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AML Screening – Revealing the True Identities of Ultimate Beneficial Owners in Businesses

  • Richard Marley
  • April 20, 2022
  • 6 minutes read
  • 6705
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Hiding the Ultimate Beneficial Owners (UBOs) behind a business is never a good sign. However, some customers may not want to tie links with the potential negative fallout of organizations in the course of their business operation or maybe they don’t want to cover their finances without being under regulatory sight. Additionally, to be on the safe side, businesses must not take chances during client onboarding procedures. Getting the UBO deceleration form signed by the customers is a minor step to increase the transparency, but a broader way of complying with the anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations.

However, as money laundering, terrorist financing and other financial crimes are rising, the need to thoroughly verify the customers’ identities, business hierarchies and UBOs has become increasingly significant. 

Brief Overview of Ultimate Beneficial Owners – Its Importance

An ultimate beneficial owner is the business entity that owns or controls the bank accounts. However, UBOs are subject to AML regulations when banks do business with companies or individual entities that are not going to be the beneficiaries of a given transaction. According to the Financial Action Task Force (FATF), the UBOs are defined 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 persons who exercise ultimate effective control over a legal person or arrangement.”

FATF’s criteria for considering a natural person beneficial owner;

  1. Owns 25% of an entity’s capital or share capital
  2. Has 25% or more of an entity’s voting rights 
  3. Is the legal guardian of a customer who is a minor
  4. Has power of attorney over the customer
  5. Is a holder of anonymous bearer shares in a company
  6. Is a corporate director specifically appointed to conceal a true owner

Every business has a UBO, and it is viable for companies to know who exactly they are making relationships with. Thus, the organizations operating in Europe, the United States, and other major jurisdictions across the globe are obliged to identify their patterning businesses UBOs and also practice customer due diligence along with enhanced due diligence to ensure that the businesses are not shell companies nor are indulge in money laundering or terrorism financing activities.

UAE Firms Must Disclose UBOs to Avoid Dirty Money Watch List

More than 500,000 UAE-based businesses faced disclosure for their UBOs as the Middle East financial hub strives to reduce the money laundering and terrorist financing in the country. However, the gathered information is needed to remain only with the government agencies and will not be disclosed publicly, as stated in the legislation which was passed last year. In addition to this, FATF has not commented in this regard, it redirected Reuters to a 2020 report that states “fundamental and major improvements”  were needed by the businesses to avoid being placed on the FATF’s “gray list” of jurisdiction under increased monitoring. Countries enlisted in the gray lists face increased transaction costs, reputation damage and difficulty to reach or access the global finance market.

“The risk of criminals being able to misuse legal persons in the UAE for money laundering/terrorist financing remains high, particularly through concealment of beneficial ownership information via complex structures or the use of informal nominees,” the FATF’s 2020 report said.

Bank of Valletta Fined EUR 2.6 Million for UBOs Reporting Failure

The Financial Intelligence and Analysis Unit (FIAU) has imposed a fine of EUR 2.6 million on the Bank of Valletta for failing to report UBO information. According to the Bank, there are around 2443 company customers in the Central Bank Account Register reporting to the FIAU. Among them, 492 of the clients were removed as they had inactive status, while the other 556 required a CDD review.

“The fine imposed by the FIAU on the Bank will not have any significant impact on the Bank’s financial or capital position and Bank of Valletta remains well-capitalized and profitable,” the bank reassured.

“The Committee expressed its concerns at the Bank’s failures and commented that the obligation to understand who the individual(s) behind a corporate customer is, is considered as one of the most basic and essential steps of customer due diligence. Without such information, the Bank was essentially unaware whom it was ultimately servicing,” the measure notice reads.

Global Regulatory Requirements for UBOs 

As the crime rate is skyrocketing the regulatory requirement for know your business and UBO reporting have significantly evolved over the recent years, for instance, FATF enhances its AML recommendation for businesses to make corporate relationships. Other than this, other financial regulatory bodies including FINTRAC, FINCEN, AUSTRAC and many others have also played their role to make legislation for the corporate sector.

Following are the some of the regulations:

FATF’s  Travel Rule

In 2021, the FATF came up with major amendments in its Recommendation 24 as it pertains to ultimate beneficial ownership, known as the “Travel Rule”. Under this, the financial institutions and other businesses need to share beneficiaries’ information in order to stay put with the AML/CFT regulations.

The proposed UBO revisions, outlined in 2021, would require banks and other financial institutions to:

  • Establish and maintain beneficial ownership information registries.
  • Ensure that beneficial ownership information is “adequate, accurate, and up to date and sufficient to identify the natural person(s) who are the beneficial owner(s)”.

However, to determine the UBOs the financial watchdog has also suggested that businesses gather basic information including the minimum information regarding the company’s legal ownership as well as control structures.

Corporate Transparency Act 

The Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking (NPRM) to enforce the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA). The rule is systematically structured to secure the US financial system from cybercriminals abusing legal entities to carry out money laundering activities. The Act also addressed, who must need to report UBOs information, when to report and what part of information businesses need to share. Furthermore, the collected information is also to be publicly shared with law enforcement bodies, financial firms and other government authorized entities that are working to curb the money laundering and terrorist financing activities.

How Shufti Pro Can Help

Financial service providers and businesses have regulatory obligations that they need to comply with. When it comes to the digital space, the challenges add up with cyber actors coming up with sophisticated moves and heinous motives.

Shufti Pro is a UK-based IDV provider that offers a robust AI-powered AML screening solution for real estate businesses enabling them to remain compliant with industry-specific regulations. Businesses can effortlessly identify suspicious and high-risk customers by cross-checking them against 1700+ watchlists to stay compliant with global due diligence standards. 

Find out how businesses can comply with global regulations with KYC/AML solutions!