Ultimate Beneficial Ownership: What Companies Need to Know
In the world of anti-money laundering (AML) compliance, understanding financial ownership is crucial. By identifying beneficial owners, financial institutions can monitor and control deposits and withdrawals, reducing money laundering and terrorist financing risks.
What is Ultimate Beneficial Ownership (UBO)?
Ultimate Beneficial Owner (UBO) refers to the person(s) who ultimately own or control a legal entity. International AML standards define a UBO as an individual who owns more than 25% of a company’s shares or voting rights or otherwise exercises control over the entity.
Difference Between Beneficial Ownership and Legal Ownership
Legal ownership refers to those listed in official records as the owners of an asset. Beneficial ownership delves deeper into actual control and benefits derived from an asset, often masking the true controllers through complex arrangements. Identifying beneficial owners is essential for implementing effective AML strategies.
UBO and AML/KYC Compliance
UBO identification and verification are vital for AML/KYC compliance. They promote transparency, improve risk management, and ensure regulatory compliance.
UBO Identification: Institutions must identify the natural persons who hold significant ownership stakes or control over an entity.
Enhanced Due Diligence: Enhanced due diligence (EDD) is required for UBOs, especially for high-risk entities or jurisdictions with weak AML controls.
UBO information is critical for regulatory authorities to manage AML processes diligently.
Money Laundering: Identifying beneficial owners makes it more difficult for criminals to hide the origin of their funds by layering transactions through complex webs of shell companies and anonymous accounts.
Terrorist Financing: Tracing beneficial ownership helps uncover the true sources and destinations of funds that may be used to finance terrorist activities.
Tax Evasion: Beneficial ownership information can aid in detecting and preventing the use of corporate structures for tax avoidance and evasion schemes.
Fraud and Embezzlement: Knowing the individuals who ultimately control a company can help identify and mitigate the risk of fraudulent activities, such as the misappropriation of assets.
Corruption and Bribery: Understanding the control structures can help in preventing and addressing corruption and bribery issues.
How to Identify Ultimate Beneficial Owners?
Identifying the UBO involves mapping the entity's hierarchical structure, including shareholders, directors, and other influential parties. Compliance professionals must gather documents to trace relationships revealing the natural persons exercising control.
New US Requirements on UBO
The US government has introduced new requirements to strengthen UBO transparency and compliance, primarily through the Corporate Transparency Act (CTA). The CTA was enacted as part of the Anti-Money Laundering Act of 2020 and the National Defense Authorization Act for Fiscal Year 2021.
Purpose of the CTA
The CTA aims to create a federal database of beneficial ownership information, maintained by the Financial Crimes Enforcement Network (FinCEN).
New Requirements
Reporting Obligations: The CTA requires certain companies to report their beneficial owners to FinCEN. This includes providing information such as names, birthdates, addresses, and identification numbers.
Compliance Deadlines: Entities formed after January 1, 2024, must file a beneficial ownership information (BOI) report within 90 days of formation. Existing entities must comply by January 1, 2025 .
Updates and Amendments: Any changes to the reported information must be updated within 30 days of the change.
Implications for Financial Institutions
Increased Due Diligence: Institutions must update due diligence procedures to comply with new reporting requirements.
Data Management: Enhanced systems will be needed to handle UBO information securely.
Regulatory Scrutiny: Institutions will face increased scrutiny to ensure compliance with the new standards.
Focusing on Ultimate Beneficiary Ownership is crucial for effective AML/KYC practices. The new US requirements under the Corporate Transparency Act enhance transparency and prevent financial crimes. Financial institutions must adapt their compliance programs to mitigate risks and ensure regulatory adherence.
Check out what happened this week!
🇪🇺EU Council adopts new AML legislative package.
The Council of the European Union has adopted a comprehensive package of anti-money laundering (AML) rules to protect EU citizens and the financial system from money laundering and terrorist financing. This includes establishing a new AML authority in Frankfurt, directly applicable regulations for the private sector, and tighter rules extending to new sectors like crypto and luxury goods.
🇸🇬MAS highlights Singapore’s vulnerability to environmental crime-related ML threats
The Monetary Authority of Singapore (MAS) has published a national risk assessment highlighting the country's vulnerability to money laundering (ML) threats from illegal wildlife trafficking, logging, and waste trafficking. Key typologies identified include trade-based money laundering (TBML), misuse of shell companies, corruption, bribery, and tax evasion. The assessment recommends that government agencies, financial institutions (FIs), and designated non-financial businesses and professions (DNFBPs) map these risks in their enterprise-wide risk assessments (EWRAs) to better understand and address sector-specific ML threats.
🇺🇸 FinCEN Director Andrea Gacki has reminded small businesses of their obligations under the new beneficial ownership rules of the Corporate Transparency Act. This reminder emphasizes the importance regulatory authority puts in BOIR filing.
🇬🇧 Monzo was under investigation by the Financial Conduct Authority (FCA) for potential breaches of anti-money laundering (AML) and financial crime regulations. Recently, the U.K.'s Financial Conduct Authority (FCA) has ceased its criminal probe into Monzo's anti-money laundering system but continues to investigate potential breaches as a civil matter.
💸The Chief Financial Officer of the Epoch Times, Bill Guan, has been arrested for allegedly participating in a $67 million money-laundering scheme.
👮♂️Eleven individuals have been detained following coordinated raids in France, Italy, and Romania, linked to a significant cryptocurrency scam targeting millionaires. The scam involved fraudulent schemes where victims were enticed to invest in cryptocurrency platforms that promised high returns.
🇬🇧The UK has expanded its humanitarian exception to Syria petroleum sanctions, allowing international organizations and NGOs involved in UN humanitarian response plans to benefit, alongside UK-funded companies.
🇺🇸 The US Bureau of Industry & Security fined Airbus DS-GS $44,750 for three violations of antiboycott provisions.
🇬🇧The UK has updated its sanctions listings for Russia and Somalia. Changes include amending the statements of reasons for Dmitry Vladimirovich Konov and Tatiana Vladimirovna Evtushenkova, and correcting the listing dates for three entries on the Somalia sanctions list
🇺🇸The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has amended the Syrian Sanctions Regulations to implement provisions from various legislative acts, including the Iran Threat Reduction and Syria Human Rights Act of 2012 and the Caesar Syria Civilian Protection Act of 2019
👋 Stay tuned for next week's update on the latest developments in AML/KYC issues!