
A Comprehensive Guide to Understanding Ultimate Beneficial Owners (UBOs)

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Identifying UBOs and their control over a business is crucial for financial firms to meet regulatory standards and enhance security measures. Despite variations in the definitions and requirements of UBOs across jurisdictions, understanding the structure of corporations and identifying Ultimate Beneficial Owners (UBOs) is a critical component of Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance.
A UBO is an individual who ultimately owns or controls a business, partnership, or other legal entity. Whilst an individual client can be easily identified as the beneficiary of the transaction, UBOs are not immediately recognised as they conceal their identities or are hidden by corporate infrastructure.
The Financial Action Task Force (FATF) defines UBOs as “the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those who exercise ultimate effective control over a legal person or arrangement.”
As per FATF, the following individuals fall under the definition of UBOs:
Ultimate beneficial ownership rules are part of the EU’s latest Anti-money Laundering Directives (AMLD).
The 4AMLD, which went into effect on June 26, 2017, significantly addressed UBOs by enacting the following regulatory measures:
In accordance with 4AMLD, businesses should use the following information, procedures, and resources to identify UBOs:
The Fifth Anti-Money Laundering Directive (5AMLD), which went into effect on January 10, 2020, added the following UBO provisions:
Criminals who attempt to launder unlawful funds may try to bypass AML controls by hiding their identity. They occasionally carry out transactions utilising corporate structures, like shell firms or proxies. Even though shell corporations can be established for lawful purposes, criminals frequently use them to conceal illicit funds and make it easier for them to access legitimate financial systems. Businesses can mitigate the risks associated with fake companies and other money laundering techniques by investigating ultimate beneficial ownership. This will help them to make sure that they aren’t working with criminals who are exploiting corporate infrastructure to hide their identity.
Businesses should identify the ultimate beneficial owners by implementing appropriate KYC processes as part of their AML measures. However, this should entail the following:
Shufti Pro’s Know Your Business (KYB) solution screens clients against 1700+ global watchlists to eliminate the risk of money laundering and enables you to meet compliance easily. Our KYB solution checks UBOs, PEPs, and those with negative media coverage within seconds, protecting your firms from financial crime.
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