Fri. May 24th, 2024
UBO Verification

A criminal act of money laundering is a global threat which is requested to be eliminated by the regulators. The role of beneficial ownership transparency was made obvious by the Panama Papers leak, which untouching hiding spots in the business due diligence process was mentioned in the wake of the leak of the Panama Papers. In addition to other issues, criminals were able to move illegal cash overseas due to unclear beneficial ownership information. As a countermeasure, authorities began imposing regulations on Ultimate Beneficial Owners (UBOs) and the information that companies were required to disclose to them in 2016. Let’s get an in-depth overview regarding UBO verification.

Who is A UBO?

One who has the highest level of effective control over an arrangement is known as a UBO or Ultimate Beneficial Owner. A person may be considered a UBO in some jurisdictions if they possess voting rights and hold a considerable portion of a firm, often between 10% and 25%.

Securities dealers, currency exchange officers, commodities brokers, hedge funds, casinos, UBOs of their company clients, blockchains, and digital lenders are all AML-obligated businesses that must create and supervise UBOs.

How to Identify UBOs?

The procedures for identifying and verifying UBOs vary from one location to another. One example of this is the provision of AMLD4 issued in the European Union, in which a company is deemed to be an identified beneficial owner (“UBO”) when it holds more than 25% of the shares.

It may happen that a corporation’s share becomes irrelevant and is no more useful in specific cases. When this occurs, the recipient is not considered a UBO as they are not eligible for benefits like the following:

  • The Franchise
  • Achieving Dividend Rights
  • The legal right to gain from the appreciation of shares
  • Last but not least, holding shares for someone else (such as parents owning their children’s shares) might make someone a non-beneficiary owner and hence not a UBO.

Significance of UBO Verification

Identifying UBOs is a requirement of Anti-Money Laundering (AML) legislation for companies. To stop financial crimes like money laundering from happening via shell corporations is the main purpose.

A Guide to Verifying UBOs

There are four distinct phases to the UBO certification process:

  1. Identifying Who The Legal Entity Is

To ensure that a business is legitimate and that its records are accurate and complete, current details on its name, address, register number, official status, and senior management workers must be gathered. The specific details needed could change based on the rules governing fraud in that particular area. Typically, it is recommended to gather the following data:

  • Type of registration number Name Address
  • Executives’ roster
  • Credible papers, data, or a mix of the two must be used to confirm the given information
  1. Exploring the Chain of Ownership

Any individual with a direct or indirect stake in, or proportion of, a company’s shares or interests may be located with the use of relevant documents or registered data. Until the controlling natural people are determined, the whole ownership structure has to be examined in cases where shares are held by intermediate legal organizations.

  1. Identifying the Final Beneficiary

A business should find out if any of its employees meet the criteria for UBO by adding up their share percentages, ownership stakes, or potential indirect control.

  1. Conduct a Know Your Customer (KYC) Search

As we’ll see below, the comprehensive Know Your Customer (KYC) process is mandatory for all entities classified as UBOs.

Post-Registration Due Diligence of UBOs

Businesses should put in place procedures of identifying UBK and this will make it possible to do business in these virtual platforms across the world. One of the main ways is having an effective CDD system, which consists of customer’s identity confirmation, appropriate risk evaluation, and reviewing procedures. The system should be constantly maintained. Vetting of an existing UBO (ultimate beneficiary) should be conducted via Enhanced Due Diligence (EDD) if the client is identified as posing a higher chance.

Adverse Media Screening, Sanctions, and PEPs

To ensure their clients aren’t on any penalty lists (PEP lists, negative media, OFAC, UN, HMT, EU, DFT, etc.), businesses must also do Anti-Money Laundering (AML) screening. Customers should continue to be closely watched even after the onboarding process is complete in case they are subsequently added to a sanctions list.

As a customer’s profile could evolve over time, it is essential that ongoing monitoring CDD checks be ongoing as well. A UBO may, for instance, be subject to sanctions, engage in risky activities, or update their personal details.

In A Nutshell

For the sake of openness, risk management, and legal compliance, UBO identification is of the utmost importance. Financial crimes, reputational harm, and legal and financial repercussions may all be avoided if companies know who the Ultimate Beneficiary is. By using technologies like AI and blockchain, business verification service providers now offer new solutions to assist companies in understanding UBO difficulties and effectively managing UBO compliance.

By RSTech Zone

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