New: Beyond Biometrics: The power of database ID Verification in the compliance landscape --> Watch the full webinar
New: Politically Exposed Persons (PEPs): Risks, Compliance Challenges and Best Practices for Effective Screening--> Read the full whitepaper
We're a multiple award-winning firm and one of the fastest-growing tech companies in the UK - find out how we got to where we are today.
We are always looking for talented individuals to join our growing team - if you are highly motivated with a positive attitude we want to hear from you.
Discover the latest events we will be hosting, exhibiting, and attending, where you can learn more about our industry-leading digital compliance solutions.
An ultimate beneficial owner – or UBO – is a person who ultimately has control over an arrangement, or control over a person during a transaction. The UBO is also the party that stands to benefit the most from the said transaction. Here are a few examples of individuals that could qualify as UBOs:
Shareholders
Power of Attorney
Legal guardian of an underage person
Someone with formal or informal control of an account holder
Implemented in 2017, the EU’s 4thMoney Laundering Directive (4MLD) also addressed the definition of an ultimate beneficial owner. This directive stated that anyone who has over 25% of the shares or voting rights in a legal entity must clearly be considered a UBO. As well as this, 4MLD determined that all senior managing officials could be treated as UBOs if it couldn’t be confirmed that they met any of the other criteria.
Manually checking for UBOs is usually a three-step process, and once an ultimate beneficial owner has been identified, a KYC check will need to be performed. We break down the three stages of finding a UBO below:
Stage one: Take a look at the firm’s credentials. You should be able to verify their company name and check that their records include details like address, status, and a list of the most senior employees.
Stage two: Examine the chain of ownership. This might require a bit of research. You’ll need to identify anyone who has a sizeable percentage of the shares or voting rights and work out if they’re direct or indirect owners.
Stage three: Find the ultimate beneficial owner. See if any of the individuals you identified in the previous step qualify as ultimate beneficial owners, according to the UBO definition laid out in 4MLD.
UBO identification is easy with SmartSearch – as we’re now fully integrated with Experian’s industry-leading ultimate beneficial owner database. That means you can use our full-service platform to identify potential UBOs before you carry out any other AML checks.
If your firm falls within the financial services sector, or one of the other categories that have to follow AML regulations, you’re legally obliged to identify UBOs as part of your compliance effort.
By discovering any ultimate beneficial owners, you’re helping to prevent financial crimes like money laundering from taking place disguised as corporate investments or transactions. Identifying the UBO effectively allows you to ascertain who may gain the most from financial malintent, as well as who could be most vulnerable to corruption.
After a UBO has been successfully identified, you’ll need to establish what level of risk they pose to your business. UBOs tend to be sorted into three different risk levels, ranging from low, to mid and high risk; each of these levels requires a different approach.
With low-risk UBOs, enhanced due diligence isn’t necessarily required. Instead, you’ll need to ask them to sign a statement that provides all of their key personal details – you can then use this to confirm the individual’s identity via electronic ID verification.
Anyone who qualifies as a PEP (politically exposed person) would be considered a mid or high-risk UBO, and so would any individuals who show signs of historic – or current – involvement in terrorism financing, money laundering, or other suspicious activity.
In line with recommendations made by the FATF, enhanced due diligence (or EDD) should be performed on every mid to high-risk UBO you identify. Your EDD process might include the following actions:
Carrying out additional searches, and using a wider variety of sources.
Evaluating any discrepancies between the individual’s overall net worth and general source of income, until you’re satisfied that they’re not benefiting from the proceeds of financial crime.
Gathering sufficient information to inform a thorough understanding of the risk this UBO poses.
Asking the individual to provide you with regular updates, should any significant changes in ownership take place.
It’s worth noting that every firm that follows AML regulations should have its own risk-based approach to AML compliance, and is therefore likely to have a slightly different EDD process in line with this.
In July 2018, the EU’s 5th Money Laundering Directive came into place. 5MLD is predominantly known for its tighter focus on virtual currencies, e-money products and increased due diligence in high-risk countries, but it also included a significant update on the subject of ultimate beneficial owners.
5MLD states that UBO lists (which were originally drawn up under 4MLD) are now required to be public, so the information is available to all EU member countries. As a result of this update, every financial-sector company in the UK is required to disclose the ultimate beneficial owner, so it can be added to a central register. These UBO lists, and the widespread availability of them, should be implemented by the end of June 2021, which is the deadline for this directive.
Just six months after 5MLD was announced, the EU published 6MLD – a follow-up directive that aims to further reinforce the European Union’s defences against money laundering and financial crime.
6MLD prioritises the harmonisation of various definitions and processes across all EU member states, to improve consistency in both how AML risk is managed, and what qualifies as a money laundering offence.
However, as a direct result of Brexit, the UK isn’t obliged to implement this next set of money laundering regulations. In fact, the UK has opted out of the majority of this legislation, on the basis that many of the required changes have already been written into UK law.
