Identifying the Ultimate Beneficial Owner (UBO) is fundamental for transparency and security in business operations, as well as for preventing financial crimes such as money laundering and terrorist financing. In this article, we will cover:

• What is an Ultimate Beneficial Owner (UBO)?
• How ownership and control-based identification is performed;
• Why it’s essential to understand the entire shareholder structure;
• Examples of direct and indirect control;
• Key challenges and best practices.

What is an Ultimate Beneficial Owner (UBO)?

An Ultimate Beneficial Owner (UBO) is the individual or individuals who ultimately own or control a legal entity. Identifying the UBO is mandatory to ensure transparency and mitigate financial risks related to corruption, money laundering, or tax evasion.

Ownership-Based Identification

The most commonly used criterion for identifying a UBO is direct or indirect ownership of more than 25% of the entity’s capital. This threshold may be lower for certain high-risk clients or due to regulatory requirements in different jurisdictions.

Example: Direct Ownership: Ivan Ivanov owns 30% of the capital of Alpha Ltd. He is a beneficial owner through direct capital ownership. Indirect Ownership: Maria Petrova owns 100% of Beta Ltd., which in turn holds 40% of the capital of Gamma PLC. In this case, Maria Petrova is an indirect beneficial owner of Gamma PLC.

Control-Based Identification

In cases where ownership is below 25%, the obligated entity must identify the UBO through control.

Control can be established through:

• Voting rights and strategic decision-making;
• Appointment or dismissal of governing bodies;
• Control via contractual relationships or other agreements.

Example: Direct Control: Georgi Georgiev is a CEO with authority to make strategic decisions, despite owning only 10% of shares. He is the beneficial owner through direct control. Indirect Control: Anna Dimitrova has no direct shares but has decisive voting power over strategic decisions and the appointment of directors and managers through contractual agreements. She is considered a beneficial owner through indirect control.

Why is understanding the entire shareholder structure important?

A complete understanding of the shareholder structure is essential to identify all levels of ownership and control. This is particularly important in complex corporate structures involving holdings, trusts, offshore companies, or other intricate arrangements.

Benefits of a clear shareholder structure:

• Prevents anonymity, thus reducing money laundering risks;
• Facilitates compliance checks and regulatory adherence;
• Reduces reputational risks and improves trust among partners and clients.

Key challenges in identifying UBOs:

• Opaque structures with multiple ownership layers;
• Offshore companies and jurisdictions with low transparency;
• Lack of clearly defined criteria for control;
• Attempts to conceal beneficial ownership through intermediaries.

Best practices in identifying UBOs:

• Applying a Risk-Based Approach (RBA);
• Enhanced verification and documentation for high-risk clients and structures;
• Utilizing additional verification sources such as public registries and databases.

How Compliance Navi Can Help?

At Compliance Navi, we specialize in identifying beneficial owners, including:

• Analyzing complex corporate structures;
• Preparing and implementing internal rules and procedures;
• Conducting specialized training;
• Providing practical tools and templates for your AML/KYC teams.

Contact us today – turn regulatory requirements into your competitive advantage.