AML compliance requirements are constantly changing. Firms must keep up with the ever changing regulatory landscape.
One expectation in the AML industry is that all firms must know who they are doing business with by establishing the identity of the Ultimate Beneficial Owner of a given transaction.
What is Ultimate Beneficial Ownership?
Ultimate Beneficial Owner (UBO) is the person who ultimately owns a legal entity or legal person during a transaction. An Ultimate Beneficial Owner of a legal entity or person could be:
- Anyone that has direct/indirect control of the account holder
- Power of Attorney
- Guardian for minors
The EU’s Fourth Anti-Money Laundering Directive (MLD4) also substantially addresses ultimate beneficial ownership. Under MLD4, ownership or control of more than 25% of the shares or voting rights in a legal entity assumes ultimate beneficial ownership. MLD4 also allows for senior managing officials to be treated as beneficial owners in cases where the above criteria cannot be determined. Additionally, MLD4 stipulates that EU countries require entities in their jurisdiction to keep 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.
The following data points can be used in determining beneficial ownership:
- 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
- Assessing ownership via top down or bottom up approaches
- Varying definitions of ownership
5AMLD builds on those steps, introducing the following measures:
- UBO lists (drawn up under 4AMLD) are to be made publicly accessible within 18 months of 5AMLD’s implementation date.
- 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 are to 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 will not be publicly available and only accessible by authorities.