Ever increasing regulations now demand that firms know who really owns and controls a company. In this article, find out why beneficial ownership really matters, and how compliance teams can get ahead of the game.
Assessing beneficial ownership isn’t like looking for a needle in a haystack, it’s like looking for a needle in a pile of other needles. Tracing beneficial ownership to owners—especially outside the UK—is often difficult in practice, not least due to the different national disclosure requirements, statuses of beneficial ownership registers and access levels within the European Union (EU) itself – despite a push to a single view of truth.
So, what is beneficial ownership? Why does it matter? And why do compliance teams need to sit up and take notice?
Let’s start at the beginning. A beneficial owner is an individual who ultimately owns or controls more than 25% of a company’s shares or voting rights, or who otherwise exercises control over the company or its management. Where such an interest is held through a trust, the trustee(s) or anyone who controls the trust will be registered as the beneficial owner(s).
The 25% threshold has long been the standard, but regulators and organisations are now considering lower thresholds for higher risk situations, with some suggesting levels as low as 15%, or 10% or even 5%.
Not everyone wants to be identified as the beneficial owner. Many criminals will deliberately use the opacity of corporate vehicles to hide their identity, the true purpose of the account and the source or use of funds or property associated with the corporate vehicle.
That might be for tax avoidance purposes. It might be to prevent authorities from tracking the proceeds of individual or corporate crime, such as money-laundering or bribery and corruption. Or it might even be done with the aim of pulling a cloak over state-sponsored terrorism activities. Whatever the reason, many individuals, corporates and other business entities are capitalising on the traditionally lax rules governing beneficial ownership for ill-gain.
A recent Europol report on threatening criminal networks states:
"86% of criminal networks make use of legal business structures/entities, and these are key to laundering money."
Do worldwide authorities have a grip on the issue?
Global authorities are fighting back. For example, the Financial Action Task Force (FATF), an international body that sets standards for anti-money laundering and counter-terrorist financing, has issued guidance for countries on beneficial ownership and for regulated entities on implementing a risk-based approach toward handling customers.
The FATF recommendations provide measures that address the transparency and beneficial ownership of legal persons, and it adds a series of recommendations that countries should adopt to prevent the misuse of legal persons from being misused for criminal purposes. These recommendations include:
- Assessing the risks associated with legal persons and legal arrangements
- Making legal persons and legal arrangements sufficiently transparent, and
- Ensuring that accurate and up-to-date basic and beneficial ownership information is available to competent authorities in a timely fashion.
Alongside this, the 4th EU Money Laundering Directive published in 2015 aimed to crack down on money laundering, tax evasion, and terrorist financing by making beneficial ownership a key provision of concern to corporates. Member states were required to implement the Directive in June 2017. The subsequent 5th Money Laundering Directive expanded on these measures by establishing requirements for public beneficial ownership registers.
However, this transparency is fragile, as demonstrated by the European Court of Justice ruling that public access to these registers is invalid.
Thus, the recent AML package (6AMLD) has shifted back towards stricter access controls and proof of legitimate interest.
This introduces practical issues for people trying to establish ownership as each country may now have different access controls and mechanisms to get their data.
Once in the register, the information may appear in various formats, languages, character sets, and even as hard copies (i.e. PDFs).
These data challenges can make it hard to understand data lineage, timeliness and accuracy, as well as automation and efficient processing of the data.
All this is before we have touched on off shore tax havens etc., of which criminals are very quick to exploit.
How can the right beneficial ownership data build resilience and drive efficiency?
Businesses need to ensure they understand new risks as soon as they arise. This need has become more prominent following the Russian invasion of Ukraine, which resulted in a raft of restrictive measures and sanctions.
There are two main methods of obtaining and maintain this information on owners:
Manual collection and periodic review
Automated processes
The manual approach typically cannot scale or respond to risks quickly, as information is updated periodically, often every 1, 3, or even 5 years.
In contrast, the automated approach can streamline this process and respond to changes as they occur, allowing your teams to focus only where necessary and avoiding costly periodic review exercises only to find there has been no material change to risk.
So, what action can you take? Ideally, you want to deploy a solution that enables your organisation to reach its core data assets relating to global share ownership and significant control quickly and efficiently. A solution that enables you to get to the ‘holy grail’ of beneficial ownership and control structures first time, more often and more quickly.
This is why it makes sense to use analysis and research tools to establish those links before you ‘deep dive’ into information on those businesses and people during the onboarding phase. This saves you time and money and potentially reduces the number of entities you then have to screen. For example, it enables you to:
Visualise corporate ownership structures, including ownership of 0.01% or more.
Source and maintain complete details of ownership, including the type of shares and percentages.
Understand the structure of stock exchange-listed or regulated companies and their subsidiaries.
Identify state or government-owned entities.
With the right systems and processes in place, you can identify that needle among the other needles, meet the compliance regulations surrounding transparency and onboard/manage client relationships more successfully.
How can Dun & Bradstreet Help?
D&B Ultimate Beneficial Ownership (UBO) ingests data from multiple sources, and handling translation, standardisation, and formatting to deliver comprehensive insights into your clients’ and third parties’ beneficial owners, and control, and ownership structures. This information comes from the world’s most comprehensive and trusted source of commercial data.
It further provides a people-centric lens for efficient due diligence – enabling you to identify individuals with multiple roles and ownerships within your customer or supplier network.
All this in an interactive visual graph structure.
UBO Monitoring from Dun & Bradstreet allows clients to efficiently monitor their entire network in near real-time, with automatic change alerts.
Our Beneficial Ownership data is available through our powerful solutions such as D&B Onboard and D&B Risk Analytics. Alternatively, you can get access to the same information via API integration, allowing you to bring D&B Beneficial Ownership data into your existing network.
D&B Risk Analytics Compliance Intelligence. By defining your policy in our highly configurable risk engine, you can automate your onboarding, accelerate your due diligence workflows, and focus on what really matters. This enables you to increase your compliance effectiveness while reducing your costs and workload. It’s also the foundation for always-on compliance monitoring and Perpetual KYC. We combine our unrivalled ability to identify Ultimate Beneficial Ownership (UBO)– with over 2800 watch lists and sanction lists worldwide – so can you gain deeper insight and the ability to proactively mitigate risk. But don’t take our word for it, try it for yourself. Register below to see the latest possibilities whether you are taking your first steps or your next steps towards compliance automation.