Five Steps to Effectively Identify Beneficial Ownership
FATF Recommendation 24 has been a longstanding recommendation placed on competent authorities with a ripple effect on regulated entities. Moreover, in March of 2022, there are and will continue to be more strenuous expectations for implementing the recommendation. With the upcoming effective date of the US Corporate Transparency Act (CTA) and the amendments to the UK money laundering, terrorist financing, and transfer of funds (information on the payer) regulations 2017 (MLR 2017 and more, identifying ultimate beneficial ownership (UBO) is critical. Here are five steps to effectively identify beneficial ownership:
Collect the entity’s credentials
Obtain concise information on the entity, including its structure, ownership, and control. Gather details about shareholders, directors, and any individuals with significant influence or control over the entity. This could be direct or indirect influence or control. The additional details should include names, addresses, dates of birth, passport numbers, and other identifying data depending on the mandates of your governing jurisdiction.
Verify controlling individuals
After the information is collected, ensure to verify the information provided. This may range from confirming the rationale of the details provided or seeking reliable third-party validation. It is generally recommended to use reliable and verified sources, such as government-issued identification documents, utility bills, or other official records, to ensure the accuracy of the provided information. However, high-risk situations require independent verification from a reliable source such as an accountant or attorney.
Apply regulatory rules to identify UBO
Based on the information provided, determine the ultimate beneficial owners. Typically, these individuals are indicated as ultimately owning or controlling the entity, with a significant percentage would be reportable. It is heavily recommended to examine beyond the immediate shareholders and directors to identify the UBO. Other parties may qualify as a UBO provided they meet the requirements outlined in your jurisdiction's beneficial ownership rules. Often any individual who holds a substantial ownership stake or exercises significant influence over the entity's operations, decision-making, or finances could be considered a UBO.
Analyze ownership structure
Analyze the structure of the entity. Be sure to identify any complex ownership arrangements, trust structures, nominee arrangements, and a combination thereof. Identify any layers of ownership or special purpose vehicles used to obscure the true beneficial owners potentially. It may be necessary to seek a better understanding of nominee holding arrangements by examining documents or requesting other evidential clarification of the level of control of individuals. Further, structures may reveal aggregated ownership or control that may require reporting.
Conduct Ongoing Monitoring
Beneficial ownership information is not static. Owners have the power and the right to change or transfer the level of ownership. Implement a manageable system to monitor beneficial ownership. Regularly reviewing KYC is a standard element of the AML Compliance Program. Hence this should be easily added or clarified in the program. Update the ownership information based on regular and ongoing monitoring. Remain observant for any red flags or indications of potential changes, attempts of concealment, or other in relation to beneficial ownership.
These five steps should simplify recording and reporting on beneficial ownership compliance. Adopting best practices and developing workable procedures is essential to ensure requirements compliance. When applying these steps, remember to fully understand the reporting obligations of your jurisdiction and the classification of a UBO as it differs from place to place. Consider consulting a professional for assistance in navigating new and existing laws surrounding beneficial ownership.
