Beneficial Owner
A beneficial owner is the real person who ultimately owns, controls or receives profits from a company or transaction, even if their name is not listed in official records as the legal owner.
Legal entities typically have multiple beneficial owners, often spread across different other legal entities and even jurisdictions. Properly establishing who the beneficial owners are is an essential part of KYB as it ensures financial institutions aren’t unknowingly taking part in money laundering, the financing of terrorism, or similar crimes.
Ultimate Beneficial Owner (UBO)
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Examples
As part of KYB, the bank must identify and verify the beneficial owners who own or control more than 25% of the client company. This can include shareholders, the board of directors but also other legal entities. In this case, said legal entities will also be examined and its beneficial owners will be taken into account.
All identified beneficial owners will then go through the KYC process. This is to check whether they are on any watchlists or otherwise present a higher risk to the bank. For example, if they’re a Politically Exposed Person or if they are affected by sanctions. Based on the results, the bank will assign a risk rating to the business. In accordance with that rating, the bank will perform Simplified, Standard, or Enhanced Due Diligence or refuse the relationship altogether.
FAQ
What is the difference between legal owners and beneficial owners?
Legal owners are the direct holders of an asset, while beneficial owners ultimately control or benefit from the asset.
How far down an ownership chain must banks look to identify UBOs?
Regulations often require identifying natural persons with 25%+ ownership/control, necessitating looking through complex structures.
What challenges do complex ownership structures pose for UBO identification?
Complex, cross-border ownership webs can obscure ultimate beneficiaries, requiring significant unraveling work by compliance teams.
