen their collective ability to address transnational challenges.

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