The Complete Guide to the Ultimate Beneficial Owner Verification

Ultimate Beneficial Owner (UBO) Verification

As per the KYC onboarding and remediation process, customers must be verified for Ultimate Beneficial Ownership. It is necessary to comply with AML/ CTF sanctions and regulations and meet the tax compliance legislation and standards. UBO is defined as an individual who benefits the most and has ultimate effective control over an arrangement– a legal entity or a natural person, irrespective of the chain of control is UBO – Ultimate Beneficial Owner. UBO check is necessary for different entities such as banks, brokers or dealers in securities, commodities, hedge funds, futures commission agents, blockchains, currency exchange officers casinos, digital lenders, FX, and binary options brokers
s are in trend nowadays across the world. People are using these digital assets as investment vehicles or for the exchange of value. There is a sudden rise in its adoption. Parallelly, there is a rise in innovations in financial infrastructure for securing cryptocurrencies.

CDD – Customer Due Diligence has come into the spotlight with the several scandals unearthed in recent times, such as the headlines grabbing Panama Papers and others. More emphasis is being laid on CDD now. Increased regulatory compliance helps in improving ownership disclosure and transparency. It is critical to follow the new compliance regulations, as it can put a business on the verge of getting a bad reputation and increase the risk of financial loss.

The legal arrangements are complex, and detangling them is also cumbersome. Several factors hinder UBO verification, such as lack of clarity on multiple beneficial ownership outlines, non-co-operation, and other factors that make it difficult to carry out the process quickly and prevent compliance with the KYC process.

Let AMLUAE address your money laundering concerns

While you focus on your core processes

UAE Cabinet Decision No. (58) of 2020 Regulating the Beneficial Owner Procedures

The UAE Ministry of Cabinet Affairs (‘Cabinet’) published Cabinet Resolution No. 58 of 2020 on the regulation of the Procedures of the Beneficial Owner ‘ (‘Resolution 58’) as part of the UAE’s shift toward greater openness and to be in line with global norms.
Resolution 58 mandated that entities in the UAE (with few exclusions) gather and retain relevant, accurate, and up-to-date information on their genuine beneficiaries (‘Beneficial Owner ‘), as well as inform the authorities. This law establishes a beneficial ownership framework for UAE “mainland” and free zone entities, as well as requiring the maintenance of necessary registers. As per Article 5, UBO is anyone who owns or controls, whether directly or indirectly, through shares or bearer shares:
  • 25% or more of the legal person’s share capital; 
  • or 25% or more of the legal person’s voting rights.
This could be accomplished through a control chain or by having the power to appoint or remove the majority of the company’s management.
If no natural person meets the foregoing conditions, or if there are any uncertainties about who does, the UBO is the natural person who has power over the legal person by any other methods. If a natural person cannot be identified, the UBO is the senior manager of the legal entity.
The main reason for UBO verification is to arrest financial manipulation, money laundering that goes into funding terrorism, and financial crimes hidden behind the garb of legal entities.

Final CDD Rule

The CDD final rule amends the Bank Secrecy Act regulations, which improves financial transparency; It will help prevent money laundering and misuse of legal entities to hide the illegal activities of funding criminal and terrorist activities. The CDD rule works on four elements which require financial institutions to maintain written policies and processes to perform the following functions- 

  1. Identification and verification of the customers’ identity.
  2. Identification and verification of the UBO of the companies opening accounts.
  3. Create a Customer Risk profile by understanding customer relationships.
  4. Regular monitoring of transactions to detect and report suspicious transactions. Update the customer information regularly.

Any individual who owns 25 % or more of a legal entity and the individual who controls the legal entity must be subjected to verification of beneficial ownership information. 

UBO International Standards

The FATF: Financial Action Task Force is an organisation that keeps a tab on global money laundering and terrorist financing activities. It lays down the international standards that aim to prevent illegal financial transactions. Two hundred countries agreed to the rules established by the Financial Task Force for beneficial ownership in 2003 and 2012. The 4th AMLD and CDD rules are applicable, but several countries adhere to the terms laid down in the international treaties that require beneficial ownership declarations. The organisation regularly keeps a vigilant eye on the money laundering and terrorism financing methods and improves its standards to combat the challenges of evolving money laundering techniques.
As a result of the FATF study, there has been massive awareness, and legitimate governments are targeting corruption. The emphasis on obtaining information on beneficial ownership due diligence has increased more than ever before, serving many purposes such as increased financial transparency, preventing money laundering, and stopping funding of terrorism and unlawful activities.

Ultimate Beneficial Owner Step-by-Step Process

You need to follow the unique compliance standards for each country in which the business is operating. But there are a few standard procedures that must be followed to develop an effective UBO program strategically.

1. Obtain the firm's credentials

Complete records of the companies have to be provided, such as company’s names, address, official status, top management employees and verify the records’ accuracy.

2. Identify Ownership Structure and Percentages

It’s crucial to know about the entities who have a stake in the company, directly or indirectly via another party.

3. Identify Beneficial Owners

Identify UBO by determining the entity or natural person’s ownership interest or management control – total percentage of shares, ownership stake, management control, and verify if any of it falls under the ambit of UBO UAE.

4. Perform AML/KYC checks on all persons identified as UBOs.

A proper system must implement all the processes and make it a practical solution. UBO checks can be streamlined, and the process can be made easier for both the compliance and legal entities. Manual data screening delays the onboarding process as it does not facilitate a reliable screening process. Human errors result in re-screening and assessment, causing a delay in starting a business. Moreover, the workforce struggles with data input rather than handling complex compliance issues.

UBO and AML Compliance

Automated solutions are the futuristic way of compliance with the AML/ CFT requirements as they make the detection and validation of UBOs a seamless and quick process. AMLUAE can help you with compliance with the AML/CFT requirements. Contact us to know more about assisting you with AML/CFT compliance.

Check out how to find UBO of a company

Our recent blogs

Contact us

Add a comment

Share via :

Share on facebook
Share on twitter
Share on linkedin

FAQs

A UBO is an individual having significant control over the business through shareholding or voting rights. A UBO must have at least 25% shareholding (direct or indirect) in the company, the right to vote, and the right to appoint or dismiss directors/managers. An individual/s holding such control is your UBO.  

About the Author

Pathik Shah

CISA, FCA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a multi-disciplinary professional with more than 22 years of experience in compliance, risk management, accounting, system audits, IT consultancy, and digital marketing. He has extensive knowledge of Anti-Money Laundering rules and regulations, and he helps companies comply with legal requirements. Pathik also helps companies generate value from their IT investments.