Everything You Need to Know About Ultimate Beneficial Owners [Part 2]

In part one of our series, we had a look at what Ultimate Beneficial Owners (UBO’s) are and why they matter. This included discussing why The FIC Amendment Act requires Accountable Institutions to identify and verify all Ultimate Beneficial Owners (UBO’s) in order to truly know who you are doing business with. However, this is not always as straightforward as it might sound, and so in the second part of this UBO series, we will unpack the challenges Accountable Institutions face around identifying UBO’s.

We understand the Challenges in Identifying UBOs

The Paradox of UBO Identification

The regulatory requirement for UBO identification has created an interesting paradox: regulators require more granular identification and verification of beneficial owners in an environment that has very limited accessible public information around ownership.

Key Challenges

1. Lack of Public Information

With thousands of companies being incorporated each year, sometimes with minimal information requirements, identifying UBOs presents a significant challenge. The lack of accessible company ownership information leads to heavy reliance on client declaration and self-certification.

This was highlighted as a key finding in the 2021 Mutual Evaluation Review of South Africa carried out by the Financial Action Task Force (FATF), which noted that law enforcement faces challenges in readily obtaining accurate and updated beneficial ownership information about companies and trusts, limiting effective investigation.

2. Complex Legal Structures

The increased presence of:

• High-secrecy jurisdictions
• Shell corporations
• Offshore legal structures
• Nominee shareholders

These arrangements are deliberately designed to conceal true UBOs and are particularly common in entities used for illicit activities.

3. Information Inconsistency

• Lack of clarity around beneficial ownership definitions and thresholds across global regulations and guidance
• Inaccurate or non-existent ownership registers in various jurisdictions
• Reluctance of clients to disclose potentially confidential information
• Client lethargy around endless disclosures

4. Emergence of Illicit Use

Over recent times, it has become clear that corruption, fraud, drug and human traffickers, as well as terrorists, are leveraging companies to provide a level of legitimacy to their illicit activities, transactions, or funds. Recent tender corruption scandals highlighted the use of entities attempting to disguise the flow and ownership of illicitly gained funds.

South Africa continues to rely heavily on client self-certification regarding beneficial ownership due to the absence of a comprehensive beneficial owner register. The FATF review noted that "significant money laundering risks remain largely unaddressed for beneficial owners of legal persons and trusts."

nCino KYC streamlines the verification of identities for all identified UBOs, helping businesses maintain compliance without excessive paperwork. While the platform cannot directly obtain shareholders information from CIPC, the system assists with the gathering of UBO information; it can significantly streamline the gathering of information as well as the identity verification process.

Click here to read part 3 of the series.