The Central Bank of Nigeria recently released a memo containing Guidance on Ultimate Beneficial Ownership of Legal Persons and Legal Arrangements to guide financial institutions in implementing measures for Anti-Money Laundering (AML), Combating the Financing of Terrorism (CFT) and Countering Proliferation Financing of Weapons of Mass Destruction (CPF) compliance regulations.
The objective of this guidance is to assist FIs in identifying and verifying the beneficial owners of legal persons and legal arrangements in line with existing AML/CFT/CPF laws and regulations.
This guidance is not exhaustive and will be amended as necessary. Therefore, it should be read and applied in line with the relevant provisions of extant laws and regulations on AML/CFT and CPF.
An Overview of Money Laundering in Corporate Entities
Today, there is a growing rise in the use of corporate vehicles such as shell companies, trusts, foundations and other legal entities/ arrangements by criminals to cover up crime proceeds. This has led to the Financial Action Task Force (FATF) demanding that countries ensure that adequate, accurate, and timely information on beneficial ownership is made available to keep corporate entities in the financial sector from being abused by criminals.
Essentially, it is now mandatory for legal entities to identify and verify ultimate beneficial owners and ensure that such information is accessible and available in a timely manner to relevant authorities.
Who is a Beneficial Owner?
Beneficial owner (BO) refers to the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or legal arrangement.
In line with FATF, consideration must be given to the natural person(s) who have ultimate (actual) ownership and control over the corporate vehicle, not necessarily the legal owner, or the person(s) entitled on paper to do so, but a natural person(s) who exert effective control over the corporate vehicle, or on whose behalf the transaction is being conducted
How is Beneficial Ownership Determined?
Although there are several procedures and documents businesses must go through to determine beneficial ownership, we have summarized it as the person:
1. Who ultimately owns - holds at least 5% of the issued shares in the legal person either directly or indirectly;
2. Controls a customer and/or the natural person (but not limited to) who:
- Exercises at least 5% of the voting rights in the legal person either directly or indirectly;
- Holds a right directly or indirectly, to appoint or remove the majority of the directors or similar positions of the legal person;
3. On whose behalf a transaction is being conducted; and/or
4. Who exercises ultimate effective control over a legal person or legal arrangement - exercise significant influence or control, directly or indirectly, over the legal person.
Financial institutions are expected to rely on the following source documents when determining ultimate beneficial ownership:
- Certificate of incorporation
- Particulars of shareholders
- Memorandum and Articles of Association (MEMART)
- Minutes of meetings
- Resolutions
- Partnership agreements
- Annual returns/financial statements
- Bye-laws
- Constitutions
- Charters
- Trust deeds and trust registration documents
Kindly refer to the full memo for the complete criteria as stipulated by the CBN (find the link at the end of article).
Why & How do Ultimate Beneficial Owners Mask their Involvement?
Ultimate Beneficial owners mask their involvement in business entities for several reasons. More often than not, it is in a bid to perpetuate a criminal act. This way, they can, for example, launder money through the corporate infrastructure without linking it to them personally.
Some of the ways they mask their involvement include:
1. Nominee Directors or Shareholders:
Some individuals use nominee directors or shareholders who hold shares or act as directors on their behalf. These nominees give the appearance of being the UBO, while the true owner remains concealed. However, such practices are often illegal and can result in severe penalties.
2. Offshore Companies and Trusts:
Setting up companies or trusts in offshore jurisdictions can provide anonymity to some extent, as these jurisdictions may have lax regulations or secrecy laws. However, international efforts to combat money laundering and tax evasion have significantly reduced the effectiveness of this method.
3. Complex Ownership Structures:
By creating intricate ownership structures involving multiple layers of companies, trusts, or other entities, individuals may attempt to obscure their true ownership. These structures can make it difficult for authorities to trace the ultimate ownership, but they are subject to scrutiny, and beneficial ownership transparency requirements are becoming more stringent.
4. Using Legal Entities:
Some individuals exploit legal entities, such as foundations or charities, to hold assets or shares on their behalf. This approach can provide a layer of anonymity, but it is subject to regulatory oversight, and misuse can result in legal consequences.
5. False Documentation or Identity Theft:
In more extreme cases, individuals may resort to falsifying documents or stealing identities to conceal their ownership. These methods are highly illegal and can lead to severe criminal penalties.
How Can Financial Institutions Comply Without Breaking a Sweat?
The memo directs all financial institutions to identify and verify the ultimate owners of every legal individual or entity it deals with. This means that before establishing any legal relationship, a business needs to investigate and discover the real owners of the legal entity to achieve AML/ CFT compliance.
To achieve compliance, organisations need to leverage global compliance technology. A company like Youverify, builds global compliance products for businesses and with our KYC solution, businesses can easily identifiy and verify the identities of Ultimate Beneficial Owners, directors, shareholders, and affiliated legal entities of any business anywhere in the world. All these can be achieved in seconds at the click of a button.
The process is also automatable, meaning that organisations can customise their KYC onboarding process using our workflow builder. With this solution, businesses with suspicious UBOs are immediately spotted during onboarding, helping the organisation make an informed decision.
See how 100+ leading companies use Youverify for Ultimate Beneficial Ownership (UBO) identification and verification for compliance and real-time risk detection. Request a demo today.
You can read up on the complete CBN UBO Press release.