By UBO is an acronym for “Ultimate Beneficial Ownership.” UBO means the person or organization that is the ultimate beneficiary of the company. FATF defines this right as follows; “Real persons who ultimately own or control a customer or the real person on whose behalf the transaction is made.”
FATF focuses on two UBO types focused on “ultimate ownership” and “ultimate effective control”. The definition also covers beneficiaries under the insurance policy. The beneficial owner thus; may be the legal owner of the person or organization you do business with.
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Whom Does the UBO Compliance Act Apply to?
- Banks
- Insurance Companies
- Intermediary Institutions
- Investment Companies
- Money Transfer Companies
- Payment Services
- Gambling and Gaming Companies
- Online Marketplaces and
- Real Estate Companies.
It is compulsory to apply the UBO law by regulated institutions. Companies that do not enforce the law can face high fines and loss of reputation.
Why Are UBO Controls Necessary?
Financial institutions need to know with whom they do their business. However, they are expected to comply with the requirements within the scope of KYB (Know Your Business). This enables ownership structure and business relationships to be determined.
Financial institutions make millions of money transfers every day. Companies that purchase large volumes, such as real estate companies, create an environment for fraud and crime. Fraudsters now operate with fake IDs and wrong addresses, making them very difficult to detect. Such crimes make the need for UBO legislation explicitly visible around the world.
UBO and 4AMLD
Final usufruct ownership is mentioned in the Fourth Anti-Money Laundering Directive of the EU. Ownership of more than 25% of the shares or voting rights in a legal entity in MLD4 becomes the final beneficial owner. However, in the directive, it is also allowed to treat senior executives as beneficiaries of privilege. The MLD4 requires EU countries to maintain a central register that organizations can access within their jurisdiction and public officials with legitimate interests, such as liable legal persons.
UBO and 5AMLD
UBO Controls were mentioned in the 5th Anti-Money Laundering Directive published by the EU. According to the Directive, UBO national registers will be linked to ensure cooperation between member state officials. Also, member states have to keep separate UBO records for their bank accounts, and, unlike company records, they will not be open to the public.