What is Ultimate Beneficial Ownership (UBO)?
There is an industry-wide expectation for banks and corporations to know the individuals and entities they do business with. Ultimate beneficial ownership (UBO) refers to the natural person who ultimately owns or controls a company, or the ultimate beneficiary when an institution initiates a transaction. This definition was created by the Financial Action Task Force, which is a regulatory agency that combats money laundering and terrorist financing.
More specifically, to qualify as a ultimate beneficial owner of a company, a person must:
- Have at least a 25% stake in the capital of the legal entity
- Have at least 25% voting right in the general assembly
- Be a beneficiary of at least 25% of the capital of the legal entity
Why is UBO important?
Determining the UBO of a business entity is a critical step in the fight against money laundering, as the lack of disclosure of UBO paves the way for people to launder money through companies. Anti-money laundering (AML) efforts are important because money laundering facilitates criminal activities such as illegal arms sales, drug trafficking, human trafficking, funding of terrorist organizations, and more.
AML regulations generally require banks, investment entities, insurance companies, and other financial businesses to uncover the UBO of their clients, vendors, and suppliers. Especially for businesses working internationally, discovering UBO is critical as each country has different corporate disclosure laws and there could be limited information readily available on the beneficial owners. Conducting customer due diligence is a critical step for financial institutions and businesses looking to avoid getting tangled in illicit commercial activities.
What is the latest in UBO legislation?
In January 2021, the U.S. Congress made a major commitment to expanding corporate transparency and AML regulations through the Corporate Transparency Act (CTA). Aimed at deterring the flow of illicit funds into the American financial system and preventing the proliferation of shell corporations, the CTA called for the creation of a beneficial ownership registry within the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). It requires certain companies, both foreign and domestic, to disclose beneficial ownership information.
With this information, FinCEN hopes to fight the misuse of corporate structures that facilitate various criminal enterprises. It is estimated that this act could impact over 25 million existing entities and nearly 4 million new entities conducting business in the U.S. While the data the CTA collects is confidential and not publicly accessible, the act is still widely considered one of the most significant developments in UBO regulation.
In Europe, requirements to disclose beneficial owners have been developing since the European Union’s 4th Anti-Money Laundering Directive (4AMLD) was enacted in 2016. It stated that businesses must make accurate and current information about their beneficial owners accessible via interconnected central registries. The 4AMLD required this of financial institutions, credit institutions, auction houses, art dealers, estate agents, trust or company service providers, gambling service providers, digital wallet providers, virtual currency exchange services, auditors, external accountants, tax advisors, notaries and lawyers acting on behalf of their client in financial or real estate transactions. Since then, the EU has continued to expand corporate transparency requirements with the 5th Anti-Money Laundering Directive (5AMLD) in 2018.
How to run efficient UBO investigations?
What’s clear is that UBO investigations can be complex and time consuming. When conducting investigations manually, your teams will need to keep in mind that while rich public data may be available, accessibility can often prove challenging. Not all forms of corporate data are presented in searchable online registries; some of this data may not be indexed online, or may only be available as a bulk data download buried on a government server.
The Sayari Analyst team has several strategies for uncovering UBO with public data that even work well for businesses based in offshore secrecy jurisdictions. These strategies include:
- Understanding the data landscape in the offshore jurisdictions
- Using foreign-filed documents to glean ‘back door’ insights
- Leveraging search engines and creative search queries to cast a wide net
- Complementing corporate records with other forms of official datasets
Completing any of the above strategies manually is often taxing on investigative teams. This is particularly the case when you combine the different techniques to paint a more complete picture of UBO. That’s where automation comes in. By combining global public data in a pre-computed graph database, such as Sayari Graph, investigators now have the ability to automatically search across hundreds of millions of public records to help illuminate where companies operate, and in turn, provide additional avenues to identify who ultimately owns or controls them.
With a purpose-built data intelligence platform, investigators can remove some of the barriers to accessing corporate ownership and control information.