As a business owner, it’s your responsibility to avoid associating with individuals or companies involved in money laundering, fraud, and other financial crimes. But are you taking sufficient steps to monitor and prevent this issue? Identifying and verifying the Ultimate Beneficial Owners (UBOs) of businesses you work with is an essential step in managing your risk and complying with Anti-Money Laundering (AML) regulations.
What are Ultimate Beneficial Owners (UBOs), and why are they important?
In general, an Ultimate Beneficial Owner, or UBO, is any real person who owns a significant portion of a company. Most businesses consider a UBO to be any individual who owns more than 25% of shares or has more than 25% of voting rights. That said, some businesses choose to screen individuals who own 20% or more as an extra precaution.
A UBO is easy to identify in a sole proprietorship where the owner is the only controlling party. When working with businesses that have a more complex ownership structure, on the other hand, a UBO may be any party with a controlling interest or that stands to benefit from the company’s transactions. Larger corporations or LLCs could have multiple people with a significant ownership stake. Similarly, when working with trusts, UBOs can include trustees, beneficiaries, and anyone who has control over the trust.
When identifying UBOs, it’s important you don’t get confused between UBOs and general company officers. A UBO must have a financial stake in the company. Company executives whose compensation packages include shares in the company may be UBOs, but UBOs aren’t necessarily company executives.
Screening for UBOs is an essential part of the Know Your Business (KYB) process. KYB helps prevent bad actors from conducting illegal activities via shell corporations. Essentially, by understanding who the individuals behind a business are, you can be confident you’re only forming relationships with legitimate persons.
Who is required to complete UBO checks?
Ultimate Beneficial Ownership regulations vary from country to country. There are no universal rules or standards around UBOs.
That said, global financial watchdog FATF recommends UBO identification as one of its key AML regulations for all businesses. If your company operates in the financial space, you are legally required to complete UBO checks as part of AML protocols. Failure to comply with UBO screening requirements and other AML regulations can result in criminal penalties such as fines and prison sentences. In addition, your business may face reputation and trust issues if your customers discover you’re working with criminals.
That said, even if you’re not required to complete UBO checks, it will always be in your best interest to investigate the people behind all of your commercial partners. UBO screening is an effective strategy to protect you, your business, and your customers.
As an example, let’s say your business is approached by a new potential software vendor. While the vendor looks legitimate from the outside, after conducting a KYC check on a shareholder with a 27% stake in the company, you realize this UBO is associated with criminal activity in their state. While you likely won’t cross paths with this person directly, you decide to take your business elsewhere rather than accept the risk of getting involved.
How to identify and verify Ultimate Beneficial Owners (UBOs)
Once you know what businesses you’ll be working with (an essential first step in KYB procedures), you’ll need to identify any and all Ultimate Beneficial Owners.
For many years, this meant asking your customers to disclose the names of their UBOs when submitting other business information. However, in the US, a historic change is about to make identification much easier: FinCEN’s new final rule will make it mandatory for all businesses to report their UBOs — and update their listing whenever internal changes occur.
When this rule becomes effective on January 1, 2024, UBO identification will no longer be solely based on self-attestation. Instead, your business can refer to a more authoritative database (similar to the one created by the UK in 2016 and Canada’s publicly available UBO database) rather than conduct a manual investigation to ensure all UBOs are listed.
Once you’ve identified the UBOs, you’ll need to verify each of them. Your business can use Know Your Customer (KYC) protocols to screen the individuals and ensure they’re not involved in any crimes or listed on any sanctions lists. If you consider this business relationship particularly risky, you can add more measures to your KYC process to make it more rigorous.
Automate UBO verification with Persona
Before entering into a business relationship with any third party, you need to be confident in the people who run it. Identifying UBOs is an essential part of AML compliance — and it can prevent money laundering, fraud, and other crimes that hurt your customers and our global systems.
However, KYC/KYB protocols are complex and time-consuming. Automated solutions such as Persona can streamline manual tasks — such as reaching out to UBOs to collect the information needed to verify their identity — and ease the burden on your team. By routinely collecting and cross-checking information from a wide range of sources, our platform empowers you to identify and verify UBOs from one place.
Low-risk, legitimate customers will pass through verification with ease while suspicious accounts are quickly identified — making it fast and easy for your team to take action.
Don’t let the challenges of UBO verification hold you back. Persona can automate this important preventative step and make it easy and effective to identify the UBOs of any entity you work with. Plus, it’s the only platform to integrate KYB and KYC into one seamless process. Try Persona KYB as part of your compliance process today.