In the fight against financial crime, many governments have come together to create policies that would enforce transparency between business relationships and transactions. A crucial step to achieving transparency is clear visibility regarding beneficial ownership. Knowing the person(s) with the most influence over a business's direction is an important indicator of whether that company operates legally.
For example, if
these individuals are associated with criminal groups or have a criminal past,
they will likely use the company as a tool to conduct more illegal activities.
Financial institutions need to know this information so they can minimise the
risk of partnering with businesses that intend to use their accounts to
facilitate money laundering or other crimes.
For beneficial ownership to be genuinely transparent, it requires having all the correct, verified, and usable data. The Beneficial Ownership Rule ensures that companies follow proper procedures when collecting the information they need for the prevention of financial crimes.
Below we discuss the best practices you need to know to correctly follow the
guidelines set out by the Ultimate Beneficial Ownership regulations.
What is the Beneficial Ownership Rule?
Also known as Ultimate Beneficial Ownership (UBO), this rule was created by the Financial Crimes Enforcement Network (FinCEN) to help authorities prevent crimes like tax evasion and money laundering.
The UBO rule makes it compulsory for all financial entities (mainly
banks) to create and implement policies regarding the identification of an
organisation's beneficial owner(s). Specifically, it makes it mandatory for all
firms to collect specific information on the beneficial owners of a company
each time that the company opens a new bank account.
When is Beneficial Ownership information required?
Generally, UBO data is necessary:
1.
Each time a business opens an
account.
2.
After making changes to an
organisation's beneficial ownership.
3.
When your bank requests it.
How is a Beneficial Owner Defined?
According to FinCEN if an individual holds 25%
or more equity interest in the legal entity (directly or indirectly), then
they’re considered to be a UBO. However, each institution has the power to have
a stricter or tighter equity threshold to define a UBO. For example, some banks
may choose to characterise a UBO as someone who has as little as 10% equity
interest in a company.
The challenges of obtaining beneficial ownership information
According to an evaluation conducted by the
Financial Action Task Force (FATF), there are six common challenges that
organisations face when collecting beneficial ownership information:
1. Risk assessment
There is not a standardised definition of
risk, which makes risk assessment very difficult. Risk assessment becomes
difficult because of the following discrepancies between businesses:
- Not all organisations include
every type of ownership in their assessments;
- Business leaders do not always understand
the potential risks;
- Evaluations sometimes focus
only on domestic threats and vulnerabilities.
UBO data is not always accurate and up-to-date
because all jurisdictions use different methods of collection, monitoring,
storage, and verification. Following UBO protocols becomes even more
challenging due to intricate ownership structures and restricted information
when foreign ownership was involved.
3. Access by competent authorities
Due to inadequate procedures, competent
authorities cannot always promptly access beneficial ownership information. The
slow access is due to multiple obstacles like: data protection and privacy laws;
no information sharing between regulators; absence of a registration/licensing
mechanism; and limited resources.
4. Bearer shares and nominee shareholder
arrangements
Often, accurate ownership data cannot be
accessed when it is hidden behind nominee shareholders.
5. Fines and sanctions
Beneficial ownership reporting failures
continue to be a recurring occurrence because of the number and amount of fines
which are not enough to discourage them.
6. International co-operation
Due to inadequate processes for monitoring
the quality of assistance received from other countries, multiple agencies
being involved, languages and methods used, international coordination becomes
difficult.
Proposed Solutions
As a result of its investigation, the FATF
has proposed a multi-pronged approach that would allow entities to follow UBO
procedures more effectively.
Its recommendations are as follows:
·
Risk assessment: each country
should assign a dedicated agent that will be responsible for analysing all
risks. Their responsibilities would include monitoring for trending patterns
regarding money laundering and terrorism financing (ML/TF) among criminal
organisations, revising applicable court cases, assessing the experience of the
authorities, and reviewing suspicious transactions.
·
Accuracy and timeliness of beneficial
ownership information:
- Select a gatekeeper to verify and keep the accuracy of the
information.
- Verify accuracy by cross-referencing data against other
platforms/databases.
- Make it compulsory for legal persons to update beneficial ownership
data to the reporting entities or company registry.
- Implementing advanced procedures for companies that have foreign
ownership/directorship.
- Creating a specialised task force that has all the necessary
resources.
- Utilising technology in data verification.
- Implementing a global policy that ensures that competent authorities
have direct access to UBO data.
- Banning the use of bearer shares and nominee arrangements.
- Revising sanctions for incompliance, so they are more effective,
proportionate, and dissuasive.
Cedar Rose Makes Beneficial Ownership Effortless
Cedar Rose is a business intelligence
expert with over 20 years’ experience. Our meticulous investigative team can
help protect your company from associating with criminals linked to terrorism
or money laundering. We offer multiple due diligence investigation services to
Know Your Customer (KYC) and Know Your Business (KYB) which have global coverage
and are verified and compliant with international financial regulations.
Below we describe just three of the
services we provide that are crucial to Ultimate Beneficial Ownership
protocols.
Directorships & Shareholdings Investigation on an Individual
This investigation identifies business
connections, traces assets and analyses your business associate's networks,
providing you with the results through a Directorship & Shareholding
Report. This report is the ideal way to find all individuals associated with a
company through a director/registered officer, owner, or shareholder position.
Criminal Records Check on an Individual
Through this investigation, you can confirm that your potential client's beneficial owners do not have a criminal record or known associations with criminal groups. We conduct this investigation using the local language to ensure that we identify the correct individuals.
Furthermore,
searches are carried out in all of the applicable jurisdictions with strict
adherence to compliance guidelines to remove any chances of bribery or
corruption. In this way, our clients can remain confident that in contracting
Cedar Rose for their due diligence investigations, they will be compliant too.
Customer Due Diligence Report on an Individual
This report is a thorough investigative
survey of a person's business relationship and operating networks. Through this
investigation, our clients receive insights into an individual's connections,
uncovering whether they are legal, credible or unsavoury entities that their
customer may even be unaware of their existence.
Customer Due Diligence includes retrieval
of official corporate information, in-depth compliance screening by our skilled
multilingual analysts, potential visits to official registries and courthouses
in multiple jurisdictions and scanning of official gazettes and media
publications and extensive research.
For more information on our KYC Due
Diligence services, click here or
for KYB here.
Or speak with one of our team members at (+357) 25 346630.