UBOs are often concealed by complex legal structures, which makes it difficult to identify a UBO. In this article, we will help you better understand the complexities of legal UBO structures and provide examples (halfway through the article) of different types of UBO structures.
Identifying and verifying ultimate beneficial owners (UBOs) is an essential component of both the Know Your Customer (KYC) onboarding and monitoring process. Moreover, it is central to the latest set of international sanctions and regulations in the areas of Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) as well as tax compliance laws and standards such as FATCA and CRS. The impact of this on the financial sector is great, but also other organisations with Know Your Vendor (KYV) and Know Your Third Party (KYTP) obligations are affected.
For many organizations, getting down to the level of detail is by no means child's play. It often takes days to identify manually entered information such as company name, address and registration details.
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As the regulatory landscape and the nature of available information change, UBO identification seems like an insurmountable task. A risk-based approach with standard lower limits for UBO identification and three lines of defense strategies is standard practice for low risk compliance teams.
Beneficial ownership falls into three categories: executive directors (and/or senior officers), major shareholders (owning at least 3 percent of an organization's securities), and de facto third-party shareholders. Calculating UBO is relatively straightforward for a publicly listed company with direct shareholders.
However, it gets trickier when ownership is disguised by multiple layers of indirect ownership. These ownership structures pose hefty risks and therefore require greater diligence on the part of compliance teams so that they can demonstrate that they have taken all possible steps to identify UBO.
Direct and indirect ownership: put the puzzle pieces together. Beneficial ownership is best visualized as a series of direct or indirect relationships. In the following diagrams, we have depicted the different levels of ownership between stakeholders and entities.
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