Verification is crucial when engaging the business to ensure transparency in future relations. If the business person is engaged in illicit funding or criminal activity, the company is exposed to certain risks. In Know Your Business, the role of each person in a participatory chain of finance must be determined. For this reason, it becomes possible to identify the natural person who controls the business through a shareholding interest. It should be noted that it is rather difficult to identify the ultimate beneficial owner in the business because the information about them is not usually available in the countries’ business registers.
Who is the Ultimate Beneficial Owner (UBO)?
The Ultimate Beneficial Owner is the individual or group that usually owns more than 25% of the total worth of the company’s assets. However, the share of the business owned by the UBO differs in line with the country or state jurisdiction. UBO also usually owns 25 percent of the voting rights, which, of course, makes the decision-making process quite significant. While establishing business relations, it is necessary to identify the UBOs of the counterparties. Information and documents supplied by the UBO are collected and cross-checked against the entries in the registries available in the public domain. It also includes the verification of its UBO’s compliance with AML laws; otherwise, it might lead to penalties.
UBO Checks
Each country under the parent registry retains the business register and the record of the UBOs. When the business is required to identify the UBO, it has to request the partner company to provide the UBO data. For cross-checking, a business must see whether UBO data is provided at the parent registry portal. If not, utilize other official registers to verify UBO data in databases. In general, the information on UBO is not available in public registers; however, establishing UBO registers is under consideration.
UBO Identification Process
The identification of UBOs proves the business credibility and financial stability of legal entities. Let’s explore the Ultimate Beneficial Owner verification process here:
- Data collection is the first phase in the identification of the UBOs related to the business in question. The name, address, contact number, e-mail address, and photocopies of the driver’s license or International passport ID are gathered.
- Registrations of directors and shareholders, a register of UBOs, proof of address, shareholders’ memorandum, annual and balance financial statements, bank statements, and records of taxes paid for the UBOs are obtained from the partnered firms.
- After the collection of the UBO details from the business in question, it has to verify such details from the government and business licensing entities’ databases.
- Background checks on the UBOs are compulsory to identify the financial risks and black money history linked with them.
- Information on the UBO review is available through the sanction list, the watch list, the black list, and the PEP list. It minimizes the chances of having a profile in its business partners’ network that might lead to sanctions.
- The constant assessment of the UBO is also needed to monitor its legitimacy consistently. If there appears to be an update on UBO status, it provides this to the business partner.
AML Checks on UBO
The AML checks to explain to which extent the Ultimate Beneficial Owner is legal or has violated the laws. If the organization onboards a company that does not adhere to the UBO laws, then it causes legal consequences. The main benefit of AML checks is that businesses can identify and onboard genuine UBOs. The constant monitoring of the financial performance of the UBO and review of its activities must be conducted.
UBO Checks in Shell Companies
The shell companies do not record the details of the ultimate beneficial owners for the intention of tax avoidance. So, if an investigator needs a money trail, it is difficult in a shell company, and the possibility of some financial fraud is very high. It is challenging to identify the UBO every time the shell company onboard is performed. Another aspect is that the corporation identifies risks and threat assessments in the financial system due to UBO verification.
The checks of the Ultimate Beneficial Owner make a similar contribution to the reduction of certain possible risks, as well as protect the reputation of the company. However, when the UBO is verified, it decreases the financial risks and puts the company at a better stake.
Final Thoughts
When developing relations with the company, it is important to determine the UBO beneficial owner. UBO identification is important because the Ultimate Beneficial Owner and the business information are screened during the procedure. The UBO checks may track the company financing and risk identification. When onboarding a company, the UBO verification ensures that the business relations with the client are long-term.
