It’s time to streamline your UBO identification process. Here’s why

Obligations

The Netherlands introduced the UBO register as part of its commitment to fighting money laundering and financing for terrorism under the EU Anti-Money Laundering (AML) Directives. Among other requirements, it stipulates that financial institutions must take client due diligence measures. This takes the form of a request to fill out US FATCA and other documents. These contain a section in which the beneficial owner (“UBO”) should be identified and verified. This section also provides information about the ownership and control structure of the client.

As the definition of “UBO” is central to legislation on anti-money laundering and the prevention of terrorism financing, this will become increasingly relevant to companies that conduct business in the European Union. There are three categories of a UBO for corporate entities. A UBO is a natural person who:

1. holds, directly or indirectly, more than 25% of the shares or voting rights, or;
2. is, directly or indirectly, entitled to more than 25% of the benefits (ownership interest) of the entity, or;
3. has control over the entity.

Each person who falls within one of these categories is considered to be a UBO. This means that a corporate entity can have more than one UBO.  Identifying who falls into the first two categories is relatively easy as this is based on legal documents, such as shareholder registers, articles of association and organisational charts. The third category, however, is more difficult to determine.

Where the challenges arise

Experience shows that the obligation to identify the UBO is the most time-consuming part of the process. This is mainly due to the UBO definition. First, the Anti-Money Laundering Directive IV does not give an objective definition of a UBO. This is because article 3(6) of the AMLD IV uses the words “at least” in its definition. Therefore, even if a natural person does not meet the criteria of “over 25%”, this natural person may still be regarded as UBO. Secondly, EU member countries and institutions are free to lower the percentage of shares or voting rights that could indicate ownership. This leads to the situation that no two UBO identification and verification requests are the same. And in addition to this, the requirement under the AMLD IV to identify at least one UBO led to the introduction of a so-called “pseudo-UBO”. This means that if a corporate entity is unable to identify a UBO, it is required to designate a senior managing official as a pseudo-UBO.

A cost-efficient solution

Experience is increasingly confirming that the investigation to declare the UBO, filling out the necessary FATCA forms for incoming requests and drafting templates for outgoing requests, are an administrative burden. This then reduces the time available to you to focus on advisory tasks.

One way to reduce this burden is to place the process in the hands of a specialist party. We can advise on applying the UBO definition and provide information on how countries in the European Union implement and establish their UBO registers. Our solution starts from just €750 per month, depending on your ongoing monthly needs, and gives you the security of knowing your UBO compliance process is in experienced hands. For more information, please contact Morad Kada or Luc van Daele: