Online fraud is something that has been surrounding businesses for ages. Being the epidemic, criminal threats such as fraudulent corporate partnerships, identity theft, illicit monetary gains, and others have infected almost every industry from finance to retail. Furthermore, the shift of businesses to a more digital sphere is leaving gaps in their security protocols.
With Ultimate Beneficial Ownership (UBO) regulations getting more complicated and transparency lessening, businesses are moving towards the integration of automated fraud prevention tools. Furthermore, The use of KYB verification helps industries counter cybersecurity threats, identify shareholders, validate partnership intentions, authenticate beneficiaries of profit, and reduce compliance risks.
This article further outlines KYB regulations for businesses regarding UBO identification and how automated know your business services help them stay compliant.
A Brief Overview of the Ultimate Beneficial owner (UBO) Concept
UBO identification is a core component of the wider know your business concept. It aids in determining the legitimacy of firms entering partnerships along with their internal structures. Furthermore, UBO checks identify individuals that are partially or completely linked to firms’ profits. The reason for deploying KYB verification is that these personnels can be fraudsters looking forward to concealing the proceeds of crimes. Moreover, They invest their dirty money in the form of shares, investments, or stakes.
When UBOs receive profits it is the conversion of their dirty money into clean funds. Therefore, businesses require robust KYB checks to identify UBOs and strengthen their compliance positions. Being a strict regulatory obligation, companies should be aware of who is receiving the profits. Hence, business verification solutions enable them to conduct thorough identity verification of UBOs across financial databases, sanctions, watchlists, and other such mediums to ensure they are not being a part of illicit activities.
KYB Regulations and UBOs Identification Requirements Across the Globe
UBOs either own or massively control companies by investing a fair share of money. However, high-profile criminals and risk-possessed individuals see this as a golden chance to hide their dirty money. International business investment, corporate partnerships, and share purchases are some of the most prominent ways fraudsters deploy to exploit industries. Considering these adverse consequences, regulatory bodies are toughening UBO identification obligations.
Industries complying with the evolving KYB verification landscape can achieve compliance and security against fraudulent UBOs. Otherwise, they will face hefty penalties, financial fallout, and legal repercussions.
KYB regulations differ depending on jurisdiction and the level of fraud risks a country holds. Read on to learn more about diverse UBO identification requirements across different regions.
UBO Requirements within the US
UBO identification is a mandatory KYB verification obligation under the US’s Customer Due Diligence (CDD) final rule enforced by the Financial Crimes Enforcement Network (FinCEN) in May 2018. It rolls out explicit requirements for businesses to verify beneficial owners under certain exclusions and exemptions. Furthermore, industries should run thorough identity verification of legal entity customers to ensure secure corporate dealings.
According to the CDD final rule, legal entity customers can be business trusts, shareholders, limited liability companies, limited or general partners, and other corporations. It further defines UBOs as any individual owning 25% of the stakes in a company with significant control over its overall operations.
Apart from the requirements within CDD final rule, the US’s Corporate Transparency Act of December 2020 mandates companies to integrate business verification solutions. The reason behind this is that they could report complete information regarding UBOs accurately. Full name, date of birth, driver’s license, passport, residency address, business location, and financial records are some of the requirements.
European Union (EU)’s UBO Identification Obligations
Industries operating within or across the EU’s jurisdiction are bound to abide by its business verification regulations. They should verify UBOs while building corporate ties with commercial clients. In its 4AMLD, the EU first mentioned obligations regarding identification of beneficial owners. Considering the regulatory standards, Sweden passed legislation that mandates businesses should report UBOs to the Swedish Companies Registration Office.
- The Swedish Legislation
The Swedish UBO’s Legislation covers administering trusts, companies, and firms with similar legal structures. Beneficial owners refer to anyone who owns over 25% of the stake or holds power to direct almost half of the shareholders’ committee. The KYB verification legislation further obliges businesses to report changes in UBOs, suspicious transaction patterns, and other related issues timely.
- Anti-Money Laundering Directive (AMLDs)
With every new passing EU’s AMLD, the business verification requirements for UBO identification get tougher. In the fifth anti-money laundering directive, member states were mandated to set up corporate registers with complete information regarding UBOs. These databases should be accessible to trusts, companies, and every other firm.
According to the 6AMLD, inefficient KYB verification that leads to inaccurate UBO identification can expose company officials, employees, and other legal entities to criminal proceedings.
Concluding Remarks
Companies require automated KYB checks to identify UBOs and their background along with intentions regarding corporate partnerships. With regulatory bodies toughening legal obligations, industries should integrate know-your-business solutions to stay compliant. Hence, companies entering corporate partnerships can stay aware of who is getting the profits and prepare for evolving regulations on the horizon.