For the complex issues surrounding UBO

Ultimate Beneficial Ownership

Avoid the risks of entering a contract or business relationship without full knowledge of past or present ultimate beneficial ownership (UBO).

Ultimate Beneficial Ownership (UBO) and the risk of not knowing (1:59)

Overview

Organizations need to have a robust, risk-based and auditable process which can identify who exercises ultimate effective control over legal persons in order to understand what compliance risk, if any, that individual may present to the organization. The need for accurate and up-to-date information about beneficial owners is a vital factor in tracing criminals who might otherwise hide their identities behind corporate structures and is an essential component of your anti-money laundering and customer due diligence activities.  

Entering into a contract or business relationship with a company without full knowledge of beneficial ownership – past or present – might expose an organization to significant risk. 

This information can be difficult to source due to challenges associated with: 

  • Multiple levels of ownership
  • Different jurisdictions having different types of corporations
  • A lack of supporting documentation to prove the ownership; and
  • Insufficient resources to conduct research

The changes to EU and US anti-money laundering (AML) and customer due diligence (CDD) legislation will no doubt affect the way in which organizations assess business risk. One of these changes will concern the complex issue surrounding ultimate beneficial ownership (UBO).

The European Commission’s Fourth Money Laundering Directive (4MLD), which EU member states have to implement by the middle of 2017, includes modifications to beneficial ownership, customer due diligence, politically exposed persons, and transparency of requirements.

Similarly, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) proposed CDD rules in March 2012 to strengthen the Bank Secrecy Act (BSA), which will be enacted one year from the date the final rules are issued.

These codify existing requirements that also require financial institutions to identify 

EU 4MLD Regulation

Although largely mirroring the Financial Action Task Force (FATF) recommendations, the 4MLD Regulation will introduce some important changes for firms, including:

  • The introduction of a risk-based approach, a stance most UK firms will already be familiar with under the Financial Conduct Authority’s (FCA) regulatory regime
  • The introduction of tax crimes as a predicate offence
  • The tightening of beneficial ownership rules
  • Amendments connected with Politically Exposed Persons (PEPs)

BSA CDD Rules

FinCEN designates four core elements as being critical to CDD within an effective BSA/AML program:

  1. Identifying and verifying the identity of customers
  2. Identifying and verifying the beneficial owners of legal entity customers
  3. Understanding the nature and purpose of customer relationships
  4. Conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions

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