UBO Disclosure: Tips and Tricks on how to Easily Pass the KYC Procedure

Anti-money laundering (AML) and counter-terrorist financing (CTF) have become the main priorities for competent authorities in the financial sector since the publication of the Panama Papers and the Paradise Papers, an unprecedented data leak related to offshore and shell companies. Consequently, the new requirements, based on transparency, were implemented by regulating bodies all around the globe.

In this context, establishing a company’s ultimate beneficial owner (UBO) has become one of the most essential and efficient instruments for mitigating risks associated with ML and TF. The reasoning behind that is simple – to stop criminals from hiding their illicit activities and dirty money behind secret company structures. So, to cut a long story short, let’s look at the key definitions for UBO.

UBO Meaning: What is a UBO According to Legal Acts

FATF

According to the recommendation 25 of FATF, a beneficial owner is a natural person who owns or controls a legal person or arrangement and/or the natural person on whose behalf a transaction is being conducted.

CTA

The US Corporate Transparency Act (CTA) defines a beneficial owner as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise exercises substantial control over the entity, or owns or controls not less than 25% of the ownership interests of the entity.

4AMLD

The 4th Anti-Money Laundering Directive follows this approach and also clarifies the definition of the corporate entity’s UBO:

• UBO is a natural person who ultimately owns or controls the company through direct or indirect ownership of more than 25% of the shares or voting rights or ownership interest, or through control via other means;
• If no one is identified as a UBO (having exhausted all possible means and provided there are no grounds for suspicion) or if there’s any doubt that the person identified is the beneficial owner, then the natural person who holds the position of senior managing official (CEO, CFO, COO, Partner, President, Treasurer, etc.) is considered a UBO.

The rules may differ from country to country, but generally, this is the most common approach to UBO meaning.

How to File UBO: Actionable Guide

All financial institutions are required to verify the identities of UBOs who have directly or indirectly a certain amount of equity interest in their clients to understand, assess and mitigate their risks.

Banking Onboarding Step by Step

The classical procedure of banking onboarding includes these steps:

1. Acquiring the company’s up-to-date information (the exact specifications depend on the jurisdiction and the level of AML/CTF standards);
2. Establishing an ownership chain;
3. Identification and verification of UBOs;
4. Final AML/CTF/Know Your Customer checks (for example, sanctions/politically exposed person/adverse media screenings).

UBO Compliance Expert Tips

We’ve prepared some tips to make your due diligence disclosure of UBOs run fast and smoothly:

• Be cooperative and provide required documents showing the percentage of shares and their owners: certificate of shareholders/shareholder registry/UBO declaration, etc.
• Prepare an Organizational corporate structure chart (ownership structure), signed by an authorized signatory (usually a director), if the company has multiple layers of ownership. Please note that financial institutions can request corporate documents from all entities involved in ownership tiers.
• Provide identity documents of UBOs (for European banks – passports/identity cards, for American – passport/driving license/identity cards). Make sure that identity documents are valid, all information can be seen, and the scan copies are not blurry or covered in any way).
• UBO’s residential address should also be confirmed by providing utility bills/rental agreements/bank statements, etc. Generally, the utility bills should go back no further than 3 months.
• Provide UBO’s tax number and be ready to confirm UBO’s source of funds (in some cases, publicly available information is enough, but sometimes confidential information can be requested if the individual poses a greater risk for some reasons).
• Note that all information on the UBOs must be adequate, accurate, and up to date, corresponding to the national registers, as all financial institutions verify collected data in independent official sources.

Summing Up

Lifting the corporate veil is essential for long-term and reliable relationships with your banks, as the financial sector pursues maximum transparency nowadays. That’s why enabling your banking partners to respond appropriately to the challenges of the comprehensive regulatory sphere is a must. The Solidgate compliance team is always here to assist you with that and many other legal aspects of online business.