While countries have their own rules regarding customer due diligence, many follow the standards set by the international Financial Action Task Force. For a financial institution, the process of how to identify an ultimate beneficial owner – or even minor beneficial owners – generally looks like this:
Step 1: Obtain essential information on assets
Beneficial owners control or benefit from assets such as companies, properties, trusts, securities, funds, and so on. So the first step is to gather key information on those assets.
These could include the names, addresses, registration numbers, and legal statuses of relevant businesses and properties. It can also include the names and addresses of anyone on a company’s board of directors, or anyone involved in a trust – trustors, trustees, and (if possible) beneficiaries.
Step 2: Identify an asset’s ownership structure and proportions
Businesses and other assets may use positions, terms, and systems such as “nominees,” “corporate directors,” or “bearer shareholders” to obfuscate who really owns them. Keep in mind the general criteria for beneficial owners – capital share, management voting rights, and profit share – when reviewing information about an asset to determine who directly and indirectly owns it. Then find out how ownership of the asset is divided up among those people or groups.
Step 3: Verify which stakeholders qualify as beneficial owners
Generally, someone who holds at least 25% of the capital stake, voting powers, and/or profit rights for an asset is considered a beneficial owner (or ultimate beneficial owner, if their ownership share is among the highest for that asset).
However, that threshold may vary based on jurisdiction (sometimes as low as 10% or even 5%), so make sure to check a country’s specific legislation when making a list of beneficial owners of an asset.
Step 4: Conduct AML/KYC checks on anyone identified as a BO/UBO
Anyone who meets the criteria for a beneficial owner or ultimate beneficial owner for an asset should be subjected to KYC/AML screening.
This helps to verify a beneficial owner is a real person who is accurately representing themselves. It also checks if that person is conducting legitimate business, including getting their funds from non-criminal sources.
FAQs
A beneficial owner is someone who owns at least part of a property or other asset, even if its legal title is owned by someone else. That person can also vote on or otherwise influence decisions regarding transactions involving that asset or property. An example is a corporate shareholder.
What is the identity of the beneficial owner? ›
The term “beneficial owner” refers to the person to whom the deposited assets can be economically ascribed. The beneficial owner does not necessarily have to have bank power of attorney/signing authority for the business relationship.
How can beneficial owners be identified and verified? ›
You can find and identify the Ultimate Beneficial Owner by doing proper due diligence, including getting hold of the paperwork and researching the chain of ownership. Once you have confirmed a UBO, it's important to perform background checks on them to ensure they are the type of person you want to work with.
What are the two prongs for identifying a beneficial owner? ›
What constitutes beneficial ownership? The U.S. government regulation defines “beneficial ownership' as being made up of two prongs (1) Ownership Prong and (2) Control Prong. A beneficial owner is an individual, if any, who, directly or indirectly, owns 25% or more of the equity interest of a legal entity customer.
Who is considered a beneficial owner? ›
A beneficial owner is a person who enjoys the benefits of ownership though the property's title is in another name. Beneficial ownership is distinguished from legal ownership, though in most cases, the legal and beneficial owners are one and the same.
Why is it important to identify a beneficial owner? ›
Understanding who ultimately has control of your customer plays an important role in detecting, disrupting and preventing money laundering and terrorism financing. It can also protect your business or organisation from being exploited for other forms of criminal activity.
What are the criteria for beneficial owner? ›
A beneficial owner is always a natural person who ultimately owns or controls a company. 9. Section 60A of the CA 2016 defines a beneficial owner as 'a natural person who ultimately owns or controls over a company and includes a person who exercises ultimate effective control over a company.
Who is the Ultimate Beneficial Owner identity? ›
The definition of who constitutes a UBO varies between jurisdiction, but generally a UBO is defined as an individual who holds a minimum of 10-25% (dependent on jurisdiction) of capital or voting rights in the underlying entity.
For which entity must you identify the beneficial owner? ›
A bank must establish and maintain written risk-based procedures for verifying the identity of each beneficial owner of a legal entity customer within a reasonable period of time after the account is opened.
What are the characteristics of beneficial owner? ›
A beneficial owner is thus always a natural person who has a control ownership interest in a legal entity and/or has the ability to otherwise exercise control over it.
Beneficial owners are always natural persons who ultimately own or control a legal entity or arrangement, such as a company, a trust, a foundation, etc.
What must a record of identification for a beneficial owner include? ›
Date of birth. Social Security Number (as applicable) The name of the issuing state or country. Passport or driver's license number for the Beneficial Owners and Control Person as applicable.
Which one is the best option to describe beneficial owner? ›
The Financial Action Task Force (FATF) defines an Ultimate Beneficial Owner (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.
What is the final rule of beneficial ownership? ›
The final rule permits covered financial institutions to use BOI to comply with anti-money laundering and U.S. economic sanctions requirements, more generally.
What are the rules for beneficial owners? ›
The principle of beneficial ownership of shares has its origin in Section 90 of the Companies Act, 2013. Section 90 seeks to render that one or more qualified persons may be appointed by the Central Government to investigate and report on beneficial ownership in respect of any shares or class of shares.
How do you identify an UBO? ›
To identify a UBO, companies need to implement KYB (Know Your Business) and KYC (Know Your Customer) processes, which includes establishing a proper Customer Due Diligence (CDD) procedure. This is the process of collecting, verifying, and monitoring information provided by customers.
