Financial Crime World

Identifying Ultimate Beneficial Owners (UBOs) under Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Regulations

Introduction

The following guide outlines a threefold procedure for determining the Ultimate Beneficial Owner (UBO) in accordance with anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations. This framework is essential for professionals to understand and implement in order to mitigate the risk of money laundering and terrorist financing.

Step 1: Identify Natural Persons Holding or Controlling Shares or Voting Rights

  • The first step is to identify any natural person(s) who hold or control at least 25%+1 share of the shares, interests, or voting rights in a company. This threshold can be lowered if there’s a higher risk of money laundering or terrorist financing.
  • Examples of individuals who may fall under this category include:
    • Shareholders with significant ownership stakes
    • Voting rights holders
    • Individuals with control over decision-making processes

Step 2: Identify Natural Persons Controlling Entities by Other Means

  • If no UBO is identified through the first step, the next step is to identify any person who controls an entity through other means, such as:
    • Personal or family relationships: Individuals with close ties to the company or its management
    • Former participation in the company capital or management: Past owners or executives of the company
    • Ownership of assets central to the running of the customer: Individuals controlling key assets necessary for the entity’s operations

Step 3: Identify Senior Managing Officials (SMOs)

  • If no UBO is identified through the first two steps, the third step is to identify any person holding a position of senior managing official. This can include:
    • Executive officials: CEOs, CFOs, or other key executives
    • Members of the board of directors: Individuals with decision-making authority

Guidance on Identifying UBOs for Non-Profit Organizations, Pension Funds, and Public Authorities

  • The Circular also provides guidance on identifying UBOs for non-profit organizations, pension funds, and public authorities.
  • It emphasizes the need to understand the governance structure of these entities to mitigate the risk of misuse.

Documentation and Verification

  • Professionals are required to collect relevant information from their customers, including:
    • Records of UBOs in the public domain: Publicly available records of ownership or control
    • Evidence of identity based on documentation or information from a reliable source independent of the customer: Documents verifying the individual’s identity and connection to the entity
    • Other means as necessary: Additional information required to verify the UBO

Indicators of Concealed Beneficial Ownership

  • The Circular also includes indicators of concealed beneficial ownership identified by the FATF Egmont Report Group.

Conclusion

The threefold procedure provides a comprehensive framework for identifying UBOs in accordance with AML/CFT regulations. Professionals must understand and implement this framework to mitigate the risk of money laundering and terrorist financing.