Ultimate Beneficial Ownership. Unveiling the hidden risks: beyond identifying the UBO.

The topic of the beneficial owner is one of the most complex and elusive in the context of preventing money laundering and countering the financing of terrorism. The beneficial owner, is the natural person who ultimately has control or ownership of a company, account or transaction and is therefore the beneficiary. Financial intermediaries often face significant difficulties in identifying who is the beneficial owner of a legal entity.

In this article, we highlight how to strengthen the identification of the beneficial owner by combining different approaches to make this procedure even more effective.

Definition and Criteria

The definition of beneficial owner has been borrowed in different contexts with different nuances, but there is a common core that is discussed in this article. The beneficial owner is the one who benefits from the ongoing legal scheme. The beneficial owner must be a natural person and not a legal entity, such as a company or partnership.

The Financial Action Task Force, FATF, the intergovernmental body established to draft international policies and standards to combat money laundering and terrorist financing, has published guidelines on Beneficial Ownership of Legal Entities. The document describes some useful criteria for identifying the beneficial owner (or beneficiaries, if there are multiple).

The logic is that of identification through:

• the analysis of the ownership structure (with thresholds not exceeding 25%);
• the reconstruction of who exercises control (e.g. voting rights, financing instruments and debt control are considered);
• the identification of who assumes management and is entitled to make strategic decisions.

These criteria are designed to define the pool of potential beneficial owners and are adopted with different nuances in different jurisdictions. However, further verification is necessary to understand whether an individual who meets one or more of the criteria mentioned is indeed the beneficial owner.

Register of beneficial owners: why it is not enough

In some countries, a register has been adopted in which the identity of the beneficial owner is recorded by means of a self-declaration, e.g. by the account holder or company representative. The declaration may be considered reliable, but to assume that it is certainly true is to disregard cases of bad faith or voluntary disclosure of incorrect information.

Although the register tool provides a useful basis for verification by financial intermediaries, it has inherent elements of uncertainty and risk. This makes it necessary to verify that the persons mentioned in the register are thoroughly screened.

Identifying the beneficial owner is not sufficient to identify risks

The identification of the beneficial owner is essential since the ultimate objective is to know what risks, if any, are associated with the beneficial owner.

To achieve this objective, it is therefore necessary to do a multi-pronged check:

• combine information from companies with data published by authorities (e.g. registers);
• ensure that the information is adequate, accurate and up-to-date;
• use multiple sources to obtain objective information;
• use professional tools for risk assessment.

The depth and thoroughness of the verification can be weighted according to the money laundering (ML) and terrorist financing (TF) risk associated with the specific company or transaction. This depends, for example, on the sector, the complexity of the ownership or shareholding structure.

Tools such as Daily Control™ provide financial intermediaries with access to a broad spectrum of information specifically for verification purposes, such as:

• involvement of individuals in money laundering related offences, mafia infiltration, terrorist financing (Adverse Media);
• Politically Exposed Persons at home or abroad (PEP);
• Entities subject to sanctions or measures by national and supranational authorities (Sanctions, Legal & Enforcement).

This information is essential both when there is certainty as to the identity of the beneficial owner and when the intermediary examines the profiles of potential beneficial owners.

In conclusion, identifying the beneficial owner is a crucial aspect of preventing money laundering and combating the financing of terrorism. It is a complex process that requires a combined approach to ensure greater transparency and better compliance with international regulations.

The definition of beneficial owner, as established by international standards, provides a guide to identifying who actually benefits from a legal entity. However, relying solely on client declarations is not sufficient, as they may be incomplete or misleading.

Therefore, it is essential to use a combined check that includes analysis of the legal structure, capital and control exercised over the entity, together with verification of the beneficial owner’s declarations. This approach provides a more complete and reliable picture of the identity of the beneficial owner.

In addition, the use of dedicated screening platforms (such as Daily Control™) is another valuable tool for ensuring compliance and identifying potential risks. These platforms allow access to up-to-date information and conduct in-depth research on individuals, companies and organisations, providing greater security in identifying the beneficial owner.

Only through careful assessment and constant monitoring will it be possible to effectively counter money laundering and terrorist financing, preserving the integrity of the global financial system.