A Guide to Anti-Money Laundering for Crypto Firms

Ultimate Beneficial Owner (UBO)

AML Compliance Knowledge & Training

What are Ultimate Beneficial Owners (UBO)?

In a constantly changing regulatory landscape, firms must ensure they know who they are doing business with by establishing the identities of their customers. With that in mind, financial regulators require firms to establish an ultimate beneficial owner (UBO) in transactions with customer-entities.

What is a UBO?

The Ultimate Beneficial Owner refers to the person (or persons) who ultimately benefits from a given financial transaction. While it may be straightforward to identify individual customers as the beneficiaries of transactions, UBOs may not be immediately identifiable because they are concealing their identities, or hidden by corporate infrastructure.

The Financial Action Task Force (FATF) defines UBO as “the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.” FATF sets out guidance for establishing beneficial owners, which may be identified as:

  • Persons that own at least 25% of share capital
  • Persons that exercise at least 25% of voting rights
  • Beneficiaries of at least 25% of an entity’s capital
  • Persons with power of attorney
  • Guardians of minors
  • Corporate directors or nominee directors that are appointed to conceal the true owners of a given firm
  • Shareholders, including the holders of bearer shares that may be transferred anonymously  

Why is Ultimate Beneficial Ownership Important?

When criminals launder illegal funds, they may seek to avoid AML measures by concealing their identities. In some cases, criminals conduct transactions using proxies or corporate entities such as shell companies.

While shell companies may be formed for legitimate reasons, they are frequently misused by criminals to hide illegal funds and facilitate access to legitimate financial systems. In the United States, around $70 billion per year is lost through shell company-related money laundering and, in 2020, the US senate passed the Anti-Money Laundering Act which banned anonymous shell companies, and introduced requirements for firms to report their beneficial owners to the government.

By investigating ultimate beneficial ownership, firms can address the risks posed by shell companies and other money laundering methodologies, ensuring that they are not dealing with criminals that are misusing corporate infrastructure to conceal their identities.

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Beneficial Ownership and EU Anti-Money Laundering Directives

The EU’s recent anti-money laundering directives (AMLD) include ultimate beneficial ownership regulations.

Ultimate Beneficial Owner and 4AMLD

Implemented on June 26th 2017, the EU’s Fourth Anti-Money Laundering Directive (4AMLD) substantially addressed ultimate beneficial ownership with the following regulatory measures:

  • Under 4AMLD, ownership or control of more than 25% of the shares or voting rights in a legal entity confers ultimate beneficial ownership status.
  • 4AMLD allows for senior management officials to be treated as beneficial owners in cases where the above criteria cannot be determined. 
  • 4AMLD stipulates that EU countries must require entities within their jurisdiction to keep UBO lists, containing up-to-date ownership information in a central registry that is accessible to authorities, obliged entities, and public persons with a legitimate interest, such as journalists or NGOs.

Under 4AMLD, firms should may the following data points, processes, and resources to establish an ultimate beneficial owner:

  • Shareholdings and subsidiaries
  • Direct and indirect ownership
  • Ultimate owner – actual and perceived, independent of the company
  • Corporate group – all companies with the same ultimate owner as the subject company
  • Company tree diagrams
  • Beneficial ownership vs. perceived ownership
  • Ownership assessments conducted from top down or bottom up approaches
  • Varying definitions of ownership

Ultimate Beneficial Owner and 5AMLD

The Fifth Anti-Money Laundering Directive (5AMLD) was implemented on January 10th, 2020, and built on 4AMLD with the following UBO regulations: 

  • UBO lists (drawn up under 4AMLD) must be made publicly accessible.
  • Trusts (or any similar arrangement) must observe beneficial ownership regulations and, like companies, must make that information available to authorities or others demonstrating legitimate interest.
  • UBO national registers must be inter-connected at an EU level in order to facilitate cooperation and the exchange of information between member-state authorities.
  • Member states must strengthen their UBO verification mechanisms to ensure the information they carry is accurate and reliable.
  • Member states must introduce separate UBO registers for bank accounts. Unlike company UBO registers, these lists are not publicly available and are only accessible by authorities.

How to Establish UBO

Firms should establish an ultimate beneficial owner by deploying suitable Know Your Customer (KYC) measures as part of their AML/CFT solutions. In practice this should involve:

  • Customer due diligence: Firms should seek to collect identifying information about their customers, including the names and addresses of company directors, and company incorporation information.
  • AML transaction monitoring: Firms may be able to identify shell companies by monitoring their transactions, and being vigilant for unusual transaction patterns, or transactions involving high risk countries.
  • Sanctions screening: Customers that are subject to international sanctions may seek to use shell companies to access financial services. Accordingly, firms should screen high risk customers against the relevant sanctions lists.
  • PEP screening: Politically exposed persons (PEP), such as government officials or politicians, present an elevated AML risk, and may seek to use shell companies to conceal their identities. Firms should screen their customers to establish their PEP status.
  • Adverse media: News stories may indicate that customers are involved in UBO-related money laundering offences before official sources reveal the same information. Firms should implement negative news screening on an ongoing basis for adverse news stories that involve their customers.

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What are Ultimate Beneficial Owners (UBO)?

