Why understanding UBOs is critical

Knowing who the ultimate beneficial owner (UBO) of an entity is before engaging in any type of business deal, is a critical task that is often overlooked.

This is particularly true in today’s increasingly stringent regulatory environment, in which organisations are increasingly expected to understand who they are doing business with to help fight fraud.

So says Jason Shedden, Chief Operating Officer at Contactable, a company that specialises in biometric and digital identity proofing, adding that this is why identifying the UBO is a critical part of the Anti-Money Laundering (AML) and Know Your Customer (KYC) processes.

Historically, verifying UBO details as part of a KYC check has been conducted by compliance teams at financial institutions, but today, as complexity is increasing so such teams are becoming more and more admin intensive which comes at a very real cost.

He says UBO has become a compliance task that extends past simply reporting the required UBO details on paper and filing it as one would in a simple check box exercise. Instead, UBO administration can have critical implications to a corporate’s bottom line, and the failure to provide and verify UBO data in a compliant manner could compromise all parties involved.

The government is looking at UBO’s as the next key angle to clamp down on or try and better regulate to combat anti-money laundering behavior.

According to Shedden, usually a UBO is defined as a person that directly or indirectly controls, has ownership of, or has voting rights to a certain percentage of a business, and therefore has a significant control in, and influence over, the company. The individual who has UBO status must have the standard threshold of a 25% share in the legal person capital, and at least 25% voting right in the general assembly. In addition, the UBO can supervise company operations, control the executive board, and even fire board members if the need arises.

Understanding UBOs is particularly critical in a world where regulatory trends are increasingly stressing the need for corporate transparency. A failure to identify a UBO could result in the business processing transactions that contravene domestic and international laws put in place to fight fraud, money laundering, illegal financing, and other acts of malfeasance.

Shedden says it’s important to remember that institutions that do not have a handle on proper UBO administration may unwittingly cooperate with criminals or fraudsters and endanger their company’s future.

“This is why UBO checks must be performed quickly and effectively. Besides manual controls, all these operations can be more easily achieved through machine learning applied on top of clients existing screening systems. You can protect your company against loss of reputation and other significant fall outs simply by efficiently performing UBO administration that has a clear and concise process to demonstrate that due care was taken during the assessment.”

UBO can be an intense topic or a simple topic, and Shedden believes it’s important to realise there are challenges coming down the line.  Just as with POPI and all its legal journeys and struggles, so too has the UBO journey begun. The government is looking at UBO’s as the next key angle to clamp down on or try and better regulate to combat anti-money laundering behavior. The obligation to act quickly and act early as well as to understand UBO has become important to everyone and not just the elite few.

On a simple level, he says this new wave of compliance pressure is coming, and companies are either on board, or they’re not, and the latter will need to scramble to the finish line to try and provide the products and solutions to do this. “It’s coming, like POPI. It might be the noise in the background right now, but one day businesses will quickly find themselves either left behind, or at the head of the curve.”

Main photo: Stevepb, Pixabay