Businesses have identities that hold significant shares in the assets and a high percentage of voting rights. Such people could be beneficiaries, directors, or shareholders of the firm. The UBO Beneficial Owner of the company is a person or group that is behind the company’s formation and holds over 25% of the company’s shares. While establishing financial relations, a business must consider identifying the UBO of its onboarding company. It is rather challenging to determine the UBO in the case of multi-tiered companies; still, the unidentified one has specific financial risks. Thus, it is crucial to check UBO in a partner company as it is possible to make both healthy financial bonds by investigating UBO.
What is a UBO Beneficial Owner?
The definition of UBO beneficial owner identification largely depends on the country’s jurisdiction in which the company is located. The UBO owns a significant stake in the company, and this percentage may differ by country. The primary characteristics of the UBO involve the fact that this legal entity possesses a large percentage of shares and rights and, therefore, plays a crucial role in the company’s functioning. If the UBO is involved in money laundering, corruption, terrorist financing, bribery, and other related crimes, it is exposed to risks for partner companies. Also, the international regulating bodies require businesses to submit their beneficial ownership BOI disclosure. This is because BOI reporting is one way of moving forward as far as legitimization of operations in the business world is concerned.
UBO Beneficial Owner Verification
When creating business relations, it is crucial to determine the partner’s company’s UBO. The significance of this factor stems from the requirements set by the EU’s Fourth Anti-Money-Laundering Directive. The identification of UBOs contributes to the prevention and identification of possible risks. The UBO beneficial owner verification consists of the following steps:
- The first process of the ultimate beneficial owner UBO verification is to collect the details of the UBO, specifically the name of the person, his physical address, and a contact number to reach him, as well as photocopies of the passport ID or driving license of the ultimate beneficial owner.
- These documents include proof of residential address, a register of directors and shareholders, a shareholders agreement, financial statements, bank statements, and tax returns to verify the financial standing of the UBO.
- All the documents are collected and cross-checked against government and respective regulatory databases.
- Perform a background check on the company, with the intention of identifying if the company has been involved in any form of black money dealings and in any kind of fraud.
- There is also the need to continuously evaluate the company’s activity and identify the changes in the ultimate beneficial owner status.
UBO Compliance and Shell Companies
Shell companies have a policy of not recording the identity of the ultimate beneficial owners for tax evasion. Thus, an investigator does not detect the money trail through a shell company, and there are high risks of financial fraud. Verifying the UBO beneficial owner is unavoidable when onboarding the shell company. The corporation must learn about UBO verification as part of risk and threat detection and management in the financial system.
AML Screening
Evaluating the problem of money laundering poses great threats both to the revenues and market position of any company. This is important for partner companies as suspicious activities, including money laundering, severely affect their financing. So, the implementation of the anti-money laundering AML check over UBO at the company’s onboarding is vitally important. AML checks to ensure that UBO is in adherence to the laws to avoid fines, sanctions, and other sentences.
UBO Background Check
The final part of the verification process is to apply background checks to the UBO beneficial owner to identify and verify him. This helps assess all the fraudsters, criminals, and PEPs who might disguise themselves as UBOs. Corruption and money laundering are criminal and risky factors in which company ownership may be involved.
Moreover, the UBO checks not only reduce the financing of a company but also secure its reputation. when an organization is involved in money laundering, it leads the partner company to be penalized, receive fines amounting to millions of dollars, and fraud. However, UBO verification limits the financial risks and secures the company’s position.
Final Thoughts
While establishing the legal relationships between the company and its partners, the identification of the UBO beneficial owner is necessary. UBO verification is significant in validating the authenticity of the business through information gathering and screening. UBO checks help assess the company financing and risk detection. They are carried out over the UBO to determine risks related to the entity and its legal status. When it comes to onboarding a company, the performance of a UBO verification ensures long-term business relationships with clients.
