Business owners have the responsibility to stay away from companies involved in money laundering, financial crimes, and other illegal activities. But are you taking these inquiring steps seriously to prevent these issues?
UBO identification (Ultimate Beneficial Owner) is the identification of the person who owns a certain part of the business either directly or indirectly. Without UBO checks, your firm can be linked with unauthorized or illegal companies.
By acknowledging the concept of UBO identification, businesses can be well equipped to operate complex business ownership and verify the organization compiles with legitimacy.
Understanding UBO Identification
Ultimate Beneficial Owners, also called UBOs, are legal personnel who have a significant stake in the company or on whose behalf the business is conducted. UBO identification verifies the ultimate beneficial owners to detect any fraudulent activity involved with it. According to jurisdiction, UBO identity can be defined as if they own at least 25% percent of shares including voting rights. However, the rules of UBO individuals vary from country to country. Sometimes it can be possible that a person controls the business shares but in return, doesn’t receive any benefits, in that case, it would not be declared as UBO identity.
Why UBO Identification is Important?
UBO identification checks play a vital role in safeguarding the global economy by understanding the true structure of legal entities and authorities with efficiency. Every business has to consider this essential step, even if it is not required to complete all of the UBO steps. Still, it would always be the company’s priority to identify the people behind the corporation.
Money Laundering Preventions
Criminals always use complex financial and UBO structures to make them mysterious and not understandable. UBO identification of all the shareholders separately will expose all the hidden owners and minimize money laundering operations.
By UBO identification, ensuring the complete details of the company’s UBO tax obligation and overall individual responsibilities toward tax liabilities can be very beneficial. This will show the authenticity and legitimacy of the business as well.
Criminals and illegal persons often look towards corporate entities to conceal their banned activities. In this regard, UBO identification is very beneficial to expose these entities that exploit the legal rules and destroy other organizations.
What are the Challenges in UBO identification?
Checking legal ownership identities is not a piece of cake. These illegal identities mostly create problems in terms of financial institutions and make KYB verification more challenging. Here are some common complexities organizations face while doing UBO identification:
Multiple Ownership Layers
The identification becomes challenging due to the multiple layers of ownership in a business. A company is owned by another company, which is in return owned by another (shell company), and so on. Also, some are entitled to own a company through a series of trusts, foundations, etc.
Sometimes, there are no public locations of an office, and maybe the business is registered in different jurisdictions. This makes it even more difficult to separately identify beneficial owners and analyze their business structure while maintaining the national and global compliance requirements.
Lack of Transparency
In this case, there are too many difficulties and impossibilities in gathering accurate and up-to-date information about the business. Companies are not properly registered or may not be available publicly which makes verification more complex.
How to Verify the UBOs Effectively?
This multi-process involves various steps to make it successful.
- The first thing is to understand the overall ownership structure of the specific business and verify all of the shareholders or partners involved in the organization directly or indirectly. Make sure this information is authentic or up-to-date.
- After analyzing, scanning relevant and official documents is the essential step. Shareholders involved, trusts, foundation agreements, ownership percentages, and voting rights will provide valuable information about the organization.
- Conduct due diligence on the business, owners, or any third party involved and detect any red flags that require more investigation.
- Once UBO is verified, investigate the owners separately and through official resources such as government identification, passports, and licenses.
- Also, conduct AML and KYB checks and verify the business against sanctions lists, PEP lists, and other crime databases.
- The whole process should be monitored on an ongoing basis to ensure accuracy and maintain efficiency.
Understanding the importance of UBO identification is important. Companies can reduce the risk of fraudulent activities and financial crimes while maintaining business reputation penalty consequences, and financial terrorism.
it will be determined clearly about the organization and type of sector to collaborate with and enhance the overall verification process. In order to maintain transparency between the organization it is important to verify the ultimate beneficial owners as it identifies the potential risks involved in it or prevents the cooperating companies with money laundering and terrorist financing etc.