Learning about organizational hierarchy and pinpointing individual consumers could take time and effort. However, companies in today’s technological environment need to avoid fraud effectively and follow the law. Therefore, for financial institutions to comply with AML and CTF regulations, they require enterprise-wide solid procedures for UBO identification.
Recently, companies operating with little oversight have become criminal organizations’ targets. Significant sanctions and serious consequences exist for companies that transact with banned or fraudulent partners. Therefore, KYB verification is crucial for financial institutions intent on combating money laundering.
Let’s discuss the process of UBO Verification.
UBO Verification – A Quick Overview
UBO verification of a company or other legal entity is crucial. However, this procedure could assist in preventing criminal activities like money laundering and funding for terrorist groups.
Financial Action Task Force (FATF) uses legal, regulatory, and operational tools to tackle money laundering and other financial issues. Any unnatural person or group that engages in banking transactions or has financial assets is considered a “legal entity” under its rules.
When there is only one owner and manager, identifying a UBO is simple. However, under complex ownership structures, a UBO may be any entity having a controlling position or benefiting from the company’s activity. Therefore, UBOs may include trust administrators, beneficiaries, and anybody controlling a trust.
To fully integrate KYB procedures in business operations, UBO verification is required. When people are familiar with the rules and regulations of a company, they are less likely to use it as a cover for illegal activity. Businesses can only work with trustworthy individuals when they research the people behind a firm.
What is the Procedure for UBO Verification?
There are four stages to the UBO verification process.
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legal entity Verification
Current register number, name, address, official status, and senior management personnel information are needed to validate a company’s authenticity and records. Depending on local laws and fraud prevention measures, the specifics of the requested data may change.
UBO verification requires the following data in most cases:
- Registration No.
- Initial Form of Address
- Top-Level Executives and Staff
Credible sources such as documentation, data, or both must verify the information presented.
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Analyzing the Ownership Chain
When searching for a business’s direct or indirect owners, documents or registry data can help reduce the list of potential individuals. If many legal entities hold shares at different stages, the whole chain of ownership must be traced down to the ultimate natural owners.
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Singling out the Ultimate Beneficiary
The percentage of shares, ownership stake, or indirect control of each individual should be calculated to determine if they meet the criteria of UBO verification.
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Conduct a Thorough KYC Check
The following are the comprehensive KYB Checks that are necessary for UBO verification.
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KYC, Customer Due Diligence, and UBOs
For UBO verification, businesses should use know your customer practices. Collecting, verifying, and monitoring client data is known as Customer Due Diligence (CDD). Established UBOs should be monitored using Enhanced Due Diligence (EDD) in case it turns out that they are high-risk clients.
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Sanctions, PEPs, and Adverse Media Screening
Companies must additionally use Anti-Money Laundering (AML) screening to check consumers for sanctions (UN, EU, etc.), PEP lists, unfavorable media, etc. Customer monitoring should continue after onboarding if they are on a sanctions list.
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Ongoing Monitoring
Due diligence on customers must be ongoing because their profiles could shift over time. A UBO may undergo any number of sanctions, engage in high-risk activities, or alter their details.
European Union Regulation for UBO Screening
When the EU’s 4th Anti-Money Laundering Directive (4AMLD) went into effect, it mandated that all member states establish public registers for beneficial owners. Therefore, businesses must disclose information about their UBOs, and regulated institutions must conduct due diligence on UBOs before engaging in business with them.
The 5AMLD stringent regulations on UBO verification became law in 2020. The public must have access to the lists of ultimate beneficial owners, while authorities must have access to trust information. The greater transparency of businesses was another goal of the order.
Final Thoughts
UBO verification is an instance that requires a comprehensive strategy. Clients with large workloads, expenditures, and complexity necessitate business identity verification in accordance with other AML compliance norms. As a result, it is crucial if a company wants to avoid the potential consequences of failing to comply.