In short, while the UK has ceased to be an EU member state, relevant firms within the UK are still required to comply with new AML regulations, like disclosing a UBO. Failure to put sufficient compliance measures in place could even result in penalties from the Financial Conduct Authority (FCA).
Government UBO legislation is determined by several national, continental and global laws. These regulations differ from one country to the next, so it’s imperative that you cross-reference which laws are applicable to your business. These frameworks are put together to prevent the occurrence of illicit financial activity, demanding the identification and registration of UBOs.
The FATF, the Financial Action Task Force, is an intergovernmental organisation that sets global expectations for combatting money laundering. Providing recommendations that feed directly into AML compliance, the FATF releases an annual list of non-cooperative countries or territories (NCCTs).
The importance of the EU's Anti-Money Laundering Directives can’t be understated, with the framework imposing regulatory requirements on all member states of the European Union. Tightening AML regulation, the EU’s AMLD ensures compliance, setting out the guidelines for how companies can protect themselves.
A PSC register lists the Persons of Significant Control in a company, helping to reveal beneficial ownership. Required by law for all businesses, complying with this improves the transparency of your company and also supports the efforts of law enforcement to track illicit activity.
Ultimate beneficial ownership and legal ownership describe two slightly different aspects of business control. Legal ownership refers to the entity that is responsible for the business. The individual(s) will sign their name on legal documents and will appear on public registers - they are, for all intents and purposes, the public face of the company.
Beneficial ownership, on the other hand, refers to the individual who is set to profit the most from the activity of the business. This person possesses the ultimate control over a business deal and will benefit the most from its arrangement. UBOs can hold a range of different roles, including shareholders, power of attorney or the legal guardian of an ‘underage’ individual.
Put in different terms, while a legal owner might possess a property, the UBO has the right to any income. It’s also important to remember that it is not uncommon for an individual to be both the legal owner and beneficial owner of a business.
As mentioned earlier, every business in the financial sector is obliged to keep up with recent AML regulations, like the EU money laundering directives. Within these regulations, there is guidance on the different compliance measures which firms must implement, like adopting a risk-based approach and carrying out AML checks on all potential customers and clients.
One of these compliance measures is the identification of UBOs within a corporation structure. As UBOs are the individuals who stand to gain the most from corrupt financial activity, establishing (and monitoring) UBOs is a key part of AML compliance and contributes to the global effort against money laundering.
There’s no doubt that identifying UBOs is a crucial part of your AML due diligence, but this doesn’t mean that it’s always a straightforward process. Issues like cooperation challenges due to cross-border issues and complex business structures that obscure the UBO, are just two ways in which ascertaining the necessary information can be a challenge. Other challenges include:
Inaccurate data: Online information regarding company ownership can often be inaccurate, outdated or even use customer-provided data, making it difficult to access the identity of the UBO.
Differing international standards: Beneficial ownership regulations are not standardised, meaning that rules can dramatically vary from one jurisdiction to the next, with one having lenient standards, while the next has complex legal arrangements. These inconsistencies mean that you have to utilise several different methods to find UBOs, significantly slowing down your process.
Nominees: Individuals can be nominated to be directors and shareholders, sometimes to disguise the true owners of a company. This is not an illegal practice, but it does make the identification of UBOs considerably more difficult.
Failure to fulfil your legal obligations and flout customer due diligence standards by not identifying the beneficial ownership of a company can have serious consequences for you and your business. Consequences can include:
Financial penalties: Compliance failings can lead to significant financial penalties - damaging the relationship with your shareholders in the process.
Reputational damage: Failing to comply with anti-money laundering regulations by not identifying a UBO erodes the relationship between you and your customers and partners, even leading to negative media coverage in some cases.
Major disruption: Thanks to financial penalties and possible reputational damage, this can cause irreparable damage to your business. In some cases, this has meant the freezing of assets and the delay of crucial transactions.
As a SmartSearch customer, you’ll not only have access to the Dow Jones Watchlist for ID verifications and AML checks but also be able to quickly and accurately identify UBOs using Experian’s Ultimate Beneficial Owner database.
You can find the UBO feature on the ‘Structure’ page when you search for an LLC or PLC in your account. When you look for a UBO, we’ll return three categories of results to you:
Individual UBOs. We’ll show you any individuals within the corporate structure with over 10% of the total shares or voting rights.
Director UBOs. If any of the individuals with over 10% of the total shares or voting rights are also directors, we’ll flag that status separately.
Additional entities. In this section, we’ll list any other companies in the structure which have a share in the business.
Once a UBO has been successfully identified, you can then carry out a full AML check on that individual or entity – including sanctions screening and customer due diligence – to make sure they don’t raise any compliance flags before you go into business.
UBO stands for Ultimate Beneficial Owner and refers to the individual who has the most control over a business or legal entity, often benefitting the most from an arrangement or transaction.