In a constantly changing regulatory landscape, firms must ensure they know who they are doing business with by establishing the identities of their customers. With that in mind, financial regulators require firms to establish an ultimate beneficial owner (UBO) in transactions with customer-entities.

What is a UBO?

The Ultimate Beneficial Owner refers to the person (or persons) who ultimately benefits from a given financial transaction. While it may be straightforward to identify individual customers as the beneficiaries of transactions, UBOs may not be immediately identifiable because they are concealing their identities, or hidden by corporate infrastructure. The Financial Action Task Force (FATF) defines UBO as “the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.” FATF sets out guidance for establishing beneficial owners, which may be identified as:
  • Persons that own at least 25% of share capital
  • Persons that exercise at least 25% of voting rights
  • Beneficiaries of at least 25% of an entity’s capital
  • Persons with power of attorney
  • Guardians of minors
  • Corporate directors or nominee directors that are appointed to conceal the true owners of a given firm
  • Shareholders, including the holders of bearer shares that may be transferred anonymously  

Why is Ultimate Beneficial Ownership Important?

When criminals launder illegal funds, they may seek to avoid AML measures by concealing their identities. In some cases, criminals conduct transactions using proxies or corporate entities such as shell companies. While shell companies may be formed for legitimate reasons, they are frequently misused by criminals to hide illegal funds and facilitate access to legitimate financial systems. In the United States, around $70 billion per year is lost through shell company-related money laundering and, in 2020, the US senate passed the Anti-Money Laundering Act which banned anonymous shell companies, and introduced requirements for firms to report their beneficial owners to the government. By investigating ultimate beneficial ownership, firms can address the risks posed by shell companies and other money laundering methodologies, ensuring that they are not dealing with criminals that are misusing corporate infrastructure to conceal their identities. [cta_card title="Download Our Free Customer Screening Report" cta_img="60240" category="" bodytext="Discover how your business can balance the opposing forces of the friction of effective screening and good customer experience." cta_text="Download Report" cta_url="https://complyadvantage.com/insights/customer-screening-report/"]

Beneficial Ownership and EU Anti-Money Laundering Directives

The EU’s recent anti-money laundering directives (AMLD) include ultimate beneficial ownership regulations.

Ultimate Beneficial Owner and 4AMLD

Implemented on June 26th 2017, the EU’s Fourth Anti-Money Laundering Directive (4AMLD) substantially addressed ultimate beneficial ownership with the following regulatory measures:
  • Under 4AMLD, ownership or control of more than 25% of the shares or voting rights in a legal entity confers ultimate beneficial ownership status.
  • 4AMLD allows for senior management officials to be treated as beneficial owners in cases where the above criteria cannot be determined. 
  • 4AMLD stipulates that EU countries must require entities within their jurisdiction to keep UBO lists, containing up-to-date ownership information in a central registry that is accessible to authorities, obliged entities, and public persons with a legitimate interest, such as journalists or NGOs.
Under 4AMLD, firms should may the following data points, processes, and resources to establish an ultimate beneficial owner:
  • Shareholdings and subsidiaries
  • Direct and indirect ownership
  • Ultimate owner - actual and perceived, independent of the company
  • Corporate group - all companies with the same ultimate owner as the subject company
  • Company tree diagrams
  • Beneficial ownership vs. perceived ownership
  • Ownership assessments conducted from top down or bottom up approaches
  • Varying definitions of ownership

Ultimate Beneficial Owner and 5AMLD

The Fifth Anti-Money Laundering Directive (5AMLD) was implemented on January 10th, 2020, and built on 4AMLD with the following UBO regulations: 
  • UBO lists (drawn up under 4AMLD) must be made publicly accessible.
  • Trusts (or any similar arrangement) must observe beneficial ownership regulations and, like companies, must make that information available to authorities or others demonstrating legitimate interest.
  • UBO national registers must be inter-connected at an EU level in order to facilitate cooperation and the exchange of information between member-state authorities.
  • Member states must strengthen their UBO verification mechanisms to ensure the information they carry is accurate and reliable.
  • Member states must introduce separate UBO registers for bank accounts. Unlike company UBO registers, these lists are not publicly available and are only accessible by authorities.

How to Establish UBO

Firms should establish an ultimate beneficial owner by deploying suitable Know Your Customer (KYC) measures as part of their AML/CFT solutions. In practice this should involve:
  • Customer due diligence: Firms should seek to collect identifying information about their customers, including the names and addresses of company directors, and company incorporation information.
  • AML transaction monitoring: Firms may be able to identify shell companies by monitoring their transactions, and being vigilant for unusual transaction patterns, or transactions involving high risk countries.
  • Sanctions screening: Customers that are subject to international sanctions may seek to use shell companies to access financial services. Accordingly, firms should screen high risk customers against the relevant sanctions lists.
  • PEP screening: Politically exposed persons (PEP), such as government officials or politicians, present an elevated AML risk, and may seek to use shell companies to conceal their identities. Firms should screen their customers to establish their PEP status.
  • Adverse media: News stories may indicate that customers are involved in UBO-related money laundering offences before official sources reveal the same information. Firms should implement negative news screening on an ongoing basis for adverse news stories that involve their customers.
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Originally published April 4, 2015, updated September 1, 2022

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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