What is an UBO?

A UBO, or ultimate beneficial owner, is the individual who owns, controls, or benefits from a business or legal entity. UBOs are the natural persons on whose behalf transactions are conducted and who often make major decisions. 

Importance of identifying UBOs

Identifying UBOs allows companies to better assess potential partnerships, identifying any hidden risks associated with ownership.The correct identification of UBOs is essential to ensure:

• Regulatory compliance: Enables governments and regulatory bodies to effectively monitor financial transactions and ensure compliant processes.
• Financial transparency: Improves accountability and public trust and helps authorities accurately track financial flows by publicizing the true owner(s).
• Fraud and risk prevention: Helps organizations manage risk and uncover hidden connections that might indicate fraudulent activities by clarifying relationships and influences within ownership structures.
• Money laundering and anti-terrorism: Assists authorities in identifying and disrupting potentially harmful financial flows and ensuring that organizations comply with anti-money laundering (AML) and counter-terrorism financing (CTF) laws. 

Characteristics

These key characteristics define a UBO:

• Ownership threshold: UBOs are often identified by specific ownership thresholds, such as 25% or more of a company’s shares or voting rights, although this varies by jurisdiction.
• Control and influence: A UBO might be an individual who holds significant influence through positions of authority, such as board seats or managerial roles.
• Indirect ownership: UBOs often maintain control through indirect ownership, such as through other entities, intermediaries, or layers of holding companies, which requires in-depth analysis to uncover. 

UBO identification

Identifying UBOs goes beyond simply listing shareholders or legal owners. It pinpoints those with real influence over the company’s operations and decisions, either directly or indirectly. This involves several steps:

• Data collection
  Start by gathering relevant data on shareholders and other entities with a financial interest in the company. Sources include official company records, shareholder agreements, government business registries, and financial statements.
• Research ownership chain
  Analyze the ownership structure to trace back through any intermediary entities that might obscure true ownership. Review partnership agreements, corporate group structures, audited financial reports, and regulatory filings.
• Verification
  Verify the collected data to ensure accuracy. This often includes cross-referencing information with official government records, such as tax documents and national business registries. In some cases, third-party services specializing in background checks or CDD can be used.
• Monitoring
  Since ownership can change, regular monitoring is necessary to keep UBO information up-to-date. Set up a system to periodically review and update UBO records, especially following corporate events such as mergers, acquisitions, or changes in shareholder agreements.

UBO legislation

UBO legislation mandates companies to disclose beneficial owners to government authorities and, in some cases, make this information accessible to the public. Here are the US, EU, and UK’s laws regarding UBOs:

• Financial Crimes Enforcement Network (FinCEN): FinCEN requires US businesses, particularly financial institutions, to identify the UBOs of accounts and entities as part of its customer due diligence (CDD) rule. This regulation mandates that businesses collect and verify information about individuals who own 25% or more of a legal entity or exert significant control over it.
• EU Directive 2015/849: All member states are required to set up UBO registers that can only be accessed by entities with a legitimate interest, such as supervisory bodies. Guidelines for UBO identification, including direct and indirect ownership and control through other means are identified. Member states may also set a lower threshold, such as 15%, for high-risk sectors.
• UK’s Economic Crime and Corporate Transparency Act 2022: UK companies and overseas property owners must register people with significant control (PSCs), defined as those with over 25% of shares or voting rights, or a significant ability to influence decisions.

*Disclaimer: This content does not constitute legal advice. The suitability, enforceability or admissibility of electronic documents will likely depend on many factors such as the country or state where you operate, the country or state where the electronic document will be distributed as well as the type of electronic document involved. Appropriate legal counsel should be consulted to analyze any potential legal implications and questions related to the use of electronic documents.