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Identify UBOs Across Diverse Industries with KYB Solutions

18 October, 2023

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Identifying Ultimate Beneficial Owners (UBOs) is essential for financial companies and businesses. As the challenges regarding money laundering and financial crimes continue to grow, enhanced security measures are more essential than ever. Businesses are at risk of being associated with movements like terrorism financing. Adopting UBO identification can allow your business to ensure transparency and effortlessly meet the regulatory compliance issued by the Financial Action Task Force (FATF) regarding Anti-Money Laundering (AML). This article delves deep into the identification of Ultimate Beneficial Owners (UBOs), its significance, and methodology.

What is UBO?

An Ultimate Beneficial Owner (UBO) is an individual who controls or takes advantage of a stakeholding in the respective business. The Financial Action Task Force (FATF) presented the initial legislation to address the issue of beneficial ownership in the United States in the late 1980s when the connection between money laundering and beneficial ownership was highlighted. Consequently, several other countries also executed Anti-Money Laundering (AML) regulations to combat this illegal activity efficiently.

A Singaporean-based bank was recently accused of having a link with terrorism financing and money laundering as the financial firm was not complying with standard AML regulations. The corporation was, therefore, required to pay $25 Million in penalty costs. Therefore, UBO verification is the need of the hour for businesses and financial institutions worldwide.

Standard laws issued by regulatory authorities ensure that businesses and financial companies are not dealing with fraudulent or sanctioned entities. However, the definition of Ultimate Beneficial Owners (UBOs) frequently expands to enclose the new obfuscation technologies and meet financial challenges. Businesses must be vigilant and adapt to these changes to protect themselves and their financial systems from the threats of monetary crimes.

Significance of UBO Identification

As per regulations, businesses and financial firms must be sure of the legitimacy of associated companies. Authenticating the identities of beneficiaries and shareholders is mandatory for regulatory compliance.

According to the United Nations Office on Drugs and Crime (UNODC), illegal activities, for instance, tax evasion or corruption due to the misidentification of UBOs, generate $2 trillion in revenue annually. In addition, when any business’s Ultimate Beneficial Owners (UBOs) get exposed, companies tend to nullify their identities to save themselves from legal inquiries and consequences. This helps fraudulent companies save their industry reputations and hide their involvement in criminal activities. Furthermore, criminals can significantly engage in illicit fiscal activities like money laundering by staying anonymous. UBO authentication exponentially enhances the safety and genuineness of businesses and financial institutions alike.

How to Conduct a UBO Check?

Following are the standard steps of KYB to ensure a smooth UBO check of companies your businesses are dealing with:

Understanding the Basic Structure of the Company

While starting, every business must know everything about the companies they are dealing with. It includes detailed information about the owners, beneficiaries, as well as indirect companies associated with the respective business.

Examination of Supporting Documents

To ensure the identification of Ultimate Beneficial Owners (UBOs), standard Know Your Business (KYB) regulations direct businesses to check shareholder agreements, partnership contracts, and trust deeds. This in-depth examination of records reveals specific facts regarding the ownership and management of the company. 

Conducting Due Diligence

This step involves investigating the company, its proprietors, and any linked groups to identify warning alerts that could result in further inquiry or examination.

Tracing Ownership Chain

In this stage, companies must identify the one who controls a business by tracing the records of financial transactions. It necessitates reviewing share registers, trust deeds, and other significant legal documents.

Authentication of Ultimate Beneficial Owner (UBO)

After successfully locating the UBO of a business, companies must confirm their identification and ownership via external resources.

Levels of UBO Risks

Businesses have different risks depending upon the customer level or business they are dealing with. Though there is no standard measure to analyze the level of Ultimate Beneficial Owner (UBO) risk, the primary standards most businesses pursue are as follows:

Low-Risk UBOs

Businesses that fit into low-risk Ultimate Beneficial Owners (UBOs) often need little due diligence. It is because they are too tiny to pose a concern. A simple data collection of verified personal information or a strict identity verification check on state documents is sufficient to ensure UBO verification.

Medium-Risk UBOs

Depending on the risk appetite of a company or business, entities that may be included on a PEPs (Politically Exposed Persons) list but not on other sanction lists can be categorized as medium risk. Some medium-risk businesses could fit into this group, depending on the size of their capital. A prime example would be a government official’s kid. They significantly pose a concern since it’s likely that their name will be on the PEP list, which might be used to corrupt them. Having said that, many businesses would be delighted to have that person’s company. A similar Know Your Business (KYB) procedure should be used in these situations as it is for high-risk UBOs:

  • Run more thorough generic searches to see whether the subject has recently been exposed to risks, such as legal issues or media attention.
  • Detailed examination of wealth inequalities, especially for medium-risk UBOs with a greater risk of corruption but who may not be subject to any sanctions. Check for any discrepancies that can point to financial wrongdoing in their transactions compared to their reported sources of income and overall wealth status.
  • Gather quantifiable proof that the person’s acts are thought to be of a non-criminal character.
  • Ensure these actions are repeated consistently, ask for updates if the situation changes, and record any modifications.

High-Risk UBOs

High-Risk Ultimate Beneficial Owners (UBOs) should be exposed to expanded due diligence procedures of businesses, much like the aforementioned medium-risk UBOs. Approaching high-risk people with a tenuous connection to those identified on sanction lists or who are somehow narratively sanctioned, such as family members of sanctioned people or nameless terrorist organization members, should be handled attentively.

Businesses must carefully follow the due diligence procedure if such people contact the company. Furthermore, enterprises must remember that most foreign AML regulations emphasize the value of recordkeeping and self-reporting. When laws change, UBOs previously regarded as low-risk may now be classified as high-risk. In these circumstances, it will be in a business’s best interest to be able to give accurate particulars and get leniency.

How can the KYB Help with Your Client’s UBO Authentication?

Robust Know Your Business (KYB) solutions to identify UBOs are vital due to rising financial crimes and strict regulatory policies. With UBO verification, businesses can ensure transparency and compliance while shielding businesses from associations with fraudulent entities. The KYB’s UBO authentication is a defence against money laundering, tax evasion, corruption, and financial crimes. Our robust KYB solutions help businesses stay vigilant and acquire comprehensive insights regarding ownership hierarchies while ensuring thorough due diligence.

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