The Complete Guide to the Ultimate Beneficial Owner Verification
Ultimate Beneficial Owner (UBO) Verification
As per the KYC onboarding and remediation process, customers must be verified for Ultimate Beneficial Ownership. It is necessary to comply with AML/ CTF sanctions and regulations and meet the tax compliance legislation and standards. UBO is defined as an individual who benefits the most and has ultimate effective control over an arrangement– a legal entity or a natural person, irrespective of the chain of control is UBO – Ultimate Beneficial Owner. UBO check is necessary for different entities such as banks, brokers or dealers in securities, commodities, hedge funds, futures commission agents, blockchains, currency exchange officers casinos, digital lenders, FX, and binary options brokers. The identification of UBO in banking sector is of utmost importance as it helps prevent criminals from using someone else as the account owner.
There is a special importance of identifying a UBO in KYC checks. KYC and CDD procedures are incomplete until the Ultimate beneficiary is identified.
CDD – Customer Due Diligence has come into the spotlight with the several scandals unearthed in recent times, such as the headlines grabbing Panama Papers and others. More emphasis is being laid on CDD now. Increased regulatory compliance helps in improving ownership disclosure and transparency. It is critical to follow the new UBO compliance regulations, as it can put a business on the verge of getting a bad reputation and increase the risk of financial loss.
The legal arrangements are complex, and detangling them is also cumbersome. Several factors hinder UBO verification, such as lack of clarity on multiple beneficial ownership outlines, non-cooperation, and other factors that make it difficult to carry out the process quickly and prevent compliance with the KYC process. Due to all these bottlenecks, UBO declarations are made mandatory in UAE.
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What is UBO (Ultimate Beneficial Owner)?
The full form of UBO is the Ultimate Beneficial Owner.
A natural person can only be a UBO. The Ultimate Beneficial Owner owns or controls the legal entity or a natural person who conducts the transaction with the firm. The UBO may or may not be known as the owner of the business.
Reporting entities in the UAE are required to perform UBO checks to identify the real person behind the transactions. The Ultimate Beneficiary Owner checks are important to prevent the business from money laundering and terrorist financing risks.
How to Identify Ultimate Beneficial Owner?
As per the UAE regulations, any person owning more than 25% of shares, controlling more than 25% of the voting rights, or the person exercising control over the company is termed as UBO.
The significance of knowing UBO meaning lies in the fact that it helps one comply with UBO regulations and AML/CFT regulations iin UAE.
UAE Cabinet Decision No. (58) of 2020 Regulating the Beneficial Owner Procedures
Resolution 58 mandated that entities in the UAE (with few exclusions) gather and retain relevant, accurate, and up-to-date information on their genuine beneficiaries (‘Beneficial Owner ‘), as well as inform the authorities. This law establishes a beneficial ownership framework for UAE mainland and free zone entities, as well as requiring the maintenance of necessary UBO registers. The article 5 of the said resolution defines what is a UBO. As per Article 5, UBO is anyone who owns or controls, whether directly or indirectly, through shares or bearer shares:
- 25% or more of the legal person’s share capital;
- or 25% or more of the legal person’s voting rights.
Ultimate Beneficial Owner KYC and CDD requirements
Ultimate Beneficial Owner KYC and CDD requirements help prevent money laundering and misuse of legal entities to hide the illegal activities of funding criminal and terrorist activities. The CDD rule works on four elements which require financial institutions, DNFBPs, and VASPs to maintain written policies and processes to perform the following functions-
- Identification and verification of the customer’s identity.
- Identification and verification of the UBO of the companies opening accounts by way of obtaining UBO disclosures.
- Create a Customer Risk profile by understanding customer relationships.
- Regularly monitor transactions to detect and report suspicious transactions. Collect UBO documents and update the customer information regularly.
Ultimate Beneficial Owner in UAE: UBO Definition
As per the UBO Laws in UAE, the criteria for determining UBO is that any individual who owns 25 % or more of a legal entity and the individual who controls the legal entity must be subjected to verification of beneficial ownership information.
UBO International Standards
The FATF: Financial Action Task Force is an organisation that keeps a tab on global money laundering and terrorist financing activities. It lays down the international standards that aim to prevent illegal financial transactions. Two hundred countries agreed to the rules established by the Financial Task Force for beneficial ownership in 2003 and 2012. The 4th AMLD and CDD rules are applicable, but several countries adhere to the terms laid down in the international treaties that require beneficial ownership declarations. The organisations regularly keeps a vigilant eye on the money laundering and terrorism financing methods and improves their standards to combat the challenges of evolving money laundering techniques.
Ultimate Beneficial Owner Step-by-Step Process
You need to follow the unique compliance standards for each country in which the business is operating. However, there are a few standard procedures that must be followed to develop an effective UBO program strategically.
1. Obtain the firm's credentials
2. Identify Ownership Structure and Percentages
It’s crucial to identify UBO structure and know about the entities who have a stake in the company, directly or indirectly via another party.
3. Identify Beneficial Owners
Identify UBO by determining the entity or natural person’s ownership interest or management control – total percentage of shares, ownership stake, management control, and verify if any of it falls under the ambit of UBO UAE.
4. Perform AML/KYC checks on all persons identified as UBOs.
Ultimate Beneficial Ownership and AML Compliance
Automated solutions are the futuristic way of compliance with the AML/ CFT requirements as they make the detection and validation of UBOs a seamless and quick process. AMLUAE can help you with compliance with the AML/CFT requirements. Contact us to know more about assisting you with AML/CFT compliance.
Check out how to find UBO of a company
UBO Regulations in UAE
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FAQs
A UBO is an individual having significant control over the business through shareholding or voting rights. A UBO must have at least 25% shareholding (direct or indirect) in the company, the right to vote, and the right to appoint or dismiss directors/managers. An individual/s holding such control is your UBO.
Entities in UAE are required to comply with UBO rules. These rules require entities to declare who their beneficial owners are and maintain a register for the same. The declaration of UBO ensures that the entity does not have a relation with money launderers or terrorist organizations and is safe to carry out transactions with.
‘Knowing your Customer’ is essential to keep oneself safe from financial crimes and money laundering activities. By knowing the ultimate beneficial owners, you can match the list with Sanctions lists, PEPs, and terrorist lists and decide whether to onboard the customer or notify the authorities.
UBO is a person or persons who owns or controls, whether directly or indirectly, through shares or bearer shares:
- 25% or more of the legal person’s share capital or
- 25% or more of the legal person’s voting rights
Yes, the UBO declaration is mandatory for entities in the UAE. Declaration of UBO is essential to know your customers and their legal owners. This information helps you decide whether to enter into a business relationship with them. It is a way to detect money laundering, terrorism financing, and other financial crimes.
A UBO is the one with ultimate control over the business. They are a natural person who owns or controls, directly or indirectly, at least 25% of the company’s share capital or at least 25% of the voting rights or have the right to appoint or dismiss a majority of the managers or directors.
The legal person must maintain a Register of Beneficial Owners and must submit the same to the Registrar within 60 days of its registration. Also, if any changes occur in the Register, it must be notified to the Registrar within 15 days of the change.
About the Author
Pathik Shah
FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)
Pathik is a Chartered Accountant with more than 25 years of experience in compliance management, Anti-Money Laundering, tax consultancy, risk management, accounting, system audits, IT consultancy, and digital marketing.
He has extensive knowledge of local and international Anti-Money Laundering rules and regulations. He helps companies with end-to-end AML compliance services, from understanding the AML business-specific risk to implementing the robust AML Compliance framework.