A recent development that’s been making waves globally comes from the Financial Action Task Force (FATF). They’ve stepped up their game by introducing more stringent global beneficial ownership standards (UBO Rules and Regulations) under the umbrella of their Recommendation 24. This move ensures that national authorities are equipped with complete, accurate, and updated details about the owners of various businesses.
The FATF has continued to ensure these improved standards are correctly implemented, and they’ve also revitalized their guidance, providing countries with the necessary tools to execute the revised Recommendation effectively.
So, why are these changes so significant? The revised standard aims to construct a sturdy barricade against organized criminal groups, individuals indulging in corrupt practices, and those trying to sidestep sanctions. It’s a preventative measure to stop these actors from hiding their illicit proceeds and activities behind the facade of anonymous shell companies and similar enterprises.
The primary aim is to ensure that beneficial ownership data is either held by a public authority, maintained by a beneficial ownership registry, or by another system that offers efficient access to this information. Stay with us as we delve deeper into the complexities and implications of this Ultimate Beneficial Ownership regulations and standards in the coming sections of this blog.
The European Union (EU) introduced strict regulations on beneficial ownership to combat money laundering. The Fourth and Fifth Anti-Money Laundering Directives (4AMLD and 5AMLD) require companies and legal entities to maintain accurate and up-to-date information about their ultimate beneficial owners (UBOs). This information is stored in a central register, accessible to Financial Intelligence Units and competent authorities.
In the United Kingdom, which implemented these directives before Brexit, companies are obligated to report UBOs who possess more than 25% of shares or voting rights to the Companies House, the national registrar of companies. Similarly, the Netherlands established a UBO register through the implementation of these EU directives. Managed by the Dutch Chamber of Commerce (Kamer van Koophandel, KvK), the register became operational on September 27, 2020.
The Dutch UBO register requires Dutch companies and other legal entities to register their UBOs to prevent money laundering and terrorist financing. For instance, if a Dutch company, “Company A,” has four shareholders each holding an equal number of shares (25%), all four shareholders would be considered UBOs due to their ownership interest exceeding 25%.
The UBO register mandates the disclosure of specific information about each UBO, such as their name, month and year of birth, nationality, country of residence, and the nature and extent of their beneficial interest. However, the detailed beneficial interest information is only accessible to competent authorities and obligated entities under the Anti-Money Laundering and Anti-Terrorist Financing Act.
Failure to comply with the Dutch UBO registration requirements can result in penalties, including fines and imprisonment. Therefore, Dutch companies and legal entities must fully comply with these obligations.
The U.S. has historically had less stringent UBO rules and regulations, but this changed with the passage of the Corporate Transparency Act (CTA) in 2021. The CTA requires corporations, limited liability companies, and similar entities to report specific information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN).
The reported information includes name, date of birth, address, and identification number (from a passport or driver’s license, for example). The threshold to qualify as a UBO under the CTA is substantial control or ownership of 25% or more of the entity.
The country follows the definition of Ultimate Beneficial Owner (UBO) as outlined in the Guidance on Anti-Money Laundering issued by the People’s Bank of China. According to this guidance, a UBO in China refers to an individual who ultimately owns or controls a customer or is involved in a transaction on behalf of someone else. It also includes individuals who exercise ultimate effective control over a legal entity or arrangement. The ownership threshold is set at 25%.
An OECD report on UBO disclosure in China revealed that a high percentage of sampled companies, precisely 95%, disclosed information about the Ultimate Beneficial Owner in their annual reports. Similarly, 95% of these companies described the UBO. However, only 80% of the information was accessible, and there was no personalized disclosure available.
In contrast, the disclosure of UBO information on company websites in China was significantly lower. Only 10% of the sampled companies disclosed the UBO, and a mere 5% described the UBO. Additionally, there was no accessibility of the information or personalized disclosure on these websites.
The report also highlighted that although there are regulations in place that require shareholders to disclose substantial ownership of shares, these mandatory rules often fall short. They tend to encourage a minimal and legalistic approach to disclosure, which fails to achieve the intended regulatory objectives.
Ultimate Beneficial Ownership regulations are governed by the Companies Act of 2013. The Act mandates that shareholders without a beneficial interest in the shares must disclose their interest, and the company must file this with the Registrar of Companies.
Companies can hold shares in a subsidiary in the name of a nominee to meet the minimum member requirements for incorporation. Professionals like company secretaries, chartered accountants, cost accountants, or advocates verify the particulars of the subscribers and other provisions regarding incorporation.
Nominee shareholders must be natural persons, and their identity can be ascertained via the MCA21 registry if the entity holding beneficial interest is a company or LLP incorporated in India. These regulations regarding UBOs apply to various legal entities, including private and public companies, one-person companies, and limited liability partnerships.
In 2020, the United Arab Emirates (UAE) implemented new regulations regarding Ultimate Beneficial Ownership (UBO). These UBO rules and regulations apply to all companies incorporated in the UAE, except those operating within free zones. The UBO register is now mandatory for these companies and must contain information about the actual beneficiaries.
According to the regulations, a real beneficiary in the UAE is defined as an individual who owns or controls 25% plus one share of the company, or an individual who possesses the right to vote at the company’s general meetings. Furthermore, the UBO rules and regulations also require companies to disclose individuals who have the authority to appoint or dismiss the majority of the directors.
In summary, the UAE has introduced UBO rules and regulations that oblige companies, excluding those in free zones, to maintain a register of their actual beneficiaries. These beneficiaries include individuals with significant ownership or voting rights in the company and those with the power to appoint or dismiss the majority of the directors.
The Ultimate Beneficial Ownership or UBO rules and regulations are complex and varied, reflecting different regions’ unique legal and economic contexts. From the stringent standards set by the European Union and the recent reforms in the United States to the specific requirements in China, India, and the United Arab Emirates, understanding these regulations regarding UBO is crucial for businesses operating internationally.
The drive towards greater transparency in business ownership is a global trend aimed at combating financial crimes such as money laundering and terrorist financing. As these UBO regulations evolve, businesses must stay informed and ensure compliance to maintain their operations and reputation in the global market.
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