No matter where you do business, getting UBO compliance wrong is incredibly costly. Six figure fines are the norm across Europe, and in Germany, financial services firms risk a fine of up to £4.2m for UBO verification failings. UBO verification is a necessary part of the due diligence process. Indeed, it helps avoid the risk of fraud and money laundering. Identifying UBOs ensures companies aren’t funding illegal activities.
Learn how to perform the verification process, and how you can work with Trustpair to continuously monitor any data changes. Request a demo to learn more!
What is an Ultimate Beneficial Owner?
An Ultimate Beneficial Owner (UBO) is the person who truly benefits from the decisions of a company, selling of an asset or another transaction, even if they are not listed as the legal owner on paper. They may directly or indirectly control the decisions associated with a company, or receive the income generated by a transaction.
Depending on the location, a person is considered a UBO if:
- They’re a beneficiary of at least 25% of the capital of the legal entity
- They hold a minimum of 25% stake in the capital of the legal entity
- They possess at least 25% voting rights in the general assembly
Learn the differences between a beneficial owner and the ultimate beneficial owner in this article.
UBOs have legal requirements to identify themselves when they interact with regulated financial entities. Identifying ownership is required as part of any new account opening activities as part of regulations, under Know Your Customer (KYC) and Know Your Business (KYB) procedures.
Yet, sometimes individuals don’t identify themselves, or companies try to disguise their real UBO. Typically, this happens when their transactions involve funds generated from crime, for use of money laundering, or when individuals want to hide their identity (again, usually due to criminal backgrounds or illegal associations).
For example, if the UBO of a business has previously been convicted with invoice fraud, they may try to hide their identity when applying to become a new vendor. Fortunately, a business’ due diligence process should include UBO verification to properly identify and validate the identities of individual and corporate UBOs. This aids institutions with internal control, risk management and regulatory compliance.
Why is UBO verification important?
UBO verification is important for compliance with regulations, but it’s also important to remember that the rules exist for a reason. Ownership verification can save your company from scandal, mistrust and reputational damage, just like Danske Bank experienced.
Danske Bank failed to verify UBOs
In 2017, Danske Bank was found to have failed in completing any identification and UBO checks at their small Estonian branch between 2007 and 2015, leading to non-compliance penalties.
Around 200 billion euros worth of transactions were made without these checks, many of which were deemed suspicious. That’s because once this verification loophole spread, fraudsters, criminals and those wishing to privatize their financial habits flocked to the branch.
The consequences were vast:
- €2 billion settlement in acceptance of regulatory wrongdoings
- CEO fired
- Ten employees arrested
What is the global regulation for UBO verification?
Globally, anti-money laundering (AML) checks exist to verify an individual’s identity and associations, alongside whether they are a UBO. They’re typically performed by entities at the beginning of a new transactional relationship, like when an individual tries to open a bank account, or when a business onboards a new supplier.
AML due diligence involves the initial identification and verification, where UBO checks are required, a risk assessment, and ongoing monitoring for key changes or suspicious activity.
These UBO checks include Know Your Business (KYC):
- independent verification of business identity (is it: in existence? In use? Properly registered? With offices the expected location? With transparent structures?)
- details on UBO are compared with the official register
KYB checks are typically performed with technology which compares live selfies against ID documents (using optical character recognition OCR technology). They’re also cross-referenced against a number of other AML measures:
- PEPs lists: Politically Exposed Persons who are at higher risk of being blackmailed due to the nature of their position (which means that they would not ultimately benefit from any business or financial decisions made, the fraudsters would)
- Sanctions databases: check whether the corporate has previously been sanctioned for any reason, or whether it exists or has customers in a country that has been deemed high-risk (typically for terrorist financing)
- Adverse media checks: comb through the digital world to ensure that the risk of reputational damage is low
How to conduct a UBO verification?
We’ve got an entire guide to identifying Ultimate Beneficial Owners, but if you’re short on time, here’s the step-by-step guide on UBO verification:
- Gather information and documents from the source first: if a company won’t provide their UBO information, it’s a red flag
- Validate the information against the UBO register, external documents, global databases and sources
- Perform AML and KYB checks
- Cross references against PEPs and sanctions lists Investigate any mismatched or suspicious findings
- Complete the appropriate record-keeping requirements
- Perform ongoing monitoring to identify and track changes
Fortunately, Trustpair can offer a helping hand. With best-in-class fraud protection, we provide solutions for automated account validation, bank account ownership verification and ongoing vendor monitoring. For 100% reliability in your account validation, choose Trustpair.
Handling the UBO verification process
Verifying Ultimate Beneficial Owners is an important part of any due diligence process when opening new customer accounts or onboarding new vendors. It requires a combination of identity verification, anti money-laundering and Know Your Business checks. For help with UBO verification, you can count on Trustpair to reliably identify, validate and flag the data.
