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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:
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.
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.
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 AML 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 has 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 require 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 which 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 which 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).
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.
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.
