The Complete Guide to the Ultimate Beneficial Owner Verification
Ultimate Beneficial Owner (UBO) Verification
Identifying the Ultimate Beneficial Owners (UBO) when engaging with corporate customers is a key component of the Customer Due Diligence process under anti-money laundering regulations.
The Anti Money Laundering (AML) compliances in UAE are governed by the following legislations:
- Federal Decree-Law No. (20) of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organizations.
- Cabinet Decision No. (10) of 2019 on the Implementing Regulations of Federal Decree Law No. (20) of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organizations.
The Federal Decree-Law No. (20) of 2018 and the Cabinet Decision No. (10) of 2019 require the Designated Non-Financial Businesses and Professions (DNFBPs), Financial Institutions and Virtual Assets Services Providers (VASPs) to adopt a risk-based approach while onboarding a body corporate, foundation, legal entity, or legal arrangement customers.
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What is UBO (Ultimate Beneficial Owner)?
A legal entity, legal arrangement, foundation or a partnership cannot run itself. One or more natural persons are ultimately responsible for running any business and enjoying benefits or profits derived from operating such a business. Such natural person is known as “Ultimate Beneficial Owner” or UBO.
As per the UAE regulations, any person owning 25% or more of the shares, controlling 25% or more of the voting rights, or the person exercising ultimate control or influence over the company and its management is termed as UBO.
Reporting entities in the UAE, such as DNFBPs and VASPs, are required to perform adequate measures to identify the natural person behind the transactions, when engaging with legal person or legal arrangement. The UBO checks are important to safeguard the business from money laundering (ML) financing of terrorism (FT), and proliferation financing (PF) of weapons of mass destruction risks, attempted behind the corporate veil.
UBO Regulations in UAE
Further, the significance of decoding the corporate structure and bringing transparency around the UBO has also been highlighted by the Ministry of Economy in Cabinet Decision No (109) of 2023 On Regulating the Beneficial Owner Procedures
- This resolution overrides the earlier legislation known as the Cabinet Decision No. (58) of 2020 concerning the regulation of Beneficial Ownership Procedures. Thus, the resolution on the UBO procedures mandates the corporates entities in the UAE to maintain complete and updated register of its beneficial owners and furnish the same with the Registrar, ensuring adequate disclosure.
Cabinet Decision No (109) of 2023 was enacted to set forth the benchmark requirements applicable to the registrar concerning the identification of beneficial owners, maintaining registers, and maintaining a database for them.
Further, Cabinet Resolution No. (132) of 2023 sets out the administrative fines and penalties applicable to businesses in UAE for violation of the Cabinet Decision No (109) of 2023, resulting into inadequate disclosure or transparency around the UBOs.
Ultimate Beneficial Owner under AML - KYC and CDD requirements
The provisions of the Federal Decree-Law No. (20) of 2018 requires businesses in UAE, particularly the DNFBPs and VASPs to adopt a risk-based approach while assessing the ML/FT and PF risk arising out of conducting business with legal entities or legal arrangements.
As a part of risk-based assessment, DNFBPs and VASPs are required to identify the natural person who is/are the UBO of the legal entity. Identifying the UBO and verifying the identity of the UBOs must form a part of the AML/CFT and CPF framework of a DNFBP or VASP. Identifying and verifying the UBO can be done according to the Know Your Customer (KYC) and Customer Due Diligence (CDD) procedures set within the business
UBO International Standards
The UAE AML/CFT and CPF laws are enacted in alignment with the international standards laid down by the Financial Action Task Force (FATF) as UAE is a signatory of United Nations (UN).
The Cabinet Decision No (109) of 2023 specifies that the Ministry of Economy shall share the data of Beneficial Owner’s Record and the Register of Partners or Shareholders (as mandated under the cabinet decision) with the relevant authorities of countries with whom international cooperation is established. It shall facilitate the exchange of data and information by providing and obtaining data pertaining to UBOs with and from their foreign counterparts.
Step-by-Step Process for Identification and Verification of UBO for AML Compliance
Ideally, the KYC and CDD procedure for identifying and verifying the UBO requires taking the following steps, which are unique from a case-to-case basis:
1. Obtain the Legal Entity/ Legal Arrangement Documents
The first step of identifying UBO starts with the collection of Legal Entity/ Legal Arrangement documents which helps in establishing the ownership or controlling structure of the entity/legal arrangement, such as:
- Organisational structure;
- Memorandum of association;
- Shareholders agreement/partners register;
- Partnership Deed;
- Register of senior management/ governing body;
- Charter and documentary evidence of the Foundation/ regarding the appointment of the guardian or any other natural person who may exercise powers upon the foundation;
- Trust deed and documentary evidence of the trustee’s appointment or any other person exercising powers for the trust.
Upon document collection, the document needs to be read out carefully to identify ownership structure of the legal entity/ legal arrangement and determine who would qualify as the UBO.
2. Identify Ownership Structure and Percentage
Once any of the abovementioned relevant document is collected, the regulated entity must look out for the details mentioning the name of a natural person having 25% or more of the shares or voting rights of the entity or legal arrangement. If such details are clear, then such individual is to be construed as UBO according to the UAE laws, for applying necessary AML checks and verification measures.
How to Identify the Ultimate Beneficial Owner when UBO cannot be identified based on shareholding threshold?
If in an event that no natural person owns 25% or more of the shares/voting rights, then a natural person with the controlling right (This could be accomplished through a control chain or by having the power to appoint or remove the majority of the company’s management) over the entity, including the management’s decision shall be considered as a UBO.
If in any event, the shares/voting rights of a legal entity are held by another legal entity/entities, then UBO of such another entity must be identified by looking into the company documents and decoding the multiple corporate layers. This process needs to be repeated until a natural person having 25% or more of the shares/voting rights, or the ability to influence or exert control over the management’s decision is identified.
It is crucial to identify the UBO structure and know about the individuals who have a stake in the company, directly or indirectly, via another party or jointly with another person.
Under circumstances when the UBO cannot be identified based on the shareholding or controlling rights, the senior management of the entity must be treated as the UBO for the purpose of AML compliance.
3. Collection and Verification of UBO Identity Documents
Once the shareholding pattern of a legal entity/ legal arrangement is established and identity of the UBO is ascertained, the process of collection of identity documents of the UBOs must be carried out. The following details need to be collected from the UBOs:
- the full name as specified in the identification card (including alias),
- date of birth,
- nationality,
- legal domicile,
- current residential address, other than post office box,
- place of birth; and
- percentage of shareholding or the designation in the entity.
The DNFBPs and VASPs are required to ensure that the information collected is reviewed and verified against an original, current, and valid passport or similar documents, such as:
- an official government identification document issued by a competent government authority in digital form,
- a valid identification card or travel document,
- any official identification document that includes a photograph,
- a UAE pass for verifying the addresses of individual customers who are residents, of the UAE.
4. Perform AML/KYC/CDD checks on all persons identified as UBOs
Once the UBO identification details are collected and verified, the DNFBPs and VAPS are required to carry out name screening or sanctions screening of the UBOs to ascertain if the UBO is:
- sanctioned, under any of the relevant local and international terrorist lists, sanctions lists and watchlists,
- a politically exposed person (PEP),
- appears in adverse media checks and has negative information regarding their involvement in ML/FT/PF or predicate offences,
- have a criminal record.
Following this, in line with the internal AML policies and procedures, the DNFBPs and VASPs must carry out further customer onboarding processes such as:
- assessing the risk posed by the UBO,
- assigning UBO appropriate risk rating according to AML/CFT and CPF policies, procedures and controls,
- evaluating the effect of the UBO’s risk rating on the overall customer risk,
- applying adequate CDD measures on the UBO and the corporate customer,
- onboarding Legal Entity/Legal Arrangement as a customer, in line with the Customer Acceptance Policy.
Ultimate Beneficial Ownership and AML Compliance
Automated solutions are the futuristic way to comply with the AML/ CFT and CPF requirements as they make the detection and validation of UBOs a seamless and quick process. AML UAE can help you with compliance with the AML/CFT and CPF requirements.
Check out how to find UBO of a company
Identify UBO to ensure AML Compliance in UAE
FAQs
How do you find the ultimate beneficial owner?
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.
What is ultimate beneficial owner declaration?
Entities in UAE are required to comply with UBO rules. These rules require entities to declare who their beneficial owners are and maintain a register for the same. The declaration of UBO ensures that the entity does not have a relation with money launderers or terrorist organizations and is safe to carry out transactions with.
Why is it important to identify the UBO?
‘Knowing your Customer’ is essential to keep oneself safe from financial crimes and money laundering activities. By knowing the ultimate beneficial owners, you can match the list with Sanctions lists, PEPs, and terrorist lists and decide whether to onboard the customer or notify the authorities.
What is an ultimate beneficial owner of a company?
UBO is a person or persons 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
Is UBO declaration mandatory?
Yes, the UBO declaration is mandatory for entities in the UAE. Declaration of UBO is essential to know your customers and their legal owners. This information helps you decide whether to enter into a business relationship with them. It is a way to detect money laundering, terrorism financing, and other financial crimes.
What is ultimate beneficial owner in UAE?
A UBO is the one with ultimate control over the business. They are a natural person who owns or controls, directly or indirectly, at least 25% of the company’s share capital or at least 25% of the voting rights or have the right to appoint or dismiss a majority of the managers or directors.
How do I register for beneficial owner online?
The legal person must maintain a Register of Beneficial Owners and must submit the same to the Registrar within 60 days of its registration. Also, if any changes occur in the Register, it must be notified to the Registrar within 15 days of the change.
What information is required to verify the identity of an ultimate beneficial owner?
What is KYC UBO?
What is a beneficial owner for AML?
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About the Author
Pathik Shah
FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)
Pathik is a Chartered Accountant with more than 25 years of experience in compliance management, Anti-Money Laundering, tax consultancy, risk management, accounting, system audits, IT consultancy, and digital marketing.
He has extensive knowledge of local and international Anti-Money Laundering rules and regulations. He helps companies with end-to-end AML compliance services, from understanding the AML business-specific risk to implementing the robust AML Compliance framework.