Understanding Ultimate Beneficial Owner (UBO) Verification

The Ultimate Beneficial Owner (UBO) is someone who owns or controls a business or owns a legal entity. Financial institutions are legally obligated to gather information on UBOs and the amount of risk that is associated with them. Financial businesses need to achieve regulatory compliance and enhance business security to handle risks that come along with UBOs.

Every jurisdiction is allowed to make up its own rules and regulations regarding UBO verification. Before onboarding a business, financial institutions need to verify company details, understand corporate structures, and verify UBO information.

Financial institutions need to verify UBO information to comply with Know Your Customer and Anti-Money Laundering Laws.

In this guide, we’ll be helping you learn UBO requirements and risks across the globe.

UBO Requirements EU

Financial institutions in the EU doing business with commercial entities have to verify UBOs. The AMLD4 regulation was the first-ever regulation that required businesses to verify UBO information. Member states in the EU are now passing new laws to push businesses on UBO verification.

Let’s take the example of Sweden. Swedish legislation requires businesses to report to the Swedish Companies Registration Office about UBOs.

Highlights of Swedish Legislation:

  • Swedish companies, companies that operate in Sweden, and people who administer trusts and other similar legal entities.
  • Defines a beneficial owner as anyone who controls the company directly or through agreements, or someone who has more than 25% ownership stake in the company.
  • Requires beneficial ownership change to be reported as soon as the entity is aware of the change.

While EU member states are allowed to come up with their legislation, they have to comply with 4AMLD. According to the 5th AML Directive, member states have to set up public registers for companies, trusts, and other legal entities. 

In the EU’s 6th AML Directive, there’s a build-up on the rule in AMLD 5. According to the rule, organizations working for these entities can be held criminally liable for not following the rules.

UBO Requirements U.S.A

USA’s FinCEN Customer Due Diligence final rule has a similar beneficial ownership disclosure.

Here’s what FinCEN’s rule guidance has to say “The CDD Rule outlines explicit customer due diligence requirements and imposes a new requirement for these financial institutions to identify and verify the identity of beneficial owners of legal entity customers, subject to certain exclusions and exemptions”.

According to FinCEN, financial institutions include:

  • Banks
  • Broker-dealers
  • Mutual funds
  • Futures commission merchants
  • Commodity brokers.

According to FinCEN, Ultimate Beneficial Owner is someone who owns more than 25% or more of any business/legal entity. Or they can be someone who controls, or manage the entity in any way.

Corporate Transparency Act dictates that “US companies have to report UBO’s full name, DOB, current residence or business address, and identifying number from a passport, or driver’s license to the FinCEN”.

There’s no “in-effect from” date released by FinCEN.

International UBO Standards

Other countries also have agreements that require businesses to collect and share UBO information. In 2003, the FATF set beneficial ownership standards, and in 2012, 198 jurisdictions agreed to stronger FATF standards.

In 2014, the G20 Brisbane Summit emphasized the importance of Ultimate Beneficial Owner transparency and why financial institutions should focus on UBO verification.

The declaration states “Countries should ensure that competent authorities (including law enforcement and prosecutorial authorities, supervisory authorities, tax authorities, and financial intelligence units) have timely access to adequate, accurate, and current information regarding the beneficial ownership of legal persons”.

A 2016 FATF report stated that out of 20 G20 members, only 2 had made substantial efforts to set up UBO requirements. FATF is promoting the use of technologies and procedures that speed the process and help businesses meet the requirements. 

Governments want to put tons of effort so they don’t seem lax when it comes to the war on corruption. Whether it is to collect more tax revenue, prevent terrorist financing, or prevent money laundering. More and more countries are setting up procedures to help businesses manage ownership due diligence.