How to Identify Beneficial Owners for AML Compliance

Identifying the ultimate essential for Anti Money Laundering (AML), Know Your Customer (KYC) and Know Your Business (KYB) compliance. This information is usually kept by the board of directors and updated and maintained by the enterprise. Before establishing a relationship with an entity, businesses are obligated to conduct all necessary measures within reason to identify the ultimate beneficial owners of that entity. 
 

However, some businesses still find it hard to carry out such obligations, especially for old corporations that were established when measures were not as extensive as they are today. This article discusses the important steps to carry out and other factors you need to take into consideration to effectively identify beneficial owners for AML/ KYC/ KYB compliance. 
 

Who is a Beneficial Owner?

A beneficial owner is the actual person that owns or controls a business or legal entity. Such individuals usually benefit the most financially from the business’s operations. Identifying the beneficial owner of a business is important to satisfy compliance requirements and understand the person you are dealing with. Establishing a business relationship with a money launderer or criminal could cause lots of reputation damage and fines from regulatory authorities as ignorance is not an excuse. 
 

KYC for Ultimate Beneficial Owner (UBOs)

Know Your Customer (KYC) is a legal obligation placed on businesses to perform identity verification and reasonable customer due diligence before onboarding. Although the exact laws differ from one jurisdiction to another, it generally involves gathering relevant data from the customer and verifying it to ensure legitimacy. 
 

Businesses are obliged to carry out KYC on beneficial owners to verify their identity. AML and politically exposed person (PEPs) checks should also be conducted. 
 

Who Qualifies as an Ultimate Beneficial Owner? 

Although the qualifications for being an ultimate beneficial owner vary depending on your jurisdiction, the U.S defines the following criteria as requirements for being a beneficial owner: 
 

“A natural person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise:

(i) Exercises substantial control over a corporation or limited liability company;

(ii) Owns 25% or more of the equity interests of a corporation or limited liability company; or

(iii) Receives substantial economic benefits from the assets of a corporation or limited liability company.”

Should AML Checks be Carried out For Ultimate Beneficial Owners?

Yes, businesses are obligated to carry out Anti Money Laundering checks on UBOs of legal entities before engaging them. These include screening for global watch lists, sanction lists, adverse media and PEPs.
 

Essentially, full corporate Know Your Business (KYB) action should be carried out on legal entities to vet their legitimacy before establishing a relationship. This way, shell companies and fraud corporate structures that aids the laundering of illicit funds can be exposed. 
 

Who Needs to Identify Beneficial Owners?

Generally, AML laws target financial institutions and their subsidiaries as well as businesses that operate in regulated industries. Examples include commercial banks, insurance companies, brokerages, investment companies and investment banks. 
 

However, note that each jurisdiction has its own specific requirements, therefore, you should check your local laws to see exactly what applies to you.
 

How to Identify Beneficial Owners for AML/ KYC Compliance

Follow the procedures below to identify beneficial owners for AML/ KYC and KYB compliance:

Step 1: Collect company data (business name, location, type/ industry, registration number and incorporation documents)
 

Step 2: Identify all individuals with significant ownership or control positions in the company. Monitor any subsequent changes.
 

Step 3: Collect and verify data of beneficial owners (name and title, address, date of birth, social security number, passport/ any government-issued ID or the document numbers)
 

Step 4: Access the risk they pose based on the data collected and verified and make an informed decision to establish a free, controlled or no relationship at all with the entity. 
 

What Fines are Attached to Not Identifying Beneficial Owners?

The penalty varies depending on the specific circumstances. Penalties in Europe may hit a maximum fine of €5 million or 10% of total annual revenue and in the US, it can range up to 30 years in jail and fines of $1 million per case.
 

Achieving Ultimate Beneficial Owner Compliance While Minimizing cost 

Without mincing words, identifying beneficial owners is a resource-intensive process and costs money. However, this is only so because many businesses still try to complete it manually, using their in-house compliance teams. The easiest and most cost-effective way to handle these complex compliance obligations is through digitisation.
 

Automated compliance workflow solutions like that of Youverifys’ help simplify the process and crash high costs. It also saves you a lot of time and ensures higher customer onboarding which improves day-to-day operations while minimising risk and maintaining compliance.
 

See how 100+ leading companies use Youverify cowork in identifying beneficial owners for compliance and real-time risk detection. Request a demo today.