Identifying the Ultimate Beneficial Owners Within the Know Your Customer Process

11 Feb Identifying the Ultimate Beneficial Owners Within the Know Your Customer Process

Know Your Customer

Disclosing Ultimate Beneficial Ownership (UBO) for legal entities who deal with any financial institution including banks, lease companies & insurers, solicitors, civil-law notaries, estate agents, currency exchange offices, investment institutions, accountants, company auditors, diamond traders, security companies, casinos and others has become mandatory or soon will be made mandatory in some cases.

The underlying reason for this provision is preventing natural persons with malicious intentions, such as money-laundering or financing terrorism, from being able to hide behind a company, or other legal entity.

The ultimate beneficial owner of a legal entity is the natural person who:

Holds an interest of at least 25% in the legal entity’s capital;

OR

Can exercise at least 25% of the voting rights at the general meeting of shareholders

OR

Is the beneficiary of at least 25% of the legal entity’s capital.

This is not always straightforward. It is hard to establish the UBO of a company with its registered office in Liechtenstein or on the island of Vanuatu or Samoa due to their secrecy laws.

There are specific policies and procedures that one should follow in regards to identifying and verifying the UBO. Of course, there will few country-specific requirements that have to be satisfied in the countries that you operate. Given that most of the requirements are similar across the globe, below are the best practices for implementing an effective UBO program

1) Get to know the static details: Identity and verify the static details of the legal entity such as registration number, country of registration, business address etc. These details are required to be recorded in the workflow as they are of utmost importance.

Compliance teams today should be grateful to the companies who make life easier for them to gather information, and one such solution is the KYC Lookup search engine which has access to over 100 million company records from more than 110 jurisdictions around the world.

The solution enables real-time identification and verification of company records through official registries. Using the unique company registration number, the KYC Lookup API pulls the data of the respective entity and the details of the company such as full legal name, date of incorporation, registered address and a link to the specific company registry are made available.

2) Ownership Diagram: List out the complete ownership diagram including natural persons and legal entities that hold a stake in the entity in question both directly and indirectly.

 3) Calculate the Percentage: Out of the diagram that has been listed in step 2 above, calculate the shareholding percentage of the natural persons depending on the risk rating of the customer, for example, low-risk cases might require drilling down ownership up to 25% or more.

4) Screening: Once all the UBO’s have been identified they have to be subjected to screening procedure i.e running the checks against specially designated nationals, politically exposed persons and adverse media. If any risk is identified during screening, the percentage of ownership to be calculated step 3 above might change i.e the ownership threshold might decrease.

While the above looks simple on paper, it might get difficult at times while doing it practically due to a lot of challenges, for example:

1. Complex ownership structures of the legal entities,
2. Legal entities established in high secrecy jurisdiction (i.e., Samoa, Cayman Islands, Panama),
3. False account holder’s declarations on UBOs and hence needs proper resources to perform ownership drill down.

It is important to remember that in cases where the companies have nominal ownership, the real ownership data will not be available on the company registry websites or on the business information reports, one should go the extra mile to uncover the real ownership details.

To learn more about KYC Lookup and to get a feel of how we simplify the life of compliance officers please do visit the link below and get a feel of how we simplify the information retrieval process.