The regulations involved in the process of unraveling UBO are a patchwork of different rules and requirements. Some jurisdictions have stringent regulations requiring companies to disclose their UBOs, while others have more relaxed rules. For instance, the European Union’s Fourth Anti-Money Laundering Directive mandates companies to maintain accurate and up-to-date information about their UBOs. On the other hand, jurisdictions like the United States have historically had less stringent UBO disclosure requirements, although this is changing with the recent passage of the Corporate Transparency Act.
The concept of Ultimate Beneficial Ownership or unraveling UBO revolves around identifying the real person or people who effectively own or control more than 25% of a company’s shares or voting rights. Essentially, a UBO could be a person who enjoys the benefits of ownership directly or indirectly or someone who has substantial control over the corporate entity. This control might manifest in multiple ways, such as the power to appoint or remove senior officials or make strategic decisions. The UBO could also be a high-ranking executive, like a manager, chairman, or board member.
You may ask why 25%? The rationale for setting the 25% threshold aligns with global standards set by the Financial Action Task Force for “significant influence or control”. It reduces the burden on companies in terms of providing extensive details about minority shareholders. Moreover, anyone exercising significant influence or control must still be registered even if they own less than 25% of the shares.
Beneficial ownership information is a potent tool in the fight against corruption, money laundering, and tax evasion. It helps to peel back the layers of complex corporate structures, revealing the individuals who truly control and benefit from a legal entity. This transparency is vital in preventing these entities from being used as vehicles for illicit activities.
The mere use of beneficial ownership registers isn’t sufficient for firms to fulfill their obligation of identifying and verifying the ultimate beneficial owner. If the business relationship carries a heightened risk or there’s doubt about the person listed as the UBO in the register, firms may need to take extra steps for identification and verification.
Access to beneficial ownership registers varies across jurisdictions. In some countries, public access is available, but it may be limited to nationals or residents of that country. In others, access is restricted to certain competent authorities or entities with anti-money laundering obligations. The functionality of these registers and the ease of access to the data they contain can significantly influence their effectiveness and use.
The differences in UBO regulations across jurisdictions can lead to several complications for businesses. Here are a few key challenges:
Given these complications, navigating the UBO maze requires businesses to adopt a proactive approach to manage their UBO compliance. Here are a few strategies:
As the process of unraveling UBOs becomes increasingly complex, especially across various jurisdictions, technology is proving to be an indispensable tool. Automated solutions like the one offered by KYC Hub can significantly streamline the process. Through automation, AI, and machine learning, these technologies can help businesses to efficiently gather, verify, and analyze data, making UBO identification and verification more accurate, faster, and less prone to errors. In an era where compliance is not just mandatory but integral to a company’s credibility, embracing such technological solutions is no longer optional but a necessity.
With global trends shaping the dynamic nature of UBO compliance, the landscape of UBO analysis is set for significant transformations. Two key trends that are likely to shape the future of UBO analysis are the use of Artificial Intelligence (AI) and blockchain technology. These technologies promise to make the process of UBO identification and verification more efficient, accurate, and secure. While AI can automate and speed up the process, blockchain offers an immutable, transparent, and secure platform for recording and verifying transactions, which can be leveraged for UBO analysis.
The Financial Action Task Force (FATF) has been advocating for the establishment of public beneficial ownership registers globally. However, several countries have faced legal hurdles in implementing this specific measure.
The European Union Court of Justice ruled in favor of a group of politically exposed persons (PEPs) in Luxembourg who sought to have their names removed from the country’s public beneficial ownership registry. This registry was created in response to the Fifth Anti-Money Laundering Directive (5AMLD), which took effect in January 2020 and required EU nations to establish these registries.
However, the PEPs argued that their inclusion in this registry constituted a violation of their privacy and security rights. The court’s ruling supported their stance, overriding the 5AMLD. Consequently, several EU member states took steps to either limit public accessibility to their Ultimate Beneficial Owner (UBO) registers or suspend their operation completely.
Specialists in the fields of Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) have observed that this decision has caused a significant decrease in AML/CFT transparency. This lack of transparency, they argue, may make it easier for criminals to exploit corporate structures to conceal illegal activities.
In February 2023, South Africa landed on the Financial Action Task Force’s (FATF) Grey List because it needed to meet the FATF Recommendations’ anti-money laundering and counter-terrorist financing standards. To get off this list, the FATF has tasked the South African government with creating a register of Ultimate Beneficial Owners (UBO) in their domestic laws by January 2025.
To meet this requirement, South Africa’s Companies and Intellectual Property Commission (CIPC) is quickly updating its current laws to match the FATF’s standards. Rory Voller, the Commissioner of the CIPC, has stated that once the Anti-Money Laundering and Combating Terrorism Financing Amendment Act 22 of 2022 is updated, South Africa’s UBO register will be up and running.
These changes underscore the complexities and challenges of setting up UBO registers in different countries, highlighting the importance of understanding each jurisdiction’s unique legal and regulatory landscapes.
The Financial Action Task Force (FATF), an international organization that develops policies to combat money laundering and terrorism financing, offers valuable insights into beneficial ownership regulations. These rules are essential for promoting transparency and preventing the exploitation of legal entities for illegal purposes. Here are some important elements of these regulations that are relevant across various jurisdictions:
These guidelines from the FATF are recognized as the international standard for anti-money laundering (AML) and counter-terrorist financing (CFT), with the aim of promoting transparency and preventing the misuse of legal entities for money laundering or terrorist financing.
KYC Hub is committed to providing innovative solutions to help you unravel UBO complexities and efficiently manage UBO compliance using cutting-edge technology, like AI and blockchain. As the regulatory landscape continues to evolve, businesses must stay informed and proactive, leveraging technology and robust compliance programs for navigating the UBO maze effectively.
In this rapidly evolving regulatory environment, keeping up with UBO requirements can be a daunting task. However, with the right tools and expertise, it can become manageable and efficient. KYC Hub is committed to providing innovative solutions that leverage cutting-edge technology, like AI and blockchain, to help you navigate the complexities of UBO compliance.
Explore our offerings today and take a step toward more accurate, efficient, and transparent UBO analysis. Get in touch with us to stay ahead in your compliance journey
