In this series of everything you need to know about Ultimate Beneficial Owners (UBOs), we will dig a little deeper into questions like, what are UBO’s and why they matter, what are the challenges faced when trying to identify UBO’s and we will conclude our series with a look into how Accountable Institutions can identify and manage UBO’s.
Those with less honourable intentions may seek opportunities to retain control over criminally derived assets by inhibiting the ability of law enforcement to trace the origin and ownership of assets. Companies, trusts, and other similar legal arrangements are seen by criminals as potentially useful vehicles to achieve this outcome.
The only way for businesses to prevent criminals from using complex structures or legal persons to conceal true ownership is by assessing their clients and truly understanding who profits from and operates the business. This is where the concept of identifying UBOs becomes critical.
There are a number of local and international scandals, such as the Pandora papers and the tender fraud case surrounding “Cat” Matlala as well as Bosasa Cash and Trust Network. Cases such as these emphasize the need for rigorous customer due diligence (CDD) and accelerated regulatory drive for enhanced ownership disclosure and transparency. To mitigate your risk of unknowingly becoming engaged with an entity that has something to hide, beneficial ownership identification and verification have become essential components of the Know Your Client (KYC) process.
The Financial Action Task Force (FATF) defines an Ultimate Beneficial Owner as the natural person 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.
An UBO is effectively the person at the top of “the tree”, who has ultimate benefit from, or ultimate control of, an entity and its operations.
Typically, a UBO is:
However, not all entities have a majority shareholder or even shareholders at all.
In cases without clear majority shareholding, you can take a risk-based approach and use a process of elimination, looking first for ownership, and then control.
For different entity types such as listed companies, trusts , private companies etc – there will be different types of “shareholders” to look out for. You can learn more about these in our UBO training session.
Beneficial ownership falls into three distinct categories:
The natural person who holds 5% or greater shareholding in a proprietary company or entity. This is the most straightforward form of UBO identification.
Those who exercise controlling rights over a legal person, even without significant shareholding. Examples include:
Those who exercise executive management control over a legal person, particularly relevant for larger corporate structures. Examples include:
Click here to read part 2 of the series.