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There is an industry-wide expectation for banks and corporations to know the individuals they do business with. Any institution within the scope of the Anti-Money Laundering and Anti-Terrorist Financing Act, needs to disclose the UBO identity for any of their business transactions.

What is UBO legislation?

Countering fraud, money laundering and terrorist financing have become top priorities for regulators in recent years. Fraudulent parties use off-shore accounts to mask their activity and investigators regularly trace suspicious transactions to fictional addresses, PO boxes or the private homes of unsuspecting residents.

A UBO or Ultimate Beneficial Owner is the person or entity that is the ultimate beneficiary when an institution initiates a transaction. A UBO of a legal entity is a person who:

  • Holds an interest of minimum 25% capital of the legal entity
  • Has minimum 25% voting rights at the general meeting of shareholders
  • Receives minimum 25% of said legal entity’s capital as beneficiary
What is an Ultimate Beneficial Owner (UBO)?
How do banks identify Ultimate Benefical Owners (UBOs)?

How do banks identify UBOs?

1. Acquire the firm’s credentials

While the exact specifications vary depending on the jurisdiction and fraud regulation standards, companies must supply full and up-to-date information that includes the firm’s registration number, name, address, official status and the names of top management employees for verification of legitimacy and accuracy. KYC Registry offers a base line of know-your-customer information, which drives greater efficiencies and avoids duplication in data.

2. Research ownership chain

Determine the natural or legal persons who have a percentage in shares or interests and if their ownership is direct or indirect.

3. Single out the ultimate beneficiary

Identify the total percentage of shares, management control and ownership stake of every individual and determine which (if any) falls under the definition of UBO.

4. Perform an AML and/or KYC check

All UBOs must go through the full AML/KYC check in a uniform and efficient way, filing consistently. Identification data must be filed and updated every five years as a minimum.

Case study: BNP Paribas and BASF

How BNP Paribas and BASF are streamlining their KYC information collection process

Mitigating risk

Estimating risk UBOs fall under different categories of risk. Ranging from low to high, they demand different approaches:

Low risk

UBOs that fall under the low risk category can confirm their identity by signing a statement listing their details. It is also sufficient to perform a visual check against identification documents.

Ultimate Beneficial Owners (UBO) fall under different categories of risk
What is an Ultimate Beneficial Owner (UBO)?

Medium to high risk

If the person identified shows any signs related to terrorism or money laundering, further investigation is required that may include but is not limited to:

1. Additional searches to collect information to assess the customer’s risk profile including political exposure, adverse media coverage and legal enforcement measures that could contribute to risk;

2. Analyse the individual’s source of wealth and funds, and register any discrepancies between income, source of wealth and overall net worth;

3. Gather additional information about the purpose and intended nature of the business relationship;

4. Annual updates about changes in substantial ownership.

What is the scale of offenses?

According to the International Monetary Fund (IMF), money laundering and terrorism financing amounts to around 1,000 billion EUR – between 2.5 and 5 per cent of the world’s GDP. In the past few years the number of reports featuring indications of money laundering or terrorism has increased dramatically.

It is for this reason organisations now go through UBO checks to demonstrate compliance with Money Laundering and Terrorist Financing (Prevention) Act. Failure to do so can result in steep penalties.

UBO

Case study: BNP Paribas and BASF

How BNP Paribas and BASF are streamlining their KYC information collection process

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