The 5 Fundamentals of identifying the Ultimate Beneficial Owner
It is difficult to find the ultimate beneficial owner in cases of sophisticated legal and corporate structures like complex and multilayer ownership structures helps criminals to conceal their identity. When you find a case with this complexity you need to request the customer the chart that provide you the ownership structure listing the names of the UBO's, percentage of ownership and jurisdictions involved. This gives you a general idea about the enhanced due diligence you will require and later you need to validate who are the individuals who controls at least 10 percent or more of the entire structure and those who owns 25 percent of the company with the information provided by the customer. Any inconsistence should be considered a red flag.
UBO identification and verification can be very difficult due to a lot of challenges, for example:
1. Complex ownership structures of the legal entities
2. Legal entities established in high secrecy jurisdiction (i.e., Samoa, Cayman Islands, Panama)
3. False accountholder’s declarations on UBOs
4. Limited information available on offshore accountholders
5. Unqualified staff
FIs have the ultimate responsibility to identify UBOs and verify them (where applicable). It is worth to mention that UBO verification for individual accounts is not possible in most cases, as FI’s depend on the accountholder’s declaration only. On the other hand, FIs could be verified the identified UBO for non-individual accountholders, through reviewing the client’s know your customer (KYC) documentation. Therefore, appropriate policy, procedures and controls must be established to comply and mitigate the legal, compliance and regulatory risks. The methodologies of identifying UBOs vary among FIs. Some identify UBOs through obtaining a Declaration Form specifying the UBO and signed by the accountholder. Others verify the UBO through obtaining formal documents that identify the UBO.
The identification and verification process for UBOs should be performed during account opening, while updating KYC information, when obtaining banking services/products forms. Policy, procedures and processes must clearly ask the accountholder to declare the UBO, with imposing an obligation on the accountholder to update the FI, if the declared UBO is changed.
The following must be obtained, before providing the financial service, activating the account, or issuing banking self-services to the accountholder for individual and non-individual accounts:
1. Reason of having a third party as a UBO and the relationship between the accountholder and the declared UBO.
2. Full KYC documentation and information (full name, nationality, resident address, source of funds/wealth, etc.)
3. If the accountholder is a citizen of the U.S., it is required that they complete the appropriate form, to comply with Foreign Account Tax Compliance Act (FATCA) requirements, for individual accounts only.