Common Mistakes in UBO Screening and How To Avoid Them?

UBO screening often feels like just another mandatory task—a box to tick off in a sea of compliance obligations. But here’s the uncomfortable truth: it’s far more than that. Missteps in your process can mean more than just paperwork headaches, leading to fines and shattered trust with partners and stakeholders. The good news? Most of these pitfalls can be anticipated and prevented. Understanding what to avoid is just as important as knowing what actions to take.

This blog will talk about UBO screening, why it’s important, and what mistakes to avoid to make compliance a seamless and secure part of your business onboarding.

What is UBO Screening?

In the evolving regulatory framework, financial institutions implement various checks on business entities to meet essential requirements. UBO screening, being one of those critical processes, involves the identification of the ultimate beneficial owners (UBOs) who exercise a certain control over an organization.

Why Does It Matters?

UBO screening is important for ensuring that businesses are not inadvertently establishing relations with individuals who may be involved in financial crimes such as money laundering, terrorist financing, corporate fraud, and bribery.

For effective UBO verification, after they have been identified, the key checks include:

Know Your Business (KYB)

Digging deep into the company structure is not easy in any business. Most of the time, it is quite tough to identify the actual persons who manage an organization. Know your business procedures aim to verify a registered company by collecting customer data and other important business details, including:

• Company Name
• Registration Number
• Address
• Articles of Incorporation
• Financial and Filing Documentation

The provided information is then verified by data available on the official registries or documents. Identification of the legal identity builds the foundations for UBO screening by ensuring its legitimacy and operations.

Customer Due Diligence

Customer trust is paramount, and it begins with truly knowing who you are doing business with. Customer Due Diligence (CDD) is more than a regulatory measure; it is the foundation of a secure and reputable business. When partnering with other businesses, companies implement CDD, which involves gathering detailed information about the customer’s financial profile, transaction history, income sources, and business relationships. In addition, it helps in understanding the objective and nature of the customer’s transactions, ultimately ensuring compliance with AML regulations and identifying the risk of illegal activities.

Risk Assessment

The potential risk of associating with non-verified business persons can be irreparable. For this reason, financial institutions conduct risk assessments where they evaluate all the potential risks regarding the UBOs. The ultimate beneficial ownership structure is mostly intricate; hence, identifying them is not only an arduous task but also requires too much time and cost from a business.

Our experts at The KYB gather the shareholder data, and from that, they identify UBOs by conducting enhanced KYB checks. For UBO screening, our researchers make sure that the data is official and updated. You can evaluate the ones with the higher control in the organization, no matter whether they are involved directly or indirectly.

Continuous Monitoring

UBO screening is not a one-time process; therefore, businesses must ensure their UBO information is updated continuously. Financial institutions periodically review individuals’ profiles, verify UBO details, and regularly screen against updated sanctions and PEP data. This method is vital for identifying and addressing potential risks regarding any beneficial ownership structure changes.

Common Mistakes in UBO Screening

As we know, overlooking a single step during business verification can lead to significant and irreversible damage. This can not only expose an organization to financial crimes but can also taint its long-built reputation. Let’s discuss the common mistakes and learn how to avoid them:

•  Reliance on Incomplete or Outdated Data

In a regulatory landscape where the regulations keep evolving, some businesses make the fatal mistake of relying on outdated data. While UBO screening, if a company fails to account for recent changes, it can leave it vulnerable to missing a key person who could be engaged in illicit activity.

Shell companies are often established to carry out unlawful financial activities. Owners of such ghost entities manipulate the complex ownership framework to their benefit. Identifying and verifying the ultimate beneficial owners helps an organization prevent financial crimes and ensures compliance with relevant regulations.

• Overlooking Intricate Ownership Framework

The complex and cross-border ownership structures of shell firms make it challenging for businesses to trace their real owners. A simple KYB check on the beneficial owners is not enough as it can give a false sense of security since it is usually not fully accurate or reliable. The KYB’s enhanced checks not only identify the real owners of a company but also tell you the AML risk of its owners.

In most scenarios, a company that apparently is owned by a single owner or entity may be controlled by a person through multiple subsidiary companies or trusts. Overlooking this multilayered structure means not fully understanding who has the ultimate power.

• Overlooking UBOs in High-Risk Jurisdictions

Many businesses focus on compliance in lower-risk jurisdictions but fail to extend the same scrutiny to high-risk countries, which can prove to be disastrous when businesses are oblivious to the possibility of money laundering or financing terrorism coming from these regions. No matter whether you are doing everything right to ensure compliance in the local market, ignoring a supplier based in a high-risk country or state can be like setting yourself up for a major oversight.

Efficient UBO screening is a way of scrutinizing company people regardless of location. High-risk jurisdictions are likely to be manipulated by criminals and individuals for their illegal financial gains. UBO screening aims to identify and screen companies and their persons against government databases as a way to combat the potential risk of financial crimes.

• No Continuous Monitoring

Screening for UBO is not a one-step process. The robust verification requires ongoing monitoring due to the changing ownership structure. Organizations with complicated and multilayered business frameworks could be associated with illegal entities. Whereas this could taint a company’s reputation, it could also result in financial losses.

To avoid the costly mistakes, ongoing monitoring is essential. You may mistakenly expose yourself to multiple risks if you do not continuously check companies’ ownership structures.

• Failure in Adequate Screening

A significant compliance lapse is ignoring the presence of UBOs in global sanctions or watchlists. This risks leaving your organization severely open to regulatory fines and reputational damage.

At The KYB, we have integrated that automatically cross-check UBO against international sanctions, Politically Exposed Persons (PEP) lists, and adverse media databases.

Why Choose The KYB for UBO Screening?

With The KYB, the most accurate and comprehensive business checks are at your fingertips with just a single click of a button. Here are a few reasons to choose The KYB for effective UBO screening:

• Unveil the ownership structure of a business and evaluate the actual people with significant control in the company, both directly and indirectly.
• Identify shareholders’ and UBOs’ connections and influence in companies by examining complex relationships across multiple node levels.
• Real-time access to UBO data is available for KYB/AML requirements. More importantly, we analyze them against public databases (sanctions, adverse media, watchlists).
• Complete visualization of data to analyze the key features of UBOs within an intricate business structure.

Contact us today to get updated information on the UBOs of a company you wish to verify!