The Ultimate Beneficial Owner (UBO) is defined as the person who owns or manages an interest in a legal entity, such as a business or institution. This information is important as industry-wide compliance regulations outline you must know who you are doing business with, in order to fully undertake the due diligence necessary for anti-money laundering (AML checks).
Tracing beneficial owners can be difficult, particularly when you are looking internationally. This is due to there being no set global standard for the definition of UBO, therefore making it a moving target. Legislation is constantly evolving and with regulations rarely static, it can be difficult to determine an organisation’s UBO. Typically, the UBO is not usually a company or legal entity, but instead an individual who benefits from their association with the company. Accessing this data is essential to mitigate risk and remain compliant, and a tool like Red Flag Alert can help.
According to Section 3 GwG of the Anti-Money Laundering Act, to qualify as an ultimate beneficial owner you must have at least 25% voting right in the general meeting of shareholders, have at least 25% stake in the legal entity’s capital and be a beneficiary of at least 25% of the legal entity’s capital.
Why does a UBO matter?
It is important for all types of businesses to identify Ultimate Beneficial Owners as part of regular compliance. This is for protection, to ensure safeguarding your entity from potential penalties for non-compliance and reputational damage. Being aware of the relevant UBO increases transparency to avoid situations such as tax evasion, money laundering, corruption, embezzlement, terrorist financing, and other crimes.
During one of the largest tax evasion scandals in recent memory, exposed by what is now known notoriously as the Panama Papers in 2016, there was a massive leak of over 11.5 million documents that exposed the offshore activities or thousands of individuals and entities. It was the biggest data breach in world history, with 28,000 pages of confidential financial records made vulnerable. The resulting fallout of the Panama Papers truly highlighted the importance of fully understanding corporate structures and hierarchies.
The global outroar caused by the Panama Papers prompted extensive investigations around the world. It also encouraged legislators to revisit any gaps or holes which could allow potentially fraudulent or illegal acts to take place. In 2017, The European Commission took action and introduced beneficial ownership transparency in the 4th EU Anti-Money Laundering Directive. This meant all member states now had to establish public registries for beneficial ownership, meaning companies must provide up-to-date information on their UBO/BO’s, for anyone to access. The change resulted in all regulated industries taking the extra step to check this information to remain compliant and legally secure.
Ultimate Beneficial Owner (UBO) vs Beneficial Owner (BO)
You may see Beneficial Owner (BO) used at times and wonder if it means the same as UBO, the short answer is no. Whilst there are some similarities, a Beneficial Owner is an individual with some ownership privileges and shares within an entity. They gain profits related to the ownership of shares, same as UBO. However, in comparison to a BO, a UBO receives a much higher share (usually at least 25%) and has significant control over the entity.
How to establish a UBO?
By investigating a UBO, you are able to address and mitigate risks posed by organisations and ensure you are not dealing with criminals. Red Flag Alert can provide you with global UBO data, to support your compliance processes. This knowledge, alongside deploying suitable Know Your Customer measures as part of your AML procedures to verify and check individuals, will protect your organisation from the risks of financial crime and bad debt.
Within your checks you should be doing the following:Customer due diligence
You should seek basic information such as names and addresses of company directors, company incorporation information and key stats.AML transaction monitoring
With our AML checks, you are able to ensure that any unusual transactions are flagged, which may relate to high-risk countries or individuals.Sanctions screening
Our checks also include global sanctions checking, some of the UK sanctions lists we check include UK Crimestoppers Most Wanted, HM Treasury List and United Kingdom Serious Fraud Office.Politically exposed person(s) screening
PEP screening is a process which identifies if an individual is blacklisted or on public/private sanction lists. PEPs can have direct or indirect influence on the organisation which they are involved in, and should be treated with extreme caution.Adverse media
Red Flag Alert checks also include the option to include or exclude adverse media results. These are news stories and articles which may indicate the individual is related to anti-money laundering offences. This method of identification is trickier, as not all articles are always factually correct, however, it is great practice for due diligence.
UBOs on Red Flag Alert
As we understand the difficulties surrounding finding out UBO, we strive to provide clear and accurate data to our customers. Because of this, we are able to offer UBO data globally on our platform. This allows you to confidently go into business with other entities and ensure you remain compliant whilst doing so. Request a free trial of Red Flag Alert today.